[front cover] September 30, 1998
SEMIANNUAL REPORT
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AMERICAN CENTURY
[graphic of stairs]
BENHAM GROUP
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PREMIUM GOVERNMENT RESERVE
PREMIUM CAPITAL RESERVE
[american century logo(reg.sm)]
American
Century
[inside front cover]
A Note from the Founder
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On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in turn, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
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Why We Changed
We're trying hard to be reader-friendly. Our reports contain a lot of very good
information, from fund statistics and financials to Q&A's with fund managers. We
hope the new design will make the reports more interesting and understandable
while helping you keep abreast of your fund's strategy and performance.
What's New
The reports are designed to be attractive and easy to use whether you're reading
them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
THE BOTTOM LINE.
The new design actually costs slightly less than the old one. We reallocated
costs and eliminated a cover letter and the envelope that previously came with
your report enclosed. This not only saves money, but reduces the number of
mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative and user-friendly
publication.
We hope you enjoy it.
[left margin]
Benham Group
PREMIUM GOVERNMENT RESERVE
(TWPXX)
Benham Group
PREMIUM CAPITAL RESERVE
(TCRXX)
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
Our Message to You
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/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
Money market funds such as Premium Government Reserve and Premium Capital
Reserve reaffirmed their value during the six months ended September 30, 1998,
when global economic and financial conditions worsened. Stock markets worldwide
suffered sharp declines, while bonds produced positive returns and money market
funds continued to be a stable investment.
This unstable market environment illustrated the importance of a
diversified investment portfolio. Allocating your assets among stocks, bonds,
and money market funds can help weatherproof your portfolio against dramatic
changes in the economic or investment climate.
Amid the recent turbulence, Premium Government Reserve and Premium Capital
Reserve continued to perform well, providing relatively attractive yields and
returns.
In one respect, however, money market funds were affected by the market
turmoil. The volume of money pouring into money market securities drove down
yields. At the same time, the threat of global economic weakness caused interest
rates to decline. On September 29, the Federal Reserve acknowledged the global
slowdown and cut its bellwether federal funds rate for the first time in almost
three years. Two weeks later, the Fed cut the rate again, providing a
significant psychological boost to investors, as well as to the U.S. economy.
The rate cuts by the Fed and declining interest rates in general make it
likely that money market fund yields will trend downward in the coming months.
However, money fund yields should still keep pace or remain ahead of inflation
because the threat of an economic downturn is likely to hold inflation in check.
On the corporate front, we have a substantial effort underway to prepare
American Century's computer systems for the year 2000. Through the rest of 1998
and 1999, we will be extensively testing our systems, including those involved
with dividend payments.
Finally, we hope you like the new design of this report. It's intended to
make the important information you need about your fund easier to find and read.
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Chief Executive Officer
[right margin]
Table of Contents
Report Highlights
Services Update ........................................................ 3
PREMIUM GOVERNMENT RESERVE
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio Composition by
Security Type .......................................................... 5
Portfolio Composition by
Maturity ............................................................... 6
Schedule of Investments ................................................ 7
PREMIUM CAPITAL RESERVE
Performance Information ................................................ 9
Management Q&A ......................................................... 10
Portfolio Composition by
Security Type .......................................................... 10
Portfolio Composition by
Credit Rating .......................................................... 11
Schedule of Investments ................................................ 12
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ............................................................ 15
Statements of Operations ............................................... 16
Statements of Changes
in Net Assets .......................................................... 17
Notes to Financial
Statements ............................................................. 18
Financial Highlights ................................................... 20
OTHER INFORMATION
Retirement Account
Information ............................................................ 22
Background Information
Investment Philosophy
and Policies ........................................................ 23
Comparative Indices ................................................. 23
Lipper Rankings ..................................................... 23
Credit Rating
Guidelines .......................................................... 23
Investment Team
Leaders ............................................................. 23
Glossary ............................................................... 24
www.americancentury.com 1
Report Highlights
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PREMIUM GOVERNMENT RESERVE
* Premium Government Reserve performed well, providing investors with
attractive performance and stability amid volatility in global financial
markets.
* As the interest rate outlook changed, we repositioned the portfolio to lock
in relatively higher yields. We extended the fund's average maturity by
buying more longer-term government money market securities.
* Premium Government Reserve invested primarily in securities issued by the
Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National
Mortgage Association (FNMA, or Fannie Mae). The relatively large supply of
FHLMC and Fannie Mae paper helped keep their yields attractive.
* In anticipation of falling interest rates, we'll continue to keep the
portfolio's average maturity on the long side. We'll do our best to maintain
the fund's yield, but we expect Premium Government Reserve's yield to
decline as older, higher-yielding securities mature and we have to reinvest
at lower yields.
PREMIUM CAPITAL RESERVE
* Premium Capital Reserve performed well, providing investors with attractive
performance and stability amid volatility in global financial markets.
* The global economic turmoil had little direct effect on Premium Capital
Reserve, though heavy demand for relatively safe cash-equivalent investments
drove down yields on money market securities.
* As the interest rate outlook changed, we repositioned the portfolio to lock
in relatively higher yields. We extended the fund's average maturity by
buying longer-maturity securities, including high-quality commercial paper
(CP). CP didn't attract as much demand as Treasury bills, so yields on
commercial paper were relatively high.
* In anticipation of falling interest rates, we'll continue to keep the
portfolio's average maturity on the long side. We'll do our best to maintain
the fund's yield, but we expect Premium Capital Reserve's yield to decline
as older, higher-yielding securities mature.
[left margin]
PREMIUM GOVERNMENT RESERVE
(TWPXX)
TOTAL RETURNS: AS OF 9/30/98
6 Months 2.59%*
1 Year 5.25%
NET ASSETS: $76.0 million
7-DAY CURRENT YIELD: 5.14%
INCEPTION DATE: 4/1/93
PREMIUM CAPITAL RESERVE
(TCRXX)
TOTAL RETURNS: AS OF 9/30/98
6 Months 2.64%*
1 Year 5.38%
NET ASSETS: $213.1 million
7-DAY CURRENT YIELD: 5.19%
INCEPTION DATE: 4/1/93
* Not annualized.
See Total Returns on pages 4 and 9.
Investment terms are defined in the Glossary on page 24.
2 1-800-345-2021
Services Update
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We get many questions from money market investors about our services. Here
are answers to several frequently asked questions.
CAN I MAKE DIRECT DEPOSITS INTO MY MONEY MARKET FUND?
Yes. Give us a call, and we can send you the information you need to set up
direct deposit of your paycheck, Social Security check, Treasury Direct interest
payment, military allotment, or payments from other government agencies.
WHAT IS THE HOLDING PERIOD ON NEW DEPOSITS INTO MY ACCOUNT?
Generally there is an eight-business-day holding period for deposited funds
(initial investments in a new account are held for 15 calendar days). There is a
one-day holding period for U.S. Treasury checks, money orders, and travelers'
checks.
IS THERE AN EASY WAY TO MOVE MONEY FROM MY MONEY MARKET ACCOUNT INTO MY STOCK
AND BOND FUND ACCOUNTS ON A REGULAR BASIS, FOR DOLLAR-COST-AVERAGING PURPOSES?
Yes. Our "Automatic Exchange" plan allows regularly scheduled automatic
transfers from your American Century money market fund into any of your
variable-price American Century stock or bond funds. You can arrange for this
service with a phone call.
IS THERE A LIMIT TO THE NUMBER OF EXCHANGES I CAN MAKE OUT OF MY MONEY MARKET
FUND?
If you are exchanging from your money market fund into your bond or stock
fund, there is no limit. However, there is a limit of six exchanges per calendar
year out of your bond and stock funds.
Exchanges can be made by:
* calling an Investor Services Representative at 1-800-345-2021
* calling our Automated Information Line at 1-800-345-8765*
* writing us a letter
* visiting our Web site at www.americancentury.com*
IS THERE A FEE FOR WRITING CHECKS AGAINST MY MONEY MARKET FUND?
No. You can write as many checks as you like at no charge, as long as each
check is for $100 or more.
IF YOU HAVE ANY QUESTIONS ABOUT OUR SERVICES, CALL US TOLL FREE AT
1-800-345-2021 OR E-MAIL US AT OUR WEB SITE (WWW.AMERICANCENTURY.COM).
[right margin]
ACCESSING YOUR MONEY. . .
WE CAN SEND A CHECK DIRECTLY TO YOU AT YOUR ADDRESS OF RECORD. ALL YOU NEED TO
DO IS GIVE US A CALL OR WRITE US A LETTER REQUESTING THE CHECK. WE CAN ALSO MAKE
AUTOMATIC DEPOSITS FROM YOUR MONEY MARKET FUND TO YOUR BANK ACCOUNT.
* Requires shareholder authorization.
www.americancentury.com 3
Premium Government Reserve--Performance
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TOTAL RETURNS AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INCEPTION 4/1/93
PREMIUM GOVERNMENT 90-DAY TREASURY INST. U.S. GOV'T. MONEY MARKET FUNDS(2)
RESERVE BILL INDEX AVERAGE RETURN FUND'S RANKING
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<S> <C> <C> <C> <C>
6 MONTHS(1) .............. 2.59% 2.48% 2.62% --
1 YEAR ................... 5.25% 5.11% 5.32% 60 OUT OF 88
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AVERAGE ANNUAL RETURNS
3 YEARS .................. 5.20% 5.15% 5.27% 49 OUT OF 74
5 YEARS .................. 4.89% 4.96% 4.96% 37 OUT OF 52
LIFE OF FUND ............. 4.69% 4.81%(3) 4.79%(3) 35 OUT OF 47(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
(3) Since 4/30/93, the date nearest the fund's inception for which return data
are available.
See pages 23-24 for more information about returns, the comparative index, and
Lipper fund rankings.
PORTFOLIO AT A GLANCE
9/30/98 3/31/98
NUMBER OF SECURITIES 25 27
WEIGHTED AVERAGE
MATURITY 43 DAYS 49 DAYS
EXPENSE RATIO 0.45%* 0.45%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 1998
7-DAY CURRENT YIELD 5.14%
7-DAY EFFECTIVE YIELD 5.27%
Past performance does not guarantee future results.
Money market funds are neither insured nor guaranteed by the FDIC or any other
government agency.
Yields will fluctuate, and although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund.
4 1-800-345-2021
Premium Government Reserve--Q&A
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/photo of Amy O'Donnell/
An interview with Amy O'Donnell, a senior portfolio manager on the Premium
Government Reserve fund investment team.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1998?
Premium Government Reserve performed well, providing shareholders with
stability amid volatile global financial markets. For the six-month period, the
portfolio returned 2.59%, compared with the 2.62% average return of the 94
"Institutional U.S. Government Money Market Funds" tracked by Lipper Analytical
Services. (See the Total Returns table on the previous page for other fund
performance comparisons.)
But unlike most of the funds in its Lipper category, Premium Government
Reserve is not really an institutional fund; instead, it's intended for high
net-worth individual investors. Institutional funds typically have higher
minimum balances (often $1 million or more) and, more importantly, lower
expenses. Premium Government Reserve's higher expenses give it a disadvantage
against the institutional fund average.
However, Premium Government Reserve has lower expenses than the average
non-institutional government money market fund. As a result, the fund can offer
attractive yields to individuals able to meet its $100,000 minimum investment.
For example, according to IBC's Money Fund Report, the fund's seven-day
effective yield of 5.27% compared favorably with the 4.92% yield of the average
non-institutional "Taxable U.S. Government and Agency Money Fund" as of
September 29 (the date closest to the period end for which data are available).
YIELDS FOR MOST U.S. FIXED-INCOME SECURITIES FELL DURING THE PERIOD. WHY?
Weaker economic conditions, declining corporate earnings, and the absence
of inflation sent interest rates lower, causing the yields of fixed-income
securities to fall. Continued bad economic and financial news from Asia, Russia,
and Latin America ignited investor interest in U.S. government securities as a
safe haven from the problems facing stocks and corporate bonds. As the news from
Asia and emerging markets worsened, demand for U.S. fixed-income securities
surged.
Interest rate and yield declines were reinforced in September and October,
when the Federal Reserve lowered its federal funds rate from 5.5% to 5.0%. The
Fed cut rates to bolster a faltering financial services industry hit hard by
stock market losses and a U.S. economy that showed signs of catching the "Asian
flu."
GIVEN THIS ENVIRONMENT, WHAT FUND STRATEGIES DID YOU EMPLOY?
Although we managed the fund conservatively, we actively sought
opportunities to buy securities with relatively high yields. This meant watching
the market closely for supply and demand inequalities. For example, we'd invest
in agency securities during peak periods of issuance, when yields tended to be
higher.
[right margin]
"PREMIUM GOVERNMENT RESERVE PERFORMED WELL, PROVIDING SHAREHOLDERS WITH
STABILITY AMID VOLATILE GLOBAL FINANCIAL MARKETS."
[pie charts - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF SEPTEMBER 30, 1998
U.S. Gov't. Agency Discount Notes 60%
U.S. Gov't. Agency Securities 28%
Repurchase Agreements 12%
AS OF MARCH 31, 1998
U.S. Gov't. Agency Discount Notes 66%
U.S. Gov't. Agency Notes 30%
Repurchase Agreements 4%
Security types are defined on page 24.
www.americancentury.com 5
Premium Government Reserve--Q&A
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(Continued)
We were also successful at locking in higher yields by purchasing long-term
securities when yields were relatively high. For example, we extended Premium
Government Reserve's average maturity significantly during the summer, a
strategy that helped us maintain the fund's yield when interest rates fell.
CAN YOU ELABORATE ON THIS STRATEGY?
Back in March, the consensus was that the Fed would raise interest rates to
slow down the strong U.S. economy. By the summer, however, the problems in
Russia and Asia became more ominous, and the potential negative impact on the
U.S. economy convinced us that lower interest rates were likely. As a result, we
extended Premium Government Reserve's average maturity from around 50 days in
July to 80 days by early August.
This longer average maturity worked well--when short-term interest rates
fell in anticipation of a Fed rate cut, we had relatively fewer securities
maturing, so we didn't have to buy much new, lower-yielding paper.
DID THE FUND'S AGENCY WEIGHTINGS CHANGE?
Not really. We continued to focus on securities issued by the Federal Home
Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Association
(FNMA, or Fannie Mae) because the relatively large supply helped keep their
yields attractive throughout the period.
WHAT'S YOUR INTEREST RATE OUTLOOK?
We expect short-term interest rates to fall further. It appears that the
U.S. economy could continue to weaken as a result of turmoil overseas. While we
don't expect the Fed to make drastic cuts in interest rates, we do believe it
will move the federal funds rate below the current 5% to stimulate the U.S.
economy.
GIVEN THAT OUTLOOK, WHAT IS YOUR STRATEGY FOR THE NEXT SIX MONTHS?
Because we anticipate lower interest rates, we'll try to keep the
portfolio's average maturity on the long side in the coming months. We will
continue to manage the fund very conservatively while doing our best to provide
the highest yield possible for our shareholders.
[left margin]
"WE EXTENDED PREMIUM GOVERNMENT RESERVE'S AVERAGE MATURITY SIGNIFICANTLY DURING
THE SUMMER, A STRATEGY THAT HELPED US MAINTAIN THE FUND'S YIELD WHEN INTEREST
RATES FELL."
[pie charts - data below]
PORTFOLIO COMPOSITION BY MATURITY
AS OF SEPTEMBER 30, 1998
1-30 days 44%
31-60 days 21%
61-90 days 32%
91-180 days 3%
AS OF MARCH 31, 1998
1-30 days 47%
31-60 days 21%
61-90 days 12%
91-180 days 16%
181-397 days 4%
6 1-800-345-2021
Premium Gov't. Reserve--Sched. of Investments
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SEPTEMBER 30, 1998 (UNAUDITED)
Principal Amount Value
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U.S. GOVERNMENT AGENCY DISCOUNT NOTES(1)
$ 879,000 FFCB Discount Notes, 5.40%,
10/8/98 $ 878,077
2,000,000 FHLMC Discount Notes, 5.46%,
10/8/98 1,997,877
3,000,000 FHLMC Discount Notes, 5.45%,
10/9/98 2,996,367
1,240,000 FHLMC Discount Notes, 5.45%,
10/16/98 1,237,184
5,000,000 FHLMC Discount Notes, 5.38%,
11/20/98 4,962,639
4,000,000 FHLMC Discount Notes, 5.37%,
12/7/98 3,960,024
1,273,000 FHLMC Discount Notes, 5.39%,
12/9/98 1,259,849
742,000 FHLMC Discount Notes, 5.38%,
12/18/98 733,351
1,000,000 FNMA Discount Notes, 5.39%,
10/9/98 998,802
5,278,000 FNMA Discount Notes, 5.43%,
10/27/98 5,257,302
2,000,000 FNMA Discount Notes, 5.43%,
11/19/98 1,985,232
1,755,000 FNMA Discount Notes, 5.37%,
11/24/98 1,740,864
1,243,000 FNMA Discount Notes, 5.39%,
12/3/98 1,231,275
694,000 FNMA Discount Notes, 5.38%,
12/9/98 686,843
6,000,000 FNMA Discount Notes, 5.39%,
12/15/98 5,932,642
3,215,000 FNMA Discount Notes, 5.38%,
12/18/98 3,177,524
5,000,000 FNMA Discount Notes, 5.36%,
12/22/98 4,938,942
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TOTAL U.S. GOVERNMENT
AGENCY DISCOUNT NOTES--60.1% 43,974,794
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Principal Amount Value
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U.S. GOVERNMENT AGENCY SECURITIES(1)
$5,000,000 FFCB MTN, VRN, 5.55%,
11/3/98, resets quarterly off the
3-month T-Bill rate plus 0.50%
with no caps $ 5,000,000
2,000,000 FHLB, 5.69%, 10/2/98 2,000,004
1,500,000 FHLB, 6.10%, 10/7/98 1,500,098
1,700,000 FHLB, 5.79%, 10/23/98 1,700,192
1,500,000 FHLB, 5.80%, 12/23/98 1,500,542
2,000,000 FHLB, 5.625%, 3/2/99 2,000,000
2,000,000 FHLMC, 13.00%, 11/4/98 2,012,753
5,000,000 FNMA, 6.20%, 10/14/98 5,001,134
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TOTAL U.S. GOVERNMENT
AGENCY SECURITIES--28.3% 20,714,723
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TEMPORARY CASH INVESTMENTS
Repurchase Agreement, Merrill Lynch & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.30%, dated 9/30/98,
due 10/1/98 (Delivery value $1,348,198) 1,348,000
Repurchase Agreement, Morgan Stanley
Group, Inc., (U.S. Treasury obligations), in
a joint trading account at 5.30%, dated
9/30/98, due 10/1/98 (Delivery value
$3,585,528) 3,585,000
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 5.38%, dated 9/30/98,
due 10/1/98 (Delivery value $3,585,536) 3,585,000
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TOTAL TEMPORARY CASH
INVESTMENTS--11.6% 8,518,000
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TOTAL INVESTMENT SECURITIES--100.0% $73,207,517
=============
See Notes to Financial Statements
www.americancentury.com 7
Premium Gov't. Reserve--Sched. of Investments
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(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
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
MTN = Medium Term Note
resets = The frequency with which a 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.
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, 1998.
(1) The rates for U.S. Government Agency Discount Notes are the yield to
maturity at purchase. The rates for other U.S. Government Agency securities
are the stated coupon rates.
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UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the amortized cost of each investment
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
8 1-800-345-2021
Premium Capital Reserve--Performance
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TOTAL RETURNS AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INCEPTION 4/1/93
PREMIUM 90-DAY TREASURY INSTITUTIONAL MONEY MARKET FUNDS(2)
CAPITAL RESERVE BILL INDEX AVERAGE RETURN FUND'S RANKING
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 MONTHS(1) .............. 2.64% 2.48% 2.66% --
1 YEAR ................... 5.38% 5.11% 5.40% 111 OUT OF 188
- -------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS .................. 5.29% 5.15% 5.32% 88 OUT OF 149
5 YEARS .................. 4.97% 4.96% 5.03% 62 OUT OF 98
LIFE OF FUND ............. 4.77% 4.81%(3) 4.87%(3) 58 OUT OF 87(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
(3) Since 4/30/93, the date nearest the fund's inception for which return data
are available.
See pages 23-24 for more information about returns, the comparative index, and
Lipper fund rankings.
PORTFOLIO AT A GLANCE
9/30/98 3/31/98
NUMBER OF SECURITIES 48 59
WEIGHTED AVERAGE
MATURITY 52 DAYS 50 DAYS
EXPENSE RATIO 0.45%* 0.45%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 1998
7-DAY CURRENT YIELD 5.19%
7-DAY EFFECTIVE YIELD 5.33%
Past performance does not guarantee future results.
Money market funds are neither insured nor guaranteed by the FDIC or any other
government agency.
Yields will fluctuate, and although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund.
www.americancentury.com 9
Premium Capital Reserve--Q&A
- --------------------------------------------------------------------------------
An interview with Denise Tabacco and John Walsh, portfolio managers on the
Premium Capital Reserve fund investment team.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1998?
Premium Capital Reserve performed well, providing shareholders with
stability amid volatile global financial markets. For the six-month period, the
portfolio returned 2.64%, compared with the 2.66% average return of the 196
"Institutional Money Market Funds" tracked by Lipper Analytical Services. (See
the Total Returns table on the previous page for other fund performance
comparisons.)
But unlike most of the funds in its Lipper category, Premium Capital
Reserve is not really an institutional fund; instead, it's intended for high
net-worth individual investors. Institutional funds typically have higher
minimum balances (often $1 million or more) and, more importantly, lower
expenses. Premium Capital Reserve's higher expenses give it a disadvantage
against the institutional fund average.
However, Premium Capital Reserve has lower expenses than the average
non-institutional money market fund. As a result, the fund can offer attractive
yields to individuals able to meet its $100,000 minimum investment.
For example, according to IBC's Money Fund Report, the fund's seven-day
effective yield of 5.33% compared favorably with the 4.99% yield of the average
non-institutional "First Tier Taxable Money Fund" as of September 29 (the date
closest to the period end for which data are available).
WHAT IMPACT DID THE FINANCIAL TURMOIL IN ASIA AND RUSSIA HAVE ON PREMIUM CAPITAL
RESERVE'S PERFORMANCE?
It had only an indirect effect on performance. The turmoil had more of an
impact on the U.S. money market in general, the interest rate outlook, and our
portfolio strategy.
The sell-off in global financial markets in July and August resulted in a
"flight to quality" as investors sought a safe haven for their money. This
caused heavy demand for U.S. money market securities, resulting in lower yields,
especially for U.S. government securities.
As the yields for government money market securities fell, the "risk
premium" (the yield difference) between those securities and corporate money
market securities increased to about 35 basis points (0.35%--a basis point
equals one one-hundredth of 1%).
PLEASE DESCRIBE THE RISK PREMIUM IN MORE DETAIL. WHAT IS ITS SIGNIFICANCE?
Premium Capital Reserve invests primarily in high-quality commercial paper
(CP) issued by corporations (see the pie charts at left). Historically, this
paper has yielded about 20 basis points more than government securities such as
Treasury bills. This higher yield is the "risk premium"--the additional
compensation investors get for the slightly greater financial risk that CP has
compared to government-backed securities.
Fortunately, the risk reflected in the risk premium can be managed. It's
important to remember that we invest primarily in "top tier" CP--securities that
have been rated in the top two credit categories by at least two independent
credit rating agencies. The
[left margin]
"PREMIUM CAPITAL RESERVE PERFORMED WELL, PROVIDING SHAREHOLDERS WITH STABILITY
AMID VOLATILE GLOBAL FINANCIAL MARKETS."
[pie charts - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF SEPTEMBER 30, 1998
Commercial Paper 71%
Variable-Rate Notes 18%
Asset-Backed Securities 7%
CDs 3%
Other 1%
AS OF MARCH 31, 1998
Commercial Paper 66%
Variable-Rate Notes 18%
Asset-Backed Securities 7%
CDs 8%
Other 1%
Security types are defined on page 24.
10 1-800-345-2021
Premium Capital Reserve--Q&A
- --------------------------------------------------------------------------------
(Continued)
Securities & Exchange Commission (SEC) also mandates minimum credit standards
for all money market funds.
Our own internal credit research team further enhances Premium Capital
Reserve's credit strength. This team constantly assesses the financial strength
of companies issuing CP, sometimes rejecting investments that would have met
rating agency and SEC standards.
WHAT OTHER IMPACT DID THE GLOBAL FINANCIAL TURMOIL HAVE?
It reversed the interest rate outlook. Earlier this year, the consensus
view was that U.S. interest rates would rise in response to inflation pressures
caused by the U.S. economy's strong growth. By August, investors and analysts
changed their tune, predicting that interest rates would fall to stimulate an
economy weakened by fallout from the global financial implosions.
As the interest rate outlook changed, we repositioned the portfolio. We
bought securities with longer maturities to lock in higher yields, and we bought
some shorter-term securities to keep the fund's average maturity below 90 days.
We acquired the longer-term securities when they still yielded more than
shorter-term securities. That's a normal yield environment--you'd expect to earn
more yield for securities that take longer to mature and therefore expose you to
a greater possibility of economic and interest rate changes.
However, money market yields inverted in August, and one-year securities
actually yielded less than three-month securities. One-year yields declined to
reflect investors' belief that the Federal Reserve would cut short-term interest
rates. The yields for shorter-term paper stayed higher because these securities
were closer to maturity and were less likely to be affected by Fed rate cuts.
HAS THE CREDIT QUALITY OF PREMIUM CAPITAL RESERVE'S PORTFOLIO CHANGED?
The portfolio's percentage of securities rated A-1+ by Standard & Poor's
declined (see the chart at right). However, our internal credit research team
continues to monitor the quality of each issuer whose securities we hold in the
portfolio. Based upon this internal assessment, we believe Premium Capital
Reserve's credit quality remains very strong.
The portfolio is now dominated by companies based in the U.S. and Europe,
where financial conditions are stable. But we're not taking that stability for
granted--we're continuing to assess the quality of some U.S. banking securities
given their lending practices and possible exposure to recent turmoil in various
world financial markets. Our credit team will not hesitate to remove established
U.S. banks from our approved list if they no longer meet our criteria.
WHAT IS YOUR OUTLOOK FOR PREMIUM CAPITAL RESERVE?
We expect the fund's yield to decline as interest rates continue to fall.
In September, the Fed lowered its federal funds rate target for the first time
in nearly three years and followed that up with another rate cut in mid-October.
These cuts will eventually force us to buy lower-yielding securities when our
older, higher-yielding holdings mature. Working closely with our credit team, we
will maintain high credit standards and strive to avoid vulnerable companies and
industries.
[right margin]
"OUR OWN INTERNAL CREDIT RESEARCH TEAM FURTHER ENHANCES PREMIUM CAPITAL
RESERVE'S CREDIT STRENGTH."
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
9/30/98 3/31/98
A-1+ 54% 72%
A-1 46% 28%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 23
for more information.
www.americancentury.com 11
Premium Capital Reserve--Sched. of Investments
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
COMMERCIAL PAPER(1)
BANKING--4.6%
$2,000,000 Bankers Trust New York Corp.,
5.48%, 10/13/98 $ 1,996,346
3,000,000 Generale Bank, Inc.,
5.49%-5.52%,
10/22/98-12/3/98 2,984,236
2,000,000 IMI Funding Corp. (USA), 5.52%,
10/20/98 1,994,174
2,162,000 IMI Funding Corp. (USA), 5.52%,
11/6/98 (Acquired 9/4/98,
Cost $2,141,191)(2) 2,150,109
--------------
9,124,865
--------------
CHEMICALS & RESINS--0.4%
800,000 du Pont (E.I.) de Nemours & Co.,
5.53%, 10/27/98 796,805
--------------
COMMUNICATIONS EQUIPMENT--2.0%
4,000,000 Motorola, Inc., 5.49%, 11/19/98 3,970,110
--------------
COMMUNICATIONS SERVICES--1.1%
2,200,000 U S WEST Communications
Group, 5.50%, 11/18/98 2,183,867
--------------
CREDIT CARD & TRADE
RECEIVABLES--19.1%
1,499,000 Charta Corporation, 5.67%,
10/14/98 (Acquired 9/23/98,
Cost $1,494,042)(2) 1,495,931
7,400,000 Corporate Receivables Corp.,
5.52%-5.54%,
10/27/98-10/29/98
(Acquired 8/21/98-8/25/98,
Cost $7,323,921)(2) 7,368,960
8,100,000 Dakota Certificates (Citibank),
5.42%-5.80%,
10/1/98-12/11/98 (Acquired
8/4/98-9/30/98, Cost
$8,031,708)(2) 8,057,537
8,746,000 Falcon Asset Securities Corp.,
5.46%-5.55%,
10/1/98-11/12/98 (Acquired
8/7/98-9/17/98, Cost
$8,658,283)(2) 8,710,333
2,908,000 Receivables Capital Corp.,
5.53%-5.56%,
10/14/98-10/22/98, (LOC:
Bank of America N.T. & S.A.)
(Acquired 9/4/98-9/23/98,
Cost $2,893,796)(2) 2,899,451
9,800,000 WCP Funding Inc., 5.49%-5.53%,
10/6/98-11/24/98 (Acquired
7/23/98-9/10/98, Cost
$9,689,145)(2) 9,761,674
--------------
38,293,886
--------------
Principal Amount Value
- --------------------------------------------------------------------------------
ENERGY (PRODUCTION &
MARKETING)--6.6%
$3,600,000 Chevron Transport Corp.,
5.43%-5.52%,
11/3/98-12/14/98 $ 3,570,801
2,000,000 Chevron Transport Corp., 5.48%,
12/18/98 (Acquired 8/20/98,
Cost $1,963,467)(2) 1,976,253
3,900,000 Petroleo Brasileiro S/A, 5.50%,
11/25/98 3,867,229
2,700,000 Statoil-Den Norske Stats, 5.50%,
10/28/98 2,688,863
1,200,000 Statoil-Den Norske Stats, 5.45%,
11/18/98 (Acquired 9/18/98,
Cost $1,188,918)(2) 1,191,280
--------------
13,294,426
--------------
FINANCIAL SERVICES--18.2%
3,200,000 Countrywide Home Loans, Inc.,
5.40%, 11/12/98 3,179,840
3,000,000 Countrywide Home Loans, Inc.,
5.53%, 10/26/98 (Acquired
9/3/98, Cost $2,975,576)(2) 2,988,479
4,000,000 Ford Motor Credit Co., 5.50%,
11/6/98 3,978,000
3,000,000 Ford Motor Credit Co. Puerto Rico,
Inc., 5.52%, 10/2/98 2,999,540
4,500,000 General Electric Capital Corp.,
5.48%-5.51%,
11/19/98-11/20/98 4,465,973
4,000,000 General Electric Financial
Assurance Holdings, 5.52%,
11/2/98 3,980,373
3,000,000 General Motors Acceptance Corp.,
5.50%, 11/17/98 2,978,458
2,000,000 Merrill Lynch & Co., Inc., 5.51%,
2/26/99 1,954,778
6,500,000 Morgan Stanley Dean Witter,
Discover & Co., 5.27%-5.50%,
11/16/98-2/26/99 6,417,725
2,300,000 National Rural Utilities Cooperative
Finance Corp., 5.50%, 11/9/98 2,286,296
1,300,000 Yamaha Motor Finance Corp.,
5.53%, 10/28/98 1,294,608
--------------
36,524,070
--------------
INDUSTRIAL--3.2%
6,500,000 Siebe plc, 5.52%,
10/2/98-10/8/98 (Acquired
7/7/98-7/20/98, Cost
$6,414,440)(2) 6,495,784
--------------
INSURANCE--9.4%
3,000,000 American Family Financial
Services, Inc., 5.52%, 10/13/98 2,994,480
1,374,000 General Re Corp., 5.55%,
10/27/98 1,368,493
See Notes to Financial Statements
12 1-800-345-2021
Premium Capital Reserve--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$1,500,000 Marsh & McLennan Companies,
Inc., 5.49%, 11/5/98 $ 1,491,994
2,500,000 Marsh & McLennan Companies,
Inc., 5.45%, 2/26/99 (Acquired
8/27/98, Cost $2,430,740)(2) 2,443,986
4,000,000 Prudential Funding Corp., 5.54%,
10/8/98 3,995,691
6,500,000 SAFECO Corporation,
5.45%-5.53%,
10/5/98-11/10/98 (Acquired
8/10/98-9/29/98, Cost
$6,454,565)(2) 6,480,360
--------------
18,775,004
--------------
METALS & MINING--2.9%
5,900,000 Rio Tinto America Inc.,
5.50%-5.52%,
10/7/98-10/9/98 (Acquired
7/10/98-9/3/98, Cost
$5,835,931)(2) 5,893,972
--------------
PRINTING & PUBLISHING--1.6%
3,200,000 Reed Elsevier Inc., 5.50%,
10/19/98 (Acquired 7/17/98,
Cost $3,154,044)(2) 3,191,200
--------------
RUBBER & PLASTICS--1.4%
2,750,000 Formosa Plastics Corp. USA,
5.36%-5.45%,
12/16/98-2/12/99 2,701,506
--------------
TOTAL COMMERCIAL PAPER--70.5% 141,245,495
--------------
CORPORATE DEBT
BANKING--9.7%
7,000,000 American Express Centurion Bank, VRN, 5.53%-5.57%,
10/13/98-10/21/98, resets monthly off the 1-month
LIBOR
minus 0.06% with no caps 7,000,000
8,000,000 KeyBank N.A., VRN, 5.51%,
10/1/98, resets daily off the
Federal Funds rate plus 0.07%
with no caps 7,999,320
1,500,000 KeyBank N.A., VRN, 5.55%,
10/23/98, resets monthly off
the 1-month LIBOR minus
0.045% with no caps 1,499,784
3,000,000 U.S. Bank NA Minnesota, VRN,
5.57%, 10/8/98, resets
monthly off the 1-month LIBOR
minus 0.06% with no caps 2,999,399
--------------
19,498,503
--------------
Principal Amount Value
- --------------------------------------------------------------------------------
FINANCIAL SERVICES--1.2%
$ 358,000 Merrill Lynch & Co., Inc. MTN,
Series B, VRN, 5.82%,
10/1/98, resets daily off the
Federal Funds rate plus 0.375%
with no caps $ 358,042
2,000,000 Merrill Lynch & Co., Inc. MTN,
Series B, VRN, 5.84%,
10/5/98, resets quarterly off
the 3-month LIBOR plus 0.15%
with no caps 2,002,121
--------------
2,360,163
--------------
INSURANCE--6.8%
6,000,000 General American Life Insurance
Company, VRN, 5.85%, 10/1/98,
resets monthly off the 1-month
LIBOR plus 0.20% with no caps
(Acquired 1/3/97-7/7/97, Cost
$6,000,000)(2) 6,000,000
3,000,000 Jackson National Life Insurance Co.,
VRN, 5.82%, 10/13/98, resets
monthly off the 1-month LIBOR
plus 0.19% with no caps
(Acquired 6/10/98, Cost
$3,000,000)(2) 3,000,000
4,600,000 Travelers Insurance Company (The), VRN,
5.63%-5.67%, 10/9/98-10/22/98,
resets monthly off the 1-month
LIBOR plus 0.04% with no caps
(Acquired 5/22/98-6/8/98,
Cost $4,600,000)(2) 4,600,000
--------------
13,600,000
--------------
TOTAL CORPORATE DEBT--17.7% 35,458,666
--------------
ASSET-BACKED SECURITIES
2,446,127 Americredit Automobile Receivables
Trust, Series 1998 B, Class A1
SEQ, 5.63%, 6/12/99 2,446,128
1,864,878 Americredit Automobile Receivables
Trust, Series 1998 C, Class A1
SEQ, 5.64%, 9/12/99 1,864,878
3,130,463 Caterpillar Financial Asset Trust,
Series 1998 A, Class A1 SEQ,
5.64%, 7/26/99 3,130,461
651,016 Chase Manhattan Auto Owner
Trust, Series 1998 B, Class A1
SEQ, 5.58%, 5/10/99 651,016
3,517,042 Contimortgage Home Equity Loan
Trust, Series 1998-2, Class A1
SEQ, 5.65%, 6/15/99 3,517,042
See Notes to Financial Statements
www.americancentury.com 13
Premium Capital Reserve--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 644,256 Ford Credit Auto Owner Trust,
Series 1998 A, Class A1 SEQ,
5.55%, 2/15/99 $ 644,256
1,346,868 Ford Credit Auto Owner Trust,
Series 1998 C, Class A1 SEQ,
5.61%, 1/15/99 1,346,868
--------------
TOTAL ASSET-BACKED SECURITIES--6.8% 13,600,649
--------------
CERTIFICATES OF DEPOSIT
4,000,000 Bayerische Landesbank
Girozentrale (New York Branch),
5.66%, 2/22/99 4,000,000
3,000,000 Deutsche Bank AG, 5.70%,
3/5/99 2,999,390
--------------
TOTAL CERTIFICATES OF DEPOSIT--3.5% 6,999,390
--------------
Principal Amount Value
- --------------------------------------------------------------------------------
BANK NOTES--1.5%
$3,000,000 BankBoston Corp., 5.60%,
12/31/98 $ 3,000,000
--------------
TOTAL INVESTMENT SECURITIES--100.0% $200,304,200
==============
NOTES TO SCHEDULE OF INVESTMENTS
LIBOR = London Interbank Offered Rate
LOC = Letter of Credit
MTN = Medium Term Note
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
September 30, 1998.
resets = The frequency with which a 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 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 a private placement and, unless registered under the Act
or exempted from registration, may only be sold to qualified institutional
investors. The aggregate value of these securities at September 30,1998,
was $84,549,374, which represented 39.7% of net assets. Restricted
securities which were considered illiquid represented 3.6% of net assets.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the amortized cost of each investment
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
14 1-800-345-2021
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
PREMIUM PREMIUM
GOVERNMENT CAPITAL
RESERVE RESERVE
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) ....... $ 73,207,517 $ 200,304,200
Cash ................................. 2,406,670 14,276,198
Interest receivable .................. 524,950 562,135
--------------- ---------------
76,139,137 215,142,533
--------------- ---------------
LIABILITIES
Disbursements in excess of
demand deposit cash ................ 1,565 359,892
Payable for capital shares
redeemed ........................... 27,953 1,455,338
Accrued management fees
(Note 2) ........................... 26,755 79,531
Dividends payable .................... 50,542 140,505
Accrued expenses and
other liabilities .................. 40 179
--------------- ---------------
106,855 2,035,445
--------------- ---------------
Net Assets ........................... $ 76,032,282 $ 213,107,088
=============== ===============
CAPITAL SHARES,
$0.01 PAR VALUE
Authorized ........................... 1,000,000,000 1,000,000,000
=============== ===============
Outstanding .......................... 76,032,668 213,112,124
=============== ===============
Net Asset Value Per Share ............ $ 1.00 $ 1.00
=============== ===============
NET ASSETS CONSIST OF:
Capital (par value and
paid-in surplus) ................... $ 76,032,668 $ 213,112,124
Accumulated net realized
loss on investments ................ (386) (5,036)
--------------- ---------------
$ 76,032,282 $ 213,107,088
=============== ===============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of fund shares outstanding gives you the price of an individual share, or the
net asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders); and
net gains earned on investments but not yet paid to shareholders or net losses
on investments (known as realized gains or losses). This breakout tells you the
value of net assets that are performance-related, such as investment gains or
losses, and the value of net assets that are not related to performance, such as
shareholder investments and redemptions.
See Notes to Financial Statements
www.americancentury.com 15
Statements of Operations
- --------------------------------------------------------------------------------
PREMIUM PREMIUM
FOR THE SIX MONTHS ENDED GOVERNMENT CAPITAL
SEPTEMBER 30, 1998 (UNAUDITED) RESERVE RESERVE
INVESTMENT INCOME
Income:
Interest .................................. $ 1,645,278 $ 5,437,927
----------- -----------
Expenses (Note 2):
Management fees ........................... 133,136 432,039
Directors' fees and expenses .............. 230 745
----------- -----------
133,366 432,784
----------- -----------
Net investment income ..................... 1,511,912 5,005,143
----------- -----------
Net realized loss on investments .......... -- (662)
----------- -----------
Net Increase in Net Assets
Resulting from Operations ............... $ 1,511,912 $ 5,004,481
=========== ===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF OPERATIONS--This statement breaks out how each
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* income earned from investments
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
See Notes to Financial Statements
16 1-800-345-2021
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND YEAR ENDED MARCH 31, 1998
PREMIUM GOVERNMENT RESERVE PREMIUM CAPITAL RESERVE
SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31,
Increase in Net Assets 1998 1998 1998 1998
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ................ $ 1,511,912 $ 2,319,208 $ 5,005,143 $ 8,912,910
Net realized loss on investments ..... -- (380) (662) (3,329)
------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ......... 1,511,912 2,318,828 5,004,481 8,909,581
------------- ------------- ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ........... (1,511,912) (2,319,208) (5,005,143) (8,912,910)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............ 157,779,359 115,269,165 225,537,843 380,763,052
Proceeds from reinvestment
of distributions ................... 1,460,591 2,261,393 4,763,974 8,514,911
Payments for shares redeemed ......... (127,702,366) (111,873,462) (199,680,757) (360,745,777)
------------- ------------- ------------- -------------
Net increase in net assets
from capital share transactions .... 31,537,584 5,657,096 30,621,060 28,532,186
------------- ------------- ------------- -------------
Net increase in net assets ........... 31,537,584 5,656,716 30,620,398 28,528,857
NET ASSETS
Beginning of period .................. 44,494,704 38,837,988 182,486,690 153,957,833
------------- ------------- ------------- -------------
End of period ........................ $ 76,032,288 $ 44,494,704 $ 213,107,088 $ 182,486,690
============= ============= ============= =============
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold ................................. 157,779,359 115,269,165 225,537,843 380,763,071
Issued in reinvestment
of distributions ................... 1,460,591 2,261,393 4,763,974 8,514,911
Redeemed ............................. (127,702,366) (111,873,462) (199,680,757) (360,745,777)
------------- ------------- ------------- -------------
Net increase ......................... 31,537,584 5,657,096 30,621,060 28,532,205
============= ============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
each fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 17
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (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. American Century - Benham Premium Government
Reserve Fund (Government Reserve) and American Century - Benham Premium Capital
Reserve Fund (Capital Reserve) (the Funds) are two of the three funds issued by
the Corporation. 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 following significant
accounting policies are in accordance with generally accepted accounting
principles.
SECURITY VALUATIONS--Securities are valued at amortized cost, which
approximates current value. 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 as of the
trade date. 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 accretion of discounts and amortization of premiums.
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 collateral, represented by securities, received
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
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 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 income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income are
declared daily and distributed monthly. The Funds do not expect to realize any
long-term capital gains and, accordingly do not expect to pay any long-term
capital gains distributions.
At March 31, 1998, accumulated net realized short-term capital loss
carryovers of $2,814 for Capital Reserve (expiring 2004 through 2006) may be
used to offset future taxable gains. The Fund has elected to treat $1,560 of net
capital losses incurred in the five month period ended March 31, 1998, as having
been incurred in the following fiscal year.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net capital gains and losses for financial statement
and tax purposes and may result in reclassification among certain capital
accounts.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions 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.
ADDITIONAL INFORMATION--Funds Distributor, Inc. (FDI) is the Corporation's
distributor. Certain officers of FDI are also officers of the Corporation.
18 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
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%.
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, and
the Corporation's transfer agent, American Century Services Corporation.
www.americancentury.com 19
Premium Gov't. Reserve--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
1998(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............... $ 1.00 $ 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 0.05 0.03
---------- ---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment
Income .......................... (0.03) (0.05) (0.05) (0.05) (0.05) (0.03)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value,
End of Period ..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ==========
Total Return(2) ................. 2.59% 5.25% 5.07% 5.49% 4.62% 2.75%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.45%(3) 0.45% 0.45% 0.44% 0.45% 0.45%
Ratio of Net Investment Income
to Average Net Assets ............. 5.11%(3) 5.13% 4.96% 5.30% 4.84% 2.72%
Net Assets, End of Period
(in thousands) .................... $ 76,032 $ 44,495 $ 38,838 $ 26,191 $ 16,381 $ 5,459
</TABLE>
(1) Six months ended September 30, 1998 (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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provide comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income
* income distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
See Notes to Financial Statements
20 1-800-345-2021
Premium Capital Reserve--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
1998(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .......... $ 1.00 $ 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 0.05 0.03
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment
Income ..................... (0.03) (0.05) (0.05) (0.05) (0.05) (0.03)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value,
End of Period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== ===========
Total Return(2) ............ 2.64% 5.38% 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% 0.45%
Ratio of Net Investment Income
to Average Net Assets ........ 5.21%(3) 5.26% 5.01% 5.50% 4.76% 2.83%
Net Assets, End of Period
(in thousands) ............... $ 213,107 $ 182,487 $ 153,958 $ 133,417 $ 138,428 $ 38,823
</TABLE>
(1) Six months ended September 30, 1998 (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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provide comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income
* income distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
See Notes to Financial Statements
www.americancentury.com 21
Retirement Account Information
- --------------------------------------------------------------------------------
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.
22 1-800-345-2021
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND 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 seek to provide
interest income while maintaining a stable share price. Premium Government
Reserve invests in U.S. government money market securities, while Premium
Capital Reserve invests in a diversified portfolio of money market securities.
An investment in the funds is neither insured nor guaranteed by the FDIC or
any other government agency. Yields will fluctuate, and although the funds seek
to preserve the value of your investment at $1 per share, it is possible to lose
money by investing in the funds.
COMPARATIVE INDICES
The following index is used in the report for a fund performance
comparison. It is not an investment product available for purchase.
The 90-DAY TREASURY BILL INDEX is derived from secondary market interest
rates as published by the Federal Reserve Bank.
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 categories for the Premium Reserve Money Market 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.
CREDIT RATING GUIDELINES
Credit ratings are issued by independent research companies such as
Standard & Poor's and Moody's. Ratings are based on an issuer's financial
strength and ability to pay interest and principal in a timely manner.
A-1+ and A-1 are Standard & Poor's highest ratings for commercial paper.
It's important to note that credit ratings are subjective, reflecting the
opinions of the rating agencies; they are not absolute standards of quality.
[right margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS
AMY O'DONNELL
DENISE TABACCO
JOHN WALSH
CORPORATE CREDIT RESEARCH MANAGER
GREG AFIESH
www.americancentury.com 23
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 the 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 20-21.
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.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES--the number of different securities held by the fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM)--a measure 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.
* EXPENSE RATIO--the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF MONEY MARKET SECURITIES
* ASSET-BACKED SECURITIES--debt securities that represent ownership in a pool of
receivables, such as credit card debt, auto loans or mortgages.
* 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.
* 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 NOTES--intermediate-term debt securities issued by U.S.
government agencies (such as the Federal Home Loan Bank). These notes are issued
with maturities ranging from three months to 30 years, but the funds only invest
in those with remaining maturities of 13 months or less.
* U.S. GOVERNMENT AGENCY DISCOUNT NOTES--short-term debt securities issued by
U.S. government agencies (such as the Federal Home Loan Bank). These notes are
issued at a discount and achieve full value at maturity (typically one year or
less).
* VARIABLE-RATE NOTES (VRNS)--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.
24 1-800-345-2021
[inside back cover]
American Century Funds
Benham Group(reg.sm)
TAXABLE BOND FUNDS
U.S. Treasury & Government
Short-Term Treasury
Short-Term Government
GNMA
Intermediate-Term Treasury
Long-Term Treasury
Inflation-Adjusted Treasury
Target Maturities Trust: 2000
Target Maturities Trust: 2005
Target Maturities Trust: 2010
Target Maturities Trust: 2015
Target Maturities Trust: 2020
Target Maturities Trust: 2025
Corporate & Diversified
Limited-Term Bond
Intermediate-Term Bond
Bond
Premium Bond
High-Yield Bond
International
International Bond
TAX-FREE & MUNICIPAL BOND FUNDS
Multiple-State
Limited-Term Tax-Free
Intermediate-Term Tax-Free
Long-Term Tax-Free
High-Yield Municipal
Single-State
Arizona Intermediate-Term Municipal
California High-Yield Municipal
California Insured Tax-Free
California Intermediate-Term Tax-Free
California Limited-Term Tax-Free
California Long-Term Tax-Free
Florida Intermediate-Term Municipal
MONEY MARKET FUNDS
Taxable
Capital Preservation
Government Agency Money Market
Premium Capital Reserve
Premium Government Reserve
Prime Money Market
Tax-Free & Municipal
California Municipal Money Market
California Tax-Free Money Market
Florida Municipal Money Market
Tax-Free Money Market
AMERICAN CENTURY[reg.sm] GROUP
Asset Allocation Funds
Strategic Allocation: Conservative
Strategic Allocation: Moderate
Strategic Allocation: Aggressive
Balanced Fund
Balanced
Conservative Equity Funds
Income and Growth
Equity Income
Value
Equity Growth
Specialty Funds
Utilities
Real Estate
Global Natural Resources
Global Gold
Small Cap Funds
Small Cap Quantitative
Small Cap Value
TWENTIETH CENTURY GROUP
Growth Funds
Select
Heritage
Growth
Ultra
Aggressive Growth Funds
Vista
Giftrust
New Opportunities
International Growth Funds
International Growth
International Discovery
Emerging Markets
[right margin]
[american century logo(reg.sm)]
American
Century
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.
(c) 1998 AMERICAN CENTURY SERVICES CORPORATION
FUNDS DISTRIBUTOR, INC.
[recycled logo]
Recycled
[back cover]
[40 Years]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9811 (c)1998 American Century Services Corporation
SH-BKT-14214 Funds Distributor, Inc.
<PAGE>
[front cover] September 30, 1998
SEMIANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
BENHAM GROUP
- ------------------------------------
PREMIUM BOND
[american century logo(reg.sm)]
American
Century
[inside front cover]
A Note from the Founder
- --------------------------------------------------------------------------------
On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in turn, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
- --------------------------------------------------------------------------------
Why We Changed
We're trying hard to be reader-friendly. Our reports contain a lot of very good
information, from fund statistics and financials to Q&A's with fund managers. We
hope the new design will make the reports more interesting and understandable
while helping you keep abreast of your fund's strategy and performance.
What's New
The reports are designed to be attractive and easy to use whether you're reading
them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
THE BOTTOM LINE.
The new design actually costs slightly less than the old one. We reallocated
costs and eliminated a cover letter and the envelope that previously came with
your report enclosed. This not only saves money, but reduces the number of
mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative and user-friendly
publication.
We hope you enjoy it.
[left margin]
Benham Group
PREMIUM BOND
(ACBPX)
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
Our Message to You
- --------------------------------------------------------------------------------
/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
During the six months ended September 30, 1998, interest rates fell
worldwide as investors reacted to worsening global economic and financial
conditions. To help stem the negative tide, the Federal Reserve (the U.S.
central bank) cut its bellwether federal funds rate in September, the first rate
cut in almost three years. Two weeks later, it lowered the rate again, providing
a significant psychological boost to investors as well as to the U.S. economy.
But by the time the Federal Reserve reacted, falling interest rates, combined
with increased demand for the relative safety of U.S. Treasury securities, had
sparked the biggest rally in the Treasury market since 1995.
U.S. bonds, with the exception of corporate bonds, generally outperformed
U.S. stocks, which posted mostly negative returns for the period. Money market
securities continued to be a stable investment.
This volatile market environment illustrated the importance of a
diversified investment portfolio. Allocating your assets among stocks, bonds,
and money market funds can help weatherproof your portfolio against dramatic
changes in the economic or investment climate.
Benham Premium Bond, like most U.S. bond funds, had a positive return, but
its performance was modest compared with pure Treasury funds. The fund's
diversified portfolio of Treasury, mortgage-backed, corporate, asset-backed, and
government agency bonds performs best versus pure Treasury portfolios when
interest rates are relatively stable. In a sharply falling interest rate
environment, Treasurys tend to outperform other types of bonds. The Premium Bond
fund investment team worked hard to find attractive yields and good buys in this
low interest rate environment.
On the corporate front, we have a substantial effort underway to prepare
American Century's computer systems for the year 2000. Through the rest of 1998
and 1999, our team of technology professionals will be extensively testing our
systems, including those involved with dividend payments.
Finally, we hope you like the new design of this report. It's intended to
make the important information you need about your fund easier to find and read.
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
PREMIUM BOND
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Portfolio Composition
by Security Type ....................................................... 6
Portfolio Composition
by Credit Rating ....................................................... 7
Schedule of Investments ................................................ 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ............................................................ 12
Statement of Operations ................................................ 13
Statements of Changes
in Net Assets .......................................................... 14
Notes to Financial
Statements ............................................................. 15
Financial Highlights ................................................... 17
OTHER INFORMATION
Retirement Account
Information ............................................................ 18
Background Information
Investment Philosophy
and Policies ........................................................ 19
Comparative Indices ................................................. 19
Lipper Rankings ..................................................... 19
Credit Rating
Guidelines .......................................................... 19
Investment Team
Leaders ............................................................. 19
Glossary .............................................................. 20
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* One of the worst global financial meltdowns in recent history provided the
framework for a sharp decline in interest rates during the six months ended
September 30, 1998.
* In the U.S., investors' fears of inflation in early spring turned into
concern over the possibility of recession by late summer amid intensifying
global turmoil.
* Hoping to add stability to worldwide markets and dampen the liquidity crisis
that seemed to be quickly spreading across the globe, the Federal Reserve
lowered short-term interest rates in September--the first rate reduction in
nearly three years--and again in October.
* With global economic uncertainty foremost in investors' minds, the safety
and liquidity of U.S. Treasury securities took on added appeal.
* Although Treasury securities posted strong returns for the period, corporate
bond gains were much more modest.
* Mortgage-backed security returns were also comparatively disappointing.
MANAGEMENT Q&A
* Premium Bond's performance reflected the diversified nature of its
portfolio--Treasury securities performed extremely well, but those gains
were kept in check by the comparatively lower returns of corporate and
mortgage-backed securities.
* To insulate the portfolio from market volatility, we started positioning it
more defensively in July.
* One of the ways we accomplished this was to use the money from maturing
securities and incoming cash flows to increase the portfolio's Treasury
position.
* Another defensive play was to reduce the portfolio's holdings of corporate
bonds whose underlying companies had direct exposure to overseas markets.
* Effective September 1, Premium Bond was allowed to invest up to 15% of its
portfolio in BB securities.
* Despite earlier expectations to the contrary, continued problems in
Southeast Asia, Russia, and Latin America finally seem to be exacting a
toll on U.S. economic growth.
* We will likely maintain the portfolio's current defensive stance until there
are further signs that global economic problems are being successfully
resolved.
[left margin]
"WITH GLOBAL ECONOMIC UNCERTAINTY FOREMOST IN INVESTORS' MINDS, THE SAFETY AND
LIQUIDITY OF U.S. TREASURY SECURITIES TOOK ON ADDED APPEAL."
PREMIUM BOND
(ACBPX)
TOTAL RETURNS: AS OF 9/30/98
6 Months 6.30%*
1 Year 10.75%
NET ASSETS: $96.4 million
30-DAY SEC YIELD: 5.32%
INCEPTION DATE: 4/1/93
* Not annualized.
See Total Returns on page 4.
Investment terms are defined in the Glossary on page 20.
2 1-800-345-2021
Market Perspective from Randall W. Merk
- --------------------------------------------------------------------------------
/photo of Randall W. Merk/
Randall W. Merk, director of fixed-income investing at American Century
SPREADING FINANCIAL CRISES...
One of the worst global financial meltdowns in recent history provided the
framework for a sharp decline in interest rates during the six months ended
September 30, 1998. Problems in Southeast Asia mushroomed in early 1998,
spreading to Russia and Latin America.
In the U.S., investors' fears of inflation in early spring turned into
concern over the possibility of recession by late summer amid intensifying
economic turmoil. A flurry of profits warnings issued by many of corporate
America's hallmark companies lent credence to that notion.
...AND A TREASURY MARKET RALLY...
With global economic uncertainty foremost in investors' minds, the safety
and liquidity of U.S. Treasury securities took on added appeal. The increased
demand sent Treasury prices soaring and caused their yields, which move opposite
their prices, to fall sharply (see the accompanying graph). The Salomon Brothers
Treasury Index, which broadly represents the performance of the Treasury market,
returned 12.93%.
...LED TO LOWER INTEREST RATES...
Hoping to add stability to worldwide markets and dampen the liquidity
crisis that seemed to be spreading quickly across the globe, the Federal Reserve
lowered short-term interest rates in September--the first rate reduction in
nearly three years--and again in October. The rate cuts reinforced the
lower-interest-rate trend that had gained momentum since late July.
...BUT ONLY MODEST RETURNS FOR CORPORATE BONDS...
Corporate bonds lagged Treasurys--the Lehman Brothers Corporate Bond Index
returned 5.9%. A lack of demand was partially to blame --investor concerns that
global turmoil would hamper U.S. corporate profits kept a tight lid on demand
for corporate bonds. From the supply side, many large international investors
and hedge funds were forced to hastily sell corporates to cover market-timing
bets that had gone awry.
...AND MORTGAGE-BACKED SECURITIES.
Mortgage-backed security returns were also comparatively disappointing--the
Lehman Brothers Fixed-Rate Mortgage-Backed Securities Index returned 4.5%. In
addition to some of the same supply problems that faced corporate bonds,
mortgage-backeds were also hit hard by the decade's third major refinancing
wave. Mortgage refinancings are undesirable because they shorten the life of
mortgage-backed securities and cause investors to reinvest in lower-yielding
securities, dampening returns.
[right margin]
"IN THE U.S., INVESTORS' FEARS OF INFLATION IN EARLY SPRING TURNED INTO CONCERN
OVER THE POSSIBILITY OF RECESSION BY LATE SUMMER AMID INTENSIFYING ECONOMIC
TURMOIL."
[line chart - data below]
TREASURY YIELD CURVES
Years to Maturity 3/31/98 9/30/98
1 5.34% 4.39%
2 5.52% 4.26%
3 5.53% 4.38%
4 5.59% 4.35%
5 5.55% 4.21%
6 5.60% 4.29%
7 5.65% 4.36%
8 5.63% 4.38%
9 5.60% 4.39%
10 5.58% 4.41%
11 5.61% 4.48%
12 5.63% 4.55%
13 5.66% 4.63%
14 5.68% 4.70%
15 5.71% 4.77%
16 5.76% 4.84%
17 5.80% 4.91%
18 5.85% 4.99%
19 5.89% 5.06%
20 5.94% 5.13%
21 5.93% 5.11%
22 5.92% 5.10%
23 5.92% 5.08%
24 5.91% 5.07%
25 5.90% 5.05%
26 5.89% 5.03%
27 5.89% 5.02%
28 5.88% 5.00%
29 5.88% 4.99%
30 5.87% 4.97%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Premium Bond--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INCEPTION 4/1/93
PREMIUM LEHMAN AGGREGATE A-RATED CORPORATE DEBT FUNDS(2)
BOND BOND INDEX AVERAGE RETURN FUND'S RANKING
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 MONTHS(1) ............ 6.30% 6.66% 6.00% --
1 YEAR ................. 10.75% 11.51% 10.40% 54 OUT OF 149
- ---------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS ................ 8.15% 8.67% 7.99% 44 OUT OF 122
5 YEARS ................ 6.79% 7.21% 6.54% 21 OUT OF 71
LIFE OF FUND ........... 7.03% 7.55% 7.18%(3) 32 OUT OF 64(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
(3) Since 4/30/93, the date nearest the fund's inception for which return data
are available.
See pages 19-20 for more information about returns, the comparative index, and
Lipper fund rankings.
[mountain chart - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 9/30/98
Lehman Aggregate Bond Index $14,921
Premium Bond $14,526
Lehman Aggregate
Premium Bond Bond Index
DATE VALUE VALUE
4/1/93 $10,000 $10,000
6/30/93 $10,187 $10,265
9/30/93 $10,462 $10,533
12/31/93 $10,454 $10,539
3/31/94 $10,091 $10,237
6/30/94 $9,954 $10,131
9/30/94 $10,002 $10,193
12/31/94 $10,024 $10,232
3/31/95 $10,543 $10,748
6/30/95 $11,262 $11,402
9/30/95 $11,481 $11,626
12/31/95 $12,038 $12,121
3/31/96 $11,757 $11,906
6/30/96 $11,785 $11,974
9/30/96 $11,997 $12,196
12/31/96 $12,368 $12,562
3/31/97 $12,295 $12,491
6/30/97 $12,703 $12,950
9/30/97 $13,117 $13,380
12/31/97 $13,464 $13,773
3/31/98 $13,666 $13,988
6/30/98 $13,964 $14,315
9/30/98 $14,526 $14,921
$10,000 investment made 4/1/93
The chart at left shows the growth of a $10,000 investment over the life of the
fund, while the chart below shows the fund's year-by-year performance. The
Lehman Aggregate Bond Index is provided for comparison in each chart. Premium
Bond's returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the returns of the index do not.
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.
[bar chart - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED SEPTEMBER 30)
Lehman Aggregate
Premium Bond Bond Index
DATE RETURN RETURN
9/30/93* 4.62% 5.33%
9/30/94 -4.39% -3.22%
9/30/95 14.80% 14.06%
9/30/96 4.49% 4.90%
9/30/97 9.32% 9.71%
9/30/98 10.75% 11.51%
* From 4/1/93 (the fund's inception date) to 9/30/93.
4 1-800-345-2021
Premium Bond--Q&A
- --------------------------------------------------------------------------------
/photo of Jeff Houston/
An interview with Jeff Houston, a portfolio manager on the Premium Bond
fund investment team.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30?
Premium Bond's performance reflected the diversified nature of its
portfolio. Treasury securities performed extremely well, but the comparatively
smaller gains of corporate and mortgage-backed securities weighed on fund
returns. The fund's total return was 6.30%, which before expenses was slightly
below the 6.66% return of its benchmark, the Lehman Aggregate Bond Index. (See
Total Returns on the previous page for fund performance comparisons.)
HOW DID THE PORTFOLIO CHANGE?
We shifted the portfolio to a more defensive stance beginning in July.
WHAT PROMPTED THIS STRATEGY SHIFT?
Given the increasing intensity of economic problems overseas, it seemed
likely that the Federal Reserve (the Fed) would need to lower short-term rates.
That outlook was strengthened in August, when corporate bonds and stocks
suffered sharp losses.
The selloff was viewed by the Fed as evidence that it was time to lower
short-term interest rates to try and stem global financial turmoil.
WHAT DID YOU DO TO THE PORTFOLIO TO MAKE IT MORE DEFENSIVE?
One way was to use the money from maturing securities and incoming cash
flows to increase the portfolio's Treasury position. We added
intermediate-maturity Treasurys because they stood to gain the most if the Fed
lowered rates. That's because yields of securities in this area tend to fall
more than either shorter- or longer-term securities when the Fed initially
lowers rates.
By the end of September, we had increased the percentage of Treasurys in
the portfolio to 33% of assets, making Treasurys the fund's largest holding (see
Portfolio Composition by Security Type on page 6).
Another defensive play was to reduce the portfolio's holdings of corporate
bonds whose underlying companies had direct exposure to overseas markets. With
economic uncertainty overseas increasing, we favored corporates that derived
most of their profits domestically. More specifically, we started emphasizing
bonds of companies that tend to provide more stable returns during economic
upheaval. Telecommunications and utility bonds are some good examples.
CORPORATE BONDS REPRESENTED THE PORTFOLIO'S SECOND LARGEST HOLDING. HOW DID THEY
FARE?
Unlike Treasury securities, corporate bonds suffered from a lack of demand
and an overabundance of supply, causing their returns to lag. Equity markets
began to slump after peaking in mid-July, when many bellwether corporations
warned that their profits would suffer from troubles overseas.
The stock market's problems caused investors to shun corporate bonds. Keep
in mind that a company's profits warnings are nearly as much a concern to a
[right margin]
"TREASURY SECURITIES PERFORMED EXTREMELY WELL, BUT THE COMPARATIVELY SMALLER
GAINS OF CORPORATE AND MORTGAGE-BACKED SECURITIES WEIGHED ON FUND RETURNS."
PORTFOLIO AT A GLANCE
9/30/98 3/31/98
NUMBER OF SECURITIES 123 98
WEIGHTED AVERAGE
MATURITY 8.8 YRS 10.7 YRS
AVERAGE DURATION 4.6 YRS 4.7 YRS
EXPENSE RATIO 0.45%* 0.45%
* Annualized.
YIELD AS OF SEPTEMBER 30, 1998
30-DAY SEC YIELD 5.32%
Investment terms are defined in the Glossary on page 20.
www.americancentury.com 5
Premium Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
bond investor as to a stock investor--both are negatively affected if a business
becomes less profitable since it often causes the stocks and bonds issued by the
company to fall in price.
WHAT CAUSED THE SURGE IN CORPORATE BOND SUPPLY?
A significant portion of the corporate debt market's supply problems can be
traced to two factors. The first was that a tremendous wave of new corporate
securities that was issued by companies rushing in to take advantage of low
interest rates. The second was that many large international investors and hedge
funds unloaded huge amounts of securities. Some of these investors bet heavily
that Treasury yields would begin to converge with the yields of other types of
fixed-income securities.
Unfortunately for many of these investors, their bets turned sour by
August, forcing them to close their corporate positions, locking in significant
losses. These funds quickly dumped corporates and other higher-yielding
securities and bought Treasurys. This caused demand for Treasurys to surge,
while unleashing a large influx of corporate and mortgage securities back into
the market.
WHAT DID THIS DO TO THE INTEREST RATE DIFFERENCE BETWEEN TREASURYS AND CORPORATE
BONDS?
The surge in supply helped to widen the difference in yields even further.
The yield spread, or difference, that corporate bonds pay over Treasurys nearly
doubled during the six months. For instance, in April, the difference in yield
between a 10-year, A-rated corporate industrial bond and a 10-year Treasury note
was 55 basis points (0.55%--a basis point equals 0.01%). However, by the end of
September, that spread had widened to 110 basis points.
EFFECTIVE SEPTEMBER 1, PREMIUM BOND WAS ALLOWED TO INVEST IN SECURITIES RATED
BB. WHY THE CHANGE?
The ability to invest in BB securities allows us greater flexibility in our
efforts to enhance returns by venturing into an area of the market that's
largely overlooked. "High-yield" investors typically focus on corporates with B
or lower credit quality. Meanwhile, most large institutional investors focus on
BBB or higher rated securities.
Thanks to our strong credit research team, we can carefully investigate the
spectrum of BB securities, which should give Premium Bond an advantage over many
of its competitors. Overall, we believe that the untapped BB portion of the
market is inefficiently priced, making it worth our while to sift through these
securities. However, when we eventually add such securities to the portfolio, we
will do so very selectively.
MORTGAGE-BACKED SECURITIES REPRESENTED THE PORTFOLIO'S THIRD-LARGEST HOLDING.
WHAT WAS BEHIND THEIR UNDERPERFORMANCE RELATIVE TO TREASURYS?
The main reason mortgage-backeds lagged was because of heavy refinancings.
The sharp drop in interest rates meant a continuance of the third major
refinancing wave this decade. (The first two took place in 1993 and in 1995-96.)
Starting in July, refinancing activity increased sharply as homeowners rushed in
to take advantage of record low mortgage rates.
As a result, mortgage-backed investors were faced with reinvesting their
prepaid proceeds in securities that had lower yields, hampering their returns
for the six months. This also shortened the average maturity (or price
sensitivity to changes in interest rates) of many mortgage-backed securities.
[left margin]
"THE ABILITY TO INVEST IN BB SECURITIES ALLOWS US GREATER FLEXIBILITY IN OUR
EFFORTS TO ENHANCE RETURNS BY VENTURING INTO AN AREA OF THE MARKET THAT'S
LARGELY OVERLOOKED."
[pie charts - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF SEPTEMBER 30, 1998
U.S. Treasury Securities 33%
Corporate Bonds 26%
Mortgage-Backed Securities 24%
Asset-Backed Securities 8%
Gov't. Agency Securities 4%
Other 5%
AS OF MARCH 31, 1998
U.S. Treasury Securities 27%
Corporate Bonds 26%
Mortgage-Backed Securities 25%
Asset-Backed Securities 7%
Other 15%
Security types are defined on page 20.
6 1-800-345-2021
Premium Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
WAS THAT WHY PREMIUM BOND'S AVERAGE MATURITY FELL?
That's the main reason, yes. Remember that the average maturities of
mortgage-backed securities tend to fall during bond market rallies, and rise
during market selloffs. So, as the market rallied, the average maturities of
these securities naturally shortened. For Premium Bond, that translated into a
decline in average maturity to 8.8 years by the end of September, from 10.7
years in April.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
Continued problems in Southeast Asia, Russia and Latin America finally seem
to be exacting a toll on U.S. economic growth. The economy appears to be slowing
despite historically low unemployment and steady job growth. Global demand for
U.S. goods isn't likely to increase much any time soon, given the economic
turmoil in many nations. We have also seen a drop in companies' capital spending
projections, which means they are expecting growth to slow.
Consumer spending is currently keeping the U.S. economy growing. However,
with consumer savings very low and stock market profits at least temporarily on
hold, consumer spending could falter. For these reasons, we believe that the Fed
may eventually lower short-term interest rates again. At the very least, we
aren't expecting them to raise rates anytime soon.
GIVEN THOSE EXPECTATIONS, HOW DO YOU PLAN ON POSITIONING PREMIUM BOND?
We will likely maintain the portfolio's current defensive stance until
there are further signs that global economic problems are being successfully
resolved. If the market begins to stabilize somewhat, it might open the door for
other types of fixed-income securities to perform better.
With spreads between corporates and Treasurys unusually wide right now, we
think that many corporates offer good long-term values. If the market stabilizes
somewhat, we may look to add more of these securities to the portfolio.
[right margin]
". . . WE BELIEVE THAT THE FED MAY EVENTUALLY LOWER SHORT-TERM INTEREST RATES
AGAIN. AT THE VERY LEAST, WE AREN'T EXPECTING THEM TO RAISE RATES ANYTIME
SOON."
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
9/30/98 3/31/98
AAA 75% 74%
AA 3% 3%
A 8% 9%
BBB 14% 14%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 19
for more information.
www.americancentury.com 7
Premium Bond--Schedule of Investments
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES
$3,000,000 U.S. Treasury Notes, 6.25%,
3/31/99 $ 3,024,360
300,000 U.S. Treasury Notes, 7.125%,
9/30/99 307,449
1,000,000 U.S. Treasury Notes, 5.625%,
12/31/99 1,012,810
400,000 U.S. Treasury Notes, 7.75%,
1/31/00 416,636
4,000,000 U.S. Treasury Notes, 5.50%,
2/29/00 4,055,680
1,000,000 U.S. Treasury Notes, 6.375%,
5/15/00 1,029,740
2,700,000 U.S. Treasury Notes, 6.625%,
7/31/01 2,859,570
1,000,000 U.S. Treasury Notes, 7.50%,
11/15/01 1,090,360
1,300,000 U.S. Treasury Notes, 5.25%,
8/15/03 1,358,344
700,000 U.S. Treasury Notes, 5.75%,
8/15/03 742,889
1,450,000 U.S. Treasury Notes, 7.875%,
11/15/04 1,718,613
1,000,000 U.S. Treasury Notes, 7.00%,
7/15/06 1,164,770
1,250,000 U.S. Treasury Notes, 5.50%,
2/15/08 1,350,613
300,000 U.S. Treasury Notes, 5.625%,
5/15/08 328,560
1,000,000 U.S. Treasury Bonds, 12.00%,
8/15/08 1,567,010
1,200,000 U.S. Treasury Bonds, 9.25%,
2/15/16 1,767,432
1,400,000 U.S. Treasury Bonds, 8.875%,
8/15/17 2,024,596
750,000 U.S. Treasury Bonds, 9.125%,
5/15/18 1,114,148
400,000 U.S. Treasury Bonds, 7.125%,
2/15/23 505,016
1,600,000 U.S. Treasury Bonds, 7.50%,
11/15/24 2,122,432
475,000 U.S. Treasury Bonds, 7.625%,
2/15/25 640,110
300,000 U.S. Treasury Bonds, 6.00%,
2/15/26 335,283
1,850,000 U.S. Treasury Bonds, 6.375%,
8/16/27 2,182,279
---------------
TOTAL U.S. TREASURY SECURITIES--33.3% 32,718,700
---------------
(Cost $30,626,428)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES
$1,000,000 FHLMC, 6.10%, 11/27/98 $ 1,001,500
500,000 FHLMC, 7.09%, 11/24/06 503,365
1,000,000 FHLMC, 5.75%, 4/15/08 1,062,560
500,000 FNMA MTN, 7.00%, 2/20/07 533,165
1,000,000 FNMA MTN, 7.49%, 5/22/07 1,042,540
---------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES--4.2% 4,143,130
---------------
(Cost $3,993,339)
MORTGAGE-BACKED SECURITIES(1)
912,773 FHLMC Pool #E68523, 6.50%,
10/7/03 934,031
1,000,000 FHLMC Pool #C00553, 7.00%,
9/1/27 1,027,404
263,178 FHLMC Pool #D75034, 8.50%,
10/1/26 274,321
965,421 FHLMC Pool #C00578, 6.50%,
1/1/28 983,704
1,197,874 FNMA Pool #272894, 6.00%,
2/1/09 1,213,365
732,390 FNMA Pool #392607, 7.00%,
7/1/12 753,354
202,181 FNMA Pool #426130, 6.00%,
5/1/13 204,432
800,587 FNMA Pool #426773, 6.00%,
7/1/13 809,498
873,870 FNMA Pool #405425, 7.00%,
12/1/27 898,955
726,366 FNMA Pool #413812, 6.50%,
1/1/28 739,336
1,818,455 FNMA Pool #406904, 7.50%,
4/1/28 1,877,222
1,820,447 FNMA Pool #426069, 7.00%,
5/1/28 1,872,921
1,000,000 FNMA REMIC, Series 1997-10,
Class M SEQ, 6.60%, 8/18/24 1,016,907
667,664 GNMA Pool #230356, 7.50%,
8/20/17 697,650
1,144,987 GNMA Pool #313107, 7.00%,
11/15/22 1,187,805
59,765 GNMA Pool #407141, 9.25%,
2/15/25 64,443
285,867 GNMA Pool #408099, 8.75%,
3/15/25 306,306
123,369 GNMA Pool #407254, 9.25%,
3/15/25 133,025
831,464 GNMA Pool #423986, 8.00%,
8/15/26 870,744
165,670 GNMA Pool #432437, 7.50%,
4/15/27 171,857
See Notes to Financial Statements
8 1-800-345-2021
Premium Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 858,557 GNMA Pool #447692, 7.50%,
5/15/27 $ 890,619
834,454 GNMA Pool #423061, 8.00%,
6/15/27 870,465
419,515 GNMA Pool #443782, 7.50%,
11/15/27 435,182
136,945 GNMA Pool #461011, 7.50%,
11/15/27 142,059
695,576 GNMA Pool #467626, 7.00%,
2/15/28 718,602
651,715 GNMA Pool #458862, 7.50%,
2/15/28 675,951
480,453 GNMA Pool #436277, 6.50%,
3/15/28 491,553
967,818 GNMA Pool #471859, 7.00%,
4/15/28 999,856
33,332 GNMA Pool #455126, 6.50%,
5/15/28 34,102
1,996,526 GNMA Pool #458887, 6.50%,
5/15/28 2,042,643
493,072 GNMA Pool #463891, 6.50%,
5/15/28 504,463
---------------
TOTAL MORTGAGE-BACKED
SECURITIES--24.3% 23,842,775
---------------
(Cost $23,315,809)
ASSET-BACKED SECURITIES(1)
1,000,000 Case Equipment Loan Trust,
Series 1998 B, Class A4 SEQ,
5.92%, 10/15/05 1,020,915
1,000,000 CIT RV Trust, Series 1997 A,
Class A6, 6.35%, 1/15/00 1,041,057
750,000 CIT RV Trust, Series 1998 A,
Class A4 SEQ, 6.09%,
2/15/12 774,386
984,256 First Union-Lehman Brothers
Commercial Mortgage, Series
1998 C2, Class A1 SEQ,
6.28%, 6/18/07 1,015,067
508,071 Green Tree Financial Corp., Series
1995-7, Class A3, 6.35%,
11/15/26 511,422
700,000 Money Store (The) Home Equity
Trust, Series 1994 B, Class A4
SEQ, 7.60%, 7/15/21 732,662
1,000,000 Money Store (The) Home Equity
Trust, Series 1997 C, Class AF6
SEQ, 6.67%, 3/1/03 1,039,302
292,554 Textron Financial Corp.
Receivables Trust, Series
1997 A, Class A, 6.05%,
3/16/09 (Acquired 9/18/97,
Cost $292,167)(2) 295,046
Principal Amount Value
- --------------------------------------------------------------------------------
$ 500,000 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A5, 6.92%,
10/15/18 $ 522,889
500,000 United Companies Financial Corp.,
Home Equity Loan, Series
1997 C, Class A7, 6.85%,
1/15/29 523,707
397,273 World Omni Automobile Lease
Securitization, Series 1996 B,
Class A2, 6.20%, 11/15/02 399,361
---------------
TOTAL ASSET-BACKED SECURITIES--8.0% 7,875,814
---------------
(Cost $7,644,164)
CORPORATE BONDS
AIRLINES--0.5%
461,785 Delta Air Lines, Inc., 7.54%,
10/11/11 498,926
---------------
AUTOMOBILES & AUTO PARTS--0.4%
350,000 General Motors Corp., 7.00%,
6/15/03 376,359
---------------
BANKING--2.6%
250,000 Corestates Capital Corp., 5.875%,
10/15/03 259,165
200,000 First Union Corp., 8.77%,
11/15/99 208,630
500,000 National Bank of Canada,
8.125%, 8/15/04 564,415
500,000 NationsBank Corporation,
6.125%, 7/15/04 524,815
650,000 NationsBank Corporation,
6.60%, 5/15/10 693,440
300,000 Santander Financial Issuances
Ltd., 6.375%, 2/15/11 306,276
---------------
2,556,741
---------------
CHEMICALS & RESINS--0.4%
300,000 ARCO Chemical Co., 10.25%,
11/1/10 377,142
---------------
COMMUNICATIONS SERVICES--4.6%
750,000 Cable & Wireless Communications,
6.625%, 3/6/05 767,813
500,000 CSC Holdings Inc., 7.625%,
7/15/18 483,750
650,000 LCI International, Inc., 7.25%,
6/15/07 687,648
500,000 MCI WorldCom, Inc., 8.875%,
1/15/01 548,110
300,000 MCI WorldCom, Inc., 7.55%,
4/1/04 329,838
750,000 MCI WorldCom, Inc., 6.40%,
8/15/05 793,343
See Notes to Financial Statements
www.americancentury.com 9
Premium Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 400,000 TCI Communications, Inc.,
6.375%, 9/15/99 $ 403,896
500,000 TKR Cable Inc., 10.50%,
10/30/99 550,465
---------------
4,564,863
---------------
ELECTRICAL & ELECTRONIC
COMPONENTS--0.9%
200,000 Anixter International Inc., 8.00%,
9/15/03 221,380
200,000 Hutchison Whampoa Financial,
Series B, 7.45%, 8/1/17
(Acquired 6/4/98, Cost
$170,238)(2) 143,212
500,000 Yorkshire Power Finance, 6.15%,
2/25/03 (Acquired 2/19/98,
Cost $500,000)(2) 509,445
---------------
874,037
---------------
ENERGY (PRODUCTION & MARKETING)--1.5%
750,000 Enron Corp., 6.625%, 11/15/05 792,278
700,000 USX Corp., 6.85%, 3/1/08 727,965
---------------
1,520,243
---------------
ENERGY (SERVICES)--0.5%
500,000 Petroleum Geo-Services ASA,
7.125%, 3/30/28 502,145
---------------
FINANCIAL SERVICES--4.8%
400,000 Advanta Corp. MTN, Series B,
7.00%, 5/1/01 366,592
500,000 Associates Corp., N.A., 6.625%,
6/15/05 539,215
1,000,000 Comdisco, Inc., 6.375%,
11/30/01 1,037,500
400,000 Dean Witter, Discover & Co.,
6.875%, 3/1/03 427,836
500,000 Ford Motor Credit Co., 6.125%,
4/28/03 518,145
200,000 Ford Motor Credit Co., 6.75%,
5/15/05 215,174
250,000 Lehman Brothers Holdings Inc.
MTN, Series 1998 E, 6.00%,
2/26/01 249,873
1,000,000 Merrill Lynch & Co., Inc., 6.50%,
4/1/01 1,031,620
300,000 Paine Webber Group Inc.,
7.875%, 2/15/03 328,968
---------------
4,714,923
---------------
Principal Amount Value
- --------------------------------------------------------------------------------
INSURANCE--0.5%
$ 450,000 Zurich Capital Trust I, 8.38%,
6/1/37 (Acquired
5/28/97-6/11/97,
Cost $452,966)(2) $ 507,285
---------------
LEISURE--0.7%
350,000 Hilton Hotels Corp., 7.00%,
7/15/04 362,009
300,000 Time Warner Inc., 6.85%,
1/15/26 320,751
---------------
682,760
---------------
MACHINERY & EQUIPMENT--0.8%
750,000 Caterpillar Financial Services
Corp., 5.90%, 9/10/02 774,053
---------------
METALS & MINING--0.7%
600,000 Barrick Gold Corp., 7.50%,
5/1/07 663,828
---------------
OFFICE EQUIPMENT & SUPPLIES--0.4%
350,000 Xerox Capital Trust, 8.00%,
2/1/27 (Acquired 7/17/97,
Cost $364,084)(2) 394,713
---------------
PAPER & FOREST PRODUCTS--0.7%
750,000 Abitibi-Consolidated Inc., 7.40%,
4/1/18 708,750
---------------
PRINTING & PUBLISHING--0.3%
250,000 News America Inc., 6.625%,
1/9/08 260,048
---------------
RAILROAD--1.5%
350,000 Norfolk Southern Corp., 7.90%,
5/15/97 417,526
1,000,000 Norfolk Southern Corp., 6.95%,
5/1/02 1,055,670
---------------
1,473,196
---------------
REAL ESTATE--2.4%
500,000 Chelsea GCA Realty Partners,
7.25%, 10/21/07 546,400
450,000 Price REIT, Inc. (The), 7.25%,
11/1/00 466,178
750,000 Simon DeBartolo Group Inc.,
6.625%, 6/15/03 (Acquired
6/17/98, Cost $748,260)(2) 774,405
500,000 Spieker Properties, Inc., 6.80%,
12/15/01 524,415
---------------
2,311,398
---------------
See Notes to Financial Statements
10 1-800-345-2021
Premium Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)--0.4%
$ 300,000 Sears, Roebuck & Co., Inc.,
9.375%, 11/1/11 $ 398,634
---------------
UTILITIES--1.7%
350,000 CalEnergy Co. Inc., 7.23%,
9/15/05 358,008
350,000 CalEnergy Co. Inc., 7.63%,
10/15/07 365,512
500,000 Columbia Gas System, Inc. (The),
6.80%, 11/28/05 541,010
400,000 Duke Power Co., 6.875%,
8/1/23 411,961
---------------
1,676,491
---------------
TOTAL CORPORATE BONDS--26.3% 25,836,535
---------------
(Cost $24,779,193)
Principal Amount Value
- --------------------------------------------------------------------------------
SOVEREIGN GOVERNMENTS & AGENCIES--0.6%
$ 500,000 Hydro-Quebec, 8.05%, 7/7/24 $ 599,055
---------------
(Cost $540,650)
MUNICIPAL OBLIGATION--2.0%
2,000,000 Massachusetts Water Resource
Auth. Rev., Series 1993 C,
4.75%, 12/1/23 (MBIA) 1,956,760
---------------
(Cost $1,858,550)
TEMPORARY INVESTMENTS--1.3%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 5.38%, dated 9/30/98,
due 10/1/98 (Delivery value $1,260,188) 1,260,000
---------------
(Cost $1,260,000)
TOTAL INVESTMENT SECURITIES--100.0% $ 98,232,769
===============
(Cost $94,018,133)
NOTES TO SCHEDULE OF INVESTMENTS
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
MBIA = MBIA Insurance Corp.
MTN = Medium Term Note
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of these securities at September 30, 1998 was $2,624,106,
which represented 2.7% of net assets.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
* the percentage of investments in each industry, as applicable
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
www.americancentury.com 11
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $94,018,133)
(Note 3) ............................................... $ 98,232,769
Cash ..................................................... 428
Receivable for capital shares sold ....................... 285,180
Interest receivable .................................... 1,191,847
------------
99,710,224
------------
LIABILITIES
Disbursements in excess of
demand deposit cash .................................... 638
Payable for capital shares
redeemed ............................................... 3,241,942
Accrued management fees
(Note 2) ............................................... 35,843
Dividends payable ........................................ 75,903
Accrued expenses and
other liabilities ...................................... 60
------------
3,354,386
------------
Net Assets ............................................... $ 96,355,838
============
CAPITAL SHARES,
$0.01 PAR VALUE
Authorized ............................................... 100,000,000
============
Outstanding .............................................. 9,189,840
============
Net Asset Value Per Share ................................ $ 10.49
============
NET ASSETS CONSIST OF:
Capital (par value and
paid in surplus) ....................................... $ 91,703,626
Accumulated undistributed
net realized gain on investments ....................... 437,576
Net unrealized appreciation
on investments (Note 3) ................................ 4,214,636
------------
$ 96,355,838
============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of shares outstanding gives you the price of an individual share, or the net
asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders); net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakout tells you the value of net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
12 1-800-345-2021
Statement of Operations
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest .................................................. $2,766,610
----------
Expenses (Note 2):
Management fees ........................................... 199,797
Directors' fees and expenses .............................. 345
----------
200,142
----------
Net investment income ..................................... 2,566,468
----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments .......................... 57,571
Change in net unrealized appreciati
on on investments ....................................... 2,947,208
----------
Net realized and unrealized gain
on investments .......................................... 3,004,779
----------
Net Increase in Net Assets
Resulting from Operations ............................... $5,571,247
==========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks out how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* interest income earned from investments
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
www.americancentury.com 13
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND YEAR ENDED MARCH 31, 1998
SEPTEMBER 30, MARCH 31,
Increase in Net Assets 1998 1998
OPERATIONS
Net investment income ...................... $ 2,566,468 $ 3,493,146
Net realized gain on investments ........... 57,571 795,885
Change in net unrealized appreciation
(depreciation) on investments ............ 2,947,208 1,701,053
------------ ------------
Net increase in net assets
resulting from operations ................ 5,571,247 5,990,084
------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ................. (2,588,365) (3,471,249)
From net realized gains from
investment transactions ................. -- (387,844)
------------ ------------
Decrease in net assets
from distributions ....................... (2,588,365) (3,859,093)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 46,787,785 72,857,318
Proceeds from reinvestment
of distributions ......................... 2,547,725 3,796,289
Payments for shares redeemed ............... (21,133,694) (35,363,449)
------------ ------------
Net increase in net assets
from capital share transactions .......... 28,201,816 41,290,158
------------ ------------
Net increase in net assets ................. 31,184,698 43,421,149
NET ASSETS
Beginning of period ........................ 65,171,140 21,749,991
------------ ------------
End of period .............................. $ 96,355,838 $ 65,171,140
============ ============
Undistributed net investment income ........ -- $ 21,897
============ ============
TRANSACTIONS IN SHARES
OF THE FUND
Sold ....................................... 4,580,787 7,303,108
Issued in reinvestment of distributions .... 248,723 376,344
Redeemed ................................... (2,058,555) (3,489,976)
------------ ------------
Net increase ............................... 2,770,955 4,189,476
============ ============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
the fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (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. American Century - Benham Premium Bond Fund
(Premium Bond) is one of the three funds issued by the Corporation. The
investment objective of Premium Bond is to obtain a high level of income from
investments in a portfolio of longer-term bonds and other debt obligations. The
following significant accounting policies are in accordance with generally
accepted accounting principles.
SECURITY VALUATIONS--Securities are valued 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 as of the
trade date. 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 accretion of discounts and amortization of premiums.
FORWARD COMMITMENTS--The Fund 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 Fund may enter into repurchase agreements with
institutions that the Fund's 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 Fund requires that the collateral, represented by securities, received
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the Fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, 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 Fund under each repurchase agreement.
JOINT TRADING ACCOUNT--Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account held at the Fund's
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 Fund's policy to distribute all net investment
income and net realized 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 income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income are
declared daily and distributed monthly. Distributions from net realized gains
are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net capital gains and losses for financial statement
and tax purposes and may result in reclassification among certain capital
accounts.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions 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.
ADDITIONAL INFORMATION--Funds Distributor, Inc. (FDI) is the Corporation's
distributor. Certain officers of FDI are also officers of the Corporation.
www.americancentury.com 15
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into a Management Agreement with ACIM that
provides the Fund with investment advisory and management services in exchange
for a single, unified management fee. The Agreement provides that all expenses
of the Fund, 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 the Fund's average daily closing net assets during the previous month. The
annual management fee for the Fund is 0.45%.
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, and
the Corporation's transfer agent, American Century Services Corporation.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments,
totaled $56,676,816, including U.S. Treasury and Agency obligations totaling
$39,021,944. Sales of investment securities, excluding short-term investments,
totaled $24,991,510, including U.S. Treasury and Agency obligations totaling
$18,112,765.
As of September 30, 1998, accumulated net unrealized appreciation was
$4,206,272, based on the aggregate cost of investments for federal income tax
purposes of $94,026,497, which consisted of unrealized appreciation of
$4,320,338, and unrealized depreciation of $114,066.
16 1-800-345-2021
Premium Bond--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
1998(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............... $ 10.15 $ 9.76 $ 9.93 $ 9.46 $ 9.64 $ 10.00
---------- ---------- ---------- ---------- ---------- ----------
Income From Investment
Operations
Net Investment Income ........... 0.30 0.61 0.61 0.61 0.59 0.46
Net Realized and Unrealized
Gain (Loss) on Investments ...... 0.34 0.45 (0.17) 0.47 (0.18) (0.36)
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment
Operations ...................... 0.64 1.06 0.44 1.08 0.41 0.10
---------- ---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ...... (0.30) (0.61) (0.61) (0.61) (0.59) (0.46)
From Net Realized Gains ......... -- (0.06) -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions ............. (0.30) (0.67) (0.61) (0.61) (0.59) (0.46)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value,
End of Period ..................... $ 10.49 $ 10.15 $ 9.76 $ 9.93 $ 9.46 $ 9.64
========== ========== ========== ========== ========== ==========
Total Return(2) ................. 6.30% 11.14% 4.57% 11.53% 4.48% 0.92%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.45%(3) 0.45% 0.45% 0.43% 0.45% 0.45%
Ratio of Net Investment Income
to Average Net Assets ............. 5.79%(3) 6.06% 6.20% 6.08% 6.30% 4.65%
Portfolio Turnover ................ 30% 138% 63% 92% 51% 144%
Net Assets, End of Period
(in thousands) .................... $ 96,356 $ 65,171 $ 21,750 $ 20,280 $ 10,334 $ 8,080
</TABLE>
(1) Six months ended September 30, 1998 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for less than one year are not
annualized.
(3) Annualized.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 17
Retirement Account Information
- --------------------------------------------------------------------------------
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.
18 1-800-345-2021
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND 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.
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 index is used in the report for fund performance comparisons.
It is not an investment product available for purchase.
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 Premium Bond is:
CORPORATE DEBT FUNDS RATED A --funds that invest at least 65% of their
assets in government issues or corporate debt issues rated A or better.
CREDIT RATING GUIDELINES
Credit ratings are issued by independent research companies such as
Standard & Poor's and Moody's. Ratings are based on an issuer's financial
strength and ability to pay interest and principal in a timely manner.
It's important to note that credit ratings are subjective, reflecting the
opinions of the rating agencies; they are not absolute standards of quality.
[right margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS
BUD HOOPS
JEFF HOUSTON
CREDIT RESEARCH MANAGER
GREG AFIESH
www.americancentury.com 19
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 page 17.
YIELDS
* 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 measure 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. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF FIXED-INCOME SECURITIES
* ASSET-BACKED SECURITIES--debt securities that represent ownership in a pool of
assets, such as credit card debt, auto loans, or home equity loans.
* CORPORATE BONDS--debt securities or instruments issued by companies and
corporations.
* MORTGAGE-BACKED SECURITIES--debt securities that represent ownership in pools
of mortgage loans.
* 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).
20 1-800-345-2021
[inside back cover]
American Century Funds
Benham Group(reg.sm)
TAXABLE BOND FUNDS
U.S. Treasury & Government
Short-Term Treasury
Short-Term Government
GNMA
Intermediate-Term Treasury
Long-Term Treasury
Inflation-Adjusted Treasury
Target Maturities Trust: 2000
Target Maturities Trust: 2005
Target Maturities Trust: 2010
Target Maturities Trust: 2015
Target Maturities Trust: 2020
Target Maturities Trust: 2025
Corporate & Diversified
Limited-Term Bond
Intermediate-Term Bond
Bond
Premium Bond
High-Yield Bond
International
International Bond
TAX-FREE & MUNICIPAL BOND FUNDS
Multiple-State
Limited-Term Tax-Free
Intermediate-Term Tax-Free
Long-Term Tax-Free
High-Yield Municipal
Single-State
Arizona Intermediate-Term Municipal
California High-Yield Municipal
California Insured Tax-Free
California Intermediate-Term Tax-Free
California Limited-Term Tax-Free
California Long-Term Tax-Free
Florida Intermediate-Term Municipal
MONEY MARKET FUNDS
Taxable
Capital Preservation
Government Agency Money Market
Premium Capital Reserve
Premium Government Reserve
Prime Money Market
Tax-Free & Municipal
California Municipal Money Market
California Tax-Free Money Market
Florida Municipal Money Market
Tax-Free Money Market
AMERICAN CENTURY[reg.sm] GROUP
Asset Allocation Funds
Strategic Allocation: Conservative
Strategic Allocation: Moderate
Strategic Allocation: Aggressive
Balanced Fund
Balanced
Conservative Equity Funds
Income and Growth
Equity Income
Value
Equity Growth
Specialty Funds
Utilities
Real Estate
Global Natural Resources
Global Gold
Small Cap Funds
Small Cap Quantitative
Small Cap Value
TWENTIETH CENTURY GROUP
Growth Funds
Select
Heritage
Growth
Ultra
Aggressive Growth Funds
Vista
Giftrust
New Opportunities
International Growth Funds
International Growth
International Discovery
Emerging Markets
[right margin]
[american century logo(reg.sm)]
American
Century
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.
(c) 1998 AMERICAN CENTURY SERVICES CORPORATION
FUNDS DISTRIBUTOR, INC.
[recycled logo]
Recycled
[back cover]
[40 Years]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9811 (c)1998 American Century Services Corporation
SH-BKT-14216 Funds Distributor, Inc.
