AMERICAN CENTURY
Prospectus
Premium Government Reserve Fund
Premium Capital Reserve Fund
Premium Bond Fund
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American
Century
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AUGUST 1, 1999
INVESTOR CLASS
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO
TELLS YOU OTHERWISE IS COMMITTING A CRIME.
Distributed by Funds Distributor, Inc.
Dear Investor,
Reading a prospectus doesn't have to be a chore. We've done the hard work so
you can focus on what's important--learning about the funds and tracking your
investments. Take a look inside, and you'll see this prospectus is different. It
takes a clear-cut approach to fund information.
Here's what you'll find:
* The funds' primary investments and risks
* A description of who may or may not want to invest in the funds
* Fund performance, including returns for each year, best and worst quarters,
and average annual returns compared to the funds' benchmarks
* An overview of services available and ways to manage your accounts
* Helpful tips and definitions of key investment terms
Whether you're a current investor or investing in mutual funds for the first
time, this prospectus will give you a clear understanding of the funds. If you
have questions, our Investor Relations Representatives are available weekdays, 7
a.m. to 7 p.m., and Saturdays, 9 a.m. to 2 p.m., Central time. Our toll-free
number is 1-800-345-2021. We look forward to helping you achieve your financial
goals.
Sincerely,
/s/Mark Killen
Mark Killen
Senior Vice President
American Century Investment Services, Inc.
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American
Century
American Century
Investments
P.O. Box 419200
Kansas City, MO
64141-6200
TABLE OF CONTENTS
An Overview of the Funds .................................................. 2
Fund Performance History .................................................. 3
Fees and Expenses ......................................................... 4
Information about the Funds ............................................... 5
Premium Government Reserve Fund
Premium Capital Reserve Fund
Premium Bond Fund
Basics of Fixed-Income Investing .......................................... 7
Management ................................................................ 10
Investing with American Century ........................................... 13
Share Price and Distributions ............................................. 17
Taxes ..................................................................... 18
Financial Highlights ...................................................... 19
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Throughout this book you'll find definitions of key investment terms and
phrases. When you see a word printed in GREEN ITALICS, look for its definition
in the left margin.
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This symbol highlights special information and helpful tips.
American Century Investments
AN OVERVIEW OF THE FUNDS
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
Premium Government Reserve and Premium Capital Reserve are money market funds
that seek to earn the highest level of current income while preserving the value
of your investment.
Premium Bond seeks a high level of income by investing primarily in non-money
market DEBT SECURITIES.
WHAT ARE THE FUNDS' PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
A more detailed description of the funds' investment strategies and risks begins
on page 5.
Fund Primary Investments Principal Risks
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Premium Very short-term U.S. government Lower yield than
Government securities longer-term or lower-
Reserve quality securities
Premium High-quality cash-equivalent Lower yield than
Capital securities of banks, governments longer-term or lower-
Reserve and corporations quality securities
Premium Bond High- and medium-grade non-money Interest rate, credit and
market debt securities prepayment risk
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As with all funds, at any given time, the value of your shares may be worth more
or less than the price you paid. If you sell your shares when the value is less
than the price you paid, you will lose money. Although Premium Government
Reserve and Premium Capital Reserve seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
them.
WHO MAY WANT TO INVEST IN THE FUNDS?
The funds may be a good investment if you are
* seeking current income
* in the case of the money market funds, more concerned with preservation of
capital than long-term investment performance
* seeking diversification by investing in a fixed-income mutual fund
* comfortable with the funds' other investment risks
WHO MAY NOT WANT TO INVEST IN THE FUNDS?
The funds may not be a good investment if you are
* investing for long-term growth
* looking for the added security of FDIC insurance
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DEBT SECURITIES include fixed-income investments such as notes, bonds,
commercial paper and Treasury bills. Very short-term debt securities (those with
maturities shorter than one year) are called money market instruments.
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An investment in the funds is not a bank deposit, and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Although the money market funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
them.
2 American Century Investments 1-800-345-2021
FUND PERFORMANCE HISTORY
PREMIUM GOVERNMENT RESERVE FUND
PREMIUM CAPITAL RESERVE FUND
PREMIUM BOND FUND
Annual Total Returns(1)
The following bar chart shows the performance of the funds' Investor Class
shares for each full calendar year in the life of the fund. It indicates the
volatility of the funds' historical returns from year to year.
[chart data shown below]
1994 1995 1996 1997 1998
Premium Government Reserve 3.90 5.63 5.10 5.20 5.15
Premium Capital Reserve 3.97 5.70 5.16 5.31 5.29
Premium Bond -4.10 20.10 2.73 8.85 7.85
(1) As of June 30, 1999, the end of the most recent calendar quarter, Premium
Government Reserve's year-to-date return was 2.23%; Premium Capital Reserve's
year-to-date return was 2.30%; and Premium Bond's year-to-date return was
- -1.58%.
The highest and lowest quarterly returns for the period reflected in the bar
chart are:
Highest Lowest
Premium Government Reserve 1.42% (2Q 1995) 0.69% (1Q 1994)
Premium Capital Reserve 1.43% (2Q 1995) 0.72% (1Q 1994)
Premium Bond 6.82% (2Q 1995) -3.47% (1Q 1994)
Average Annual Returns
The following table shows the average annual total returns of the funds'
Investor Class shares for the periods indicated. The benchmarks are unmanaged
indices that have no operating costs and are included in the table for
performance comparison.
For the calendar year ended December 31, 1998
1 year 5 years Life of Fund(1)
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Premium Government Reserve 5.15% 4.99% 4.69%
90 - Day Treasury Bill Index 4.50% 4.95% 4.70%
Premium Capital Reserve 5.29% 5.09% 4.78%
90 - Day Treasury Bill Index 4.50% 4.95% 4.70%
Premium Bond 7.85% 6.79% 6.70%
Lehman Aggregate Bond Index 8.69% 7.27% 7.27%
(1) The inception date for the funds is April 1, 1993.
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The performance information on this page is designed to help you see how fund
returns can vary. Keep in mind that past performance does not predict how the
funds will perform in the future.
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For current performance information, including yields, please call us at
1-800-345-2021 or visit American Century's Web site at www.americancentury.com.
www.americancentury.com American Century Investments 3
FEES AND EXPENSES
There are no sales loads, fees or other charges
* to buy fund shares directly from American Century
* to reinvest dividends in additional shares
* to exchange into the Investor Class shares of other American Century funds
* to redeem your shares
The following table describes the fees and expenses that you will pay if you buy
and hold shares of the funds.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Distribution and Other Total Annual Fund
Fee Service (12b-1) Fees Expenses(1) Operating Expenses
<S> <C> <C> <C>
Premium Government Reserve 0.45% None 0.00% 0.45%
Premium Capital Reserve 0.45% None 0.00% 0.45%
Premium Bond 0.45% None 0.00% 0.45%
</TABLE>
(1) Other expenses, which include the fees and expenses of the funds'
independent directors, their legal counsel and interest, were less than 0.005%
for the most recent fiscal year.
EXAMPLE
The examples in the table below are intended to help you compare the costs of
investing in a fund with the costs of investing in other mutual funds. Assuming
you . . .
* invest $10,000 in the fund
* redeem all of your shares at the end of the periods shown below
* earn a 5% return each year
* incur the same operating expenses as shown above
. . . your cost of investing in the fund would be:
1 year 3 years 5 years 10 years
Premium Government Reserve $46 $144 $252 $566
Premium Capital Reserve $46 $144 $252 $566
Premium Bond $46 $144 $252 $566
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Use this example to compare the costs of investing in other funds. Of course,
your actual costs may be higher or lower.
4 American Century Investments 1-800-345-2021
INFORMATION ABOUT THE FUNDS
PREMIUM GOVERNMENT RESERVE FUND
PREMIUM CAPITAL RESERVE FUND
PREMIUM BOND FUND
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
Premium Government Reserve and Premium Capital Reserve are money market funds
that seek to earn the highest level of current income while preserving the value
of your investment.
Premium Bond seeks a high level of income by investing primarily in non-money
market debt securities.
HOW DO THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES?
Premium Government Reserve
Premium Government Reserve invests in very short-term U.S. government
securities. These securities may include direct obligations of the United
States, such as Treasury bills, notes and bonds. They may also include
obligations, such as mortgage-related securities, issued or guaranteed by
agencies and instrumentalities of the U.S. government.
Premium Capital Reserve
Premium Capital Reserve invests in HIGH-QUALITY, cash-equivalent securities.
These securities include the kinds of U.S. government securities in which
Premium Government Reserve may invest as well as short-term bank and corporate
obligations that are payable in U.S. dollars.
Premium Bond
Premium Bond invests primarily in high- and medium-grade, non-money market debt
securities. These securities, which may be payable in U.S. or foreign
currencies, may include corporate bonds and notes, government securities and
securities backed by mortgages or other assets. Shorter-term debt securities
round out the portfolio.
The fund invests most of its assets in QUALITY debt securities. However, up to
15% of the fund's assets may be invested in securities rated in the fifth
highest category by an independent rating agency, or determined to be of
comparable quality by the advisor. Corporations usually issue these securities
to finance existing operations or expand their businesses.
The WEIGHTED AVERAGE MATURITY of the fund's portfolio must be three and one-half
years or longer. During periods of rising interest rates, the fund managers may
adopt a shorter portfolio maturity in order to reduce the effect of bond price
declines on the fund's value. When interest rates are falling and bond prices
are rising, they may adopt a longer portfolio maturity.
For more information about the funds' credit quality standards and about credit
risk, please see "Basics of Fixed-Income Investing" beginning on page 7.
Additional information about the funds' investments is available in their annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
funds' performance during the most recent fiscal period. You may get these
reports at no cost by calling us.
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A HIGH-QUALITY debt security is one that has been determined to be in the top
two credit quality categories. A QUALITY, or investment-grade, security is one
that has been determined to be in the top four credit quality categories. This
can be established in a number of ways. For example, independent rating agencies
may rate the security in their higher rating categories. The funds' advisor also
can analyze an unrated security to determine if its credit quality is high
enough for investment. The details of the funds' credit quality standards are
described in the Statement of Additional Information.
WEIGHTED AVERAGE MATURITY is described in more detail under "Basics of
Fixed-Income Investing."
www.americancentury.com American Century Investments 5
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUNDS?
Premium Government Reserve
Premium Capital Reserve
Because very short-term U.S. government securities and other cash-equivalent
securities are among the safest securities available, the interest they pay is
among the lowest for income-paying securities. Accordingly, the yield on these
funds will likely be lower than funds that invest in longer-term or
lower-quality securities.
Premium Bond
When interest rates change, Premium Bond's share value will be affected.
Generally, when interest rates rise, the fund's share value will decline. The
opposite is true when interest rates decline. This interest rate risk is higher
for Premium Bond than for funds that have shorter weighted average maturities,
such as money market and short-term bond funds.
Although most of the securities purchased by the fund are quality debt
securities at the time of purchase, the fund may invest part of its assets in
securities rated in the lowest investment-grade category (e.g., BBB) and up to
15% of its assets in securities rated in the fifth category (e.g., BB). As a
result, the fund has some credit risk. Although they are considered investment
grade, issuers of BBB-rated securities (and securities of similar quality) are
more likely to have problems making interest and principal payments than issuers
of higher-rated securities. Issuers of BB-rated securities (and securities of
similar quality) are considered even more vulnerable to adverse business,
financial or economic conditions that could lead to difficulties in making
timely payments of principal and interest.
The fund may invest in debt securities backed by mortgages or assets such as
credit card receivables. These underlying obligations may be prepaid, as when a
homeowner refinances a mortgage to take advantage of declining interest rates.
If so, the fund must reinvest prepayments at current rates, which may be less
than the rate of the prepaid mortgage. Because of this prepayment risk, the fund
may benefit less from declining interest rates than funds of similar maturity
that invest less heavily in mortgage- and asset-backed securities.
The fund's share value will fluctuate. In general, the funds that have higher
potential income have higher potential loss. If you sell your shares when their
value is less than the price you paid, you will lose money.
6 American Century Investments 1-800-345-2021
BASICS OF FIXED-INCOME INVESTING
DEBT SECURITIES
When a fund buys a debt security, which is also called a fixed-income security,
it is essentially lending money to the issuer of the security. Notes, bonds,
commercial paper and Treasury bills are examples of debt securities. After the
debt security is first sold by the issuer, it may be bought and sold by other
investors. The price of the security may rise or fall based on many factors,
including changes in interest rates, inflation, liquidity and credit quality.
The fund managers decide which debt securities to buy and sell by
* determining which securities help a fund meet its maturity requirements
* eliminating securities that do not satisfy a fund's credit quality standards
* evaluating the current economic conditions and assessing the risk of
inflation
* evaluating special features of the securities that may make them more or less
attractive
WEIGHTED AVERAGE MATURITY
Like most loans, debt securities eventually must be repaid (or refinanced) at
some date. This date is called the maturity date. The number of days left to a
debt security's maturity date is called the remaining maturity. The longer a
debt security's remaining maturity, the more sensitive it is to changes in
interest rates.
Because a bond fund will own many debt securities, the fund managers calculate
the average of the remaining maturities of all of the debt securities the fund
owns to evaluate the interest rate sensitivity of the entire portfolio. This
average is weighted according to the size of the fund's individual holdings and
is called WEIGHTED AVERAGE MATURITY. The following chart shows how fund managers
would calculate the weighted average maturity for a fund that owned only two
debt securities.
Amount of Percent of Remaining Weighted
Security Owned Portfolio Maturity Maturity
Debt Security A $100,000 25% 1,000 days 250 days
Debt Security B $300,000 75% 10,000 days 7,500 days
Weighted Average Maturity 7,750 days
TYPES OF RISK
The basic types of risk that the funds face are described below.
Interest Rate Risk
Generally, interest rates and the prices of debt securities move in opposite
directions. When interest rates fall, the prices of most debt securities rise;
when interest rates rise, prices fall. Because the funds invest primarily in
debt securities, changes in interest rates will affect the funds' performance.
The degree to which interest rate changes affect a fund's performance varies and
is related to the weighted average maturity of a particular fund. For example,
when interest rates rise, you can expect the share value of a long-term bond
fund to fall more than that of a short-term bond fund. When rates fall, the
opposite is true. This sensitivity to interest rate changes is called interest
rate risk.
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The longer a fund's weighted average maturity, the more sensitive it is to
changes in interest rates.
WEIGHTED AVERAGE MATURITY is a tool that the fund managers use to approximate
the remaining maturity of a fund's investment portfolio.
www.americancentury.com American Century Investments 7
When interest rates change, longer maturity bonds experience a greater change in
price. The following table shows the effect of a 1% increase in interest rates
on the price of 7% coupon bonds of differing maturities:
Remaining Current Price After Change
Maturity Price 1% Increase in Price
1 year $100.00 $99.06 -0.94%
3 years $100.00 $97.38 -2.62%
10 years $100.00 $93.20 -6.80%
30 years $100.00 $88.69 -11.31%
Credit Risk
Credit risk is the risk that an obligation won't be paid and a loss will result.
A high credit rating indicates a high degree of confidence by the rating
organization that the issuer will be able to withstand adverse business,
financial or economic conditions and be able to make interest and principal
payments on time. Generally, a lower credit rating indicates a greater risk of
non-payment. A lower rating also may indicate that the issuer has a more senior
series of debt securities, which means that if the issuer has difficulties
making its payments, the more senior series of debt is first in line for
payment.
It's not as simple as buying the highest-rated debt securities. Higher credit
ratings usually mean lower interest rates, so investors often purchase
securities that aren't the highest rated to increase return. If a fund purchases
lower-rated securities, it has assumed additional credit risk.
The following chart provides a general illustration of the authorized credit
quality ranges for the funds offered by this Prospectus. Although the chart only
reflects securities ratings provided by Moody's and Standard & Poor's, the funds
may also rely on comparable ratings provided by other nationally recognized
securities rating organizations.
[chart data shown below]
INVESTMENT GRADE NON-INVESTMENT GRADE
A-1 A-2 A-3
P-1 P-2 P-3
MIG-1 MIG-2 MIG-3
SP-1 SP-2 SP-3
AAA AA A BBB BB B CCC CC C D
======== Premium Government Reserve
================ Premium Capital Reserve
========================================= Premium Bond
Securities rated in one of the highest two categories by a nationally recognized
securities rating organization are considered "high quality." Although they are
considered high quality, an investment in these securities still involves some
credit risk because a AAA rating is not a guarantee of payment. For a complete
description of the ratings system and an explanation of certain exceptions to
the guidelines reflected in the chart, see the Statement of Additional
Information. The funds' credit quality restrictions apply at the time of
purchase; the funds will not necessarily sell securities if they are downgraded
by a rating agency.
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Credit quality may be lower when the issuer has
* a high debt level
* a short operating history
* a senior level of debt
* a difficult, competitive environment
* less stable cash flow
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The Statement of Additional Information provides a detailed description of these
securities ratings.
8 American Century Investments 1-800-345-2021
Liquidity Risk
Debt securities can become difficult to sell, or less liquid, for a variety of
reasons, such as lack of an active trading market. The chance that a fund will
have liquidity issues is called liquidity risk.
Inflation Risk
The safest investments usually have the lowest potential income and performance.
However, returns from these investments may fail to significantly outpace
inflation. Even if the value of your investment has not gone down, your money
will not be worth as much as if there had been no inflation. Your
after-inflation return may be quite small. This risk is called inflation risk.
The funds engage in a variety of investment techniques as they pursue their
investment objectives. Each technique has its own characteristics, and may pose
some level of risk to the funds. If you would like to learn more about these
techniques, you should review the Statement of Additional Information before
making an investment.
www.americancentury.com American Century Investments 9
MANAGEMENT
WHO MANAGES THE FUNDS?
The Board of Directors, investment advisor and fund management team play key
roles in the management of the funds.
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Directors does not manage the funds, it has hired an investment advisor to do
so. More than two-thirds of the directors are independent of the funds' advisor;
that is, they are not employed by and have no financial interest in the advisor.
THE INVESTMENT ADVISOR
The funds' investment advisor is American Century Investment Management, Inc.
The advisor has been managing mutual funds since 1958. American Century is
headquartered at 4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the funds
and directing the purchase and sale of their investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the funds to operate.
For the services it provided to the funds during the most recent fiscal year,
the advisor received a unified management fee based on a percentage of the
average net assets of the Investor Class shares of each fund. The amount of the
management fee is calculated on a class-by-class basis daily and paid monthly.
The Statement of Additional Information contains detailed information about the
calculation of the management fee. Out of that fee, the advisor paid all
expenses of managing and operating the funds except brokerage expenses, taxes,
interest, fees and expenses of the independent directors (including legal
counsel fees), and extraordinary expenses. A portion of the management fee may
be paid by the funds' advisor to unaffiliated third parties who provide
recordkeeping and administrative services that would otherwise be performed by
an affiliate of the advisor.
Management Fees Paid by the Fund to the Advisor as a Percentage of Average
Net Assets for the Most Recent Fiscal Year Ended March 31, 1999
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Premium Government Reserve 0.45%
Premium Capital Reserve 0.45%
Premium Bond 0.45%
10 American Century Investments 1-800-345-2021
THE FUND MANAGEMENT TEAMS
The advisor uses teams of portfolio managers, assistant portfolio managers and
analysts to manage the funds. Teams meet regularly to review portfolio holdings
and to discuss purchase and sale activity. Team members buy and sell securities
for a fund as they see fit, guided by the fund's investment objective and
strategy.
The portfolio manager who leads each team is identified below:
Premium Government Reserve
BETH BUNNELL HUNTER
Ms. Hunter, Portfolio Manager, has been a member of the team that manages
Premium Government Reserve since joining American Century in July 1999. Prior to
joining American Century, she worked for Calvert Asset Management Company as a
Portfolio Trading Analyst from 1994 to 1996 and as a Portfolio Manager from 1996
to June 1999. She has a bachelor of arts from the University of
Washington-Seattle.
DENISE TABACCO
Ms. Tabacco, Portfolio Manager, has been a member of the team that manages
Premium Government Reserve since November 1995. She joined American Century in
1988, becoming a member of its portfolio department in 1991. She has a
bachelor's degree in accounting from San Diego State University and an MBA in
finance from Golden Gate University.
Premium Capital Reserve
JOHN T. WALSH
Mr. Walsh, Portfolio Manager, has been a member of the team that manages Premium
Capital Reserve since May 1997. He joined American Century in 1996 as an
Investment Analyst. Prior to joining American Century, he served as an Assistant
Vice President and an Analyst at First Interstate Bank, Los Angeles, California,
from July 1993 to January 1996. He has a bachelor's degree in marketing from
Loyola Marymount and an MBA in finance from Creighton University.
Premium Bond
JEFFREY L. HOUSTON
Mr. Houston, Portfolio Manager, has been a member of the team that manages
Premium Bond since June 1995. He joined American Century in 1990 as an
Investment Analyst and was promoted in 1994 to Portfolio Manager. He has a
bachelor of arts from the University of Delaware and an MPA from Syracuse
University. He is a Chartered Financial Analyst.
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CODE OF ETHICS
American Century has a Code of Ethics designed to ensure that the interests of
fund shareholders come before the interests of the people who manage the funds.
Among other provisions, the Code of Ethics prohibits portfolio managers and
other investment personnel from buying securities in an initial public offering
or from profiting from the purchase and sale of the same security within 60
calendar days. In addition, the Code of Ethics requires portfolio managers and
other employees with access to information about the purchase or sale of
securities by the funds to obtain approval before executing permitted personal
trades.
www.americancentury.com American Century Investments 11
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the Statement of Additional
Information and the investment objectives of the funds may not be changed
without a shareholder vote. The Board of Directors may change any other policies
and investment strategies.
YEAR 2000 ISSUES
Many of the world's computer systems were originally programmed in a way that
prevented them from properly recognizing or processing date-sensitive
information relating to the Year 2000 and beyond. Because this may impact the
computer systems of various American Century-affiliated and external service
providers for the funds, American Century formally initiated a Year 2000
readiness project in July 1997. It involves a team of information technology
professionals assisted by outside consultants and guided by a senior-level
steering committee. The team's goal is to assess the impact of the Year 2000 on
American Century's systems, renovate or replace noncompliant critical systems
and test those systems. In addition, the team has been working to gather
information about the Year 2000 efforts of the funds' other major service
providers.
Although American Century believes its critical systems will function properly
in the Year 2000, this is not guaranteed. If the efforts of American Century or
its external service providers are not successful, the funds' business,
particularly the provision of shareholder services, may be hampered.
In addition, the issuers of securities the funds own could have Year 2000
computer problems. Foreign issuers, especially those in emerging markets, may be
more susceptible to such problems than U.S. issuers. These problems could
negatively affect the value of the issuers' securities, which, in turn, could
impact the funds' performance. The advisor has established a process to gather
publicly available information about the Year 2000 readiness of these issuers.
However, this process may not uncover all relevant information, and the
information gathered may not be complete and accurate. Moreover, an issuer's
Year 2000 readiness is only one of many factors the fund managers may consider
when making investment decisions, and other factors may receive greater weight.
12 American Century Investments 1-800-345-2021
INVESTING WITH AMERICAN CENTURY
SERVICES AUTOMATICALLY AVAILABLE TO YOU
You automatically will have access to the services listed below when you open
your account. If you do not want these services, see "Conducting Business in
Writing" below.
CONDUCTING BUSINESS IN WRITING
If you prefer to conduct business in writing only, you can indicate this on the
account application. If you choose this option, you must provide written
instructions to invest, exchange and redeem. All account owners must sign
transaction instructions (with signatures guaranteed for redemptions in excess
of $100,000). If you want to add services later, you can complete an Investor
Service Options form.
WAYS TO MANAGE YOUR ACCOUNT
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BY TELEPHONE
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Investor Relations
1-800-345-2021
Business, Not-For-Profit and
Employer-Sponsored Retirement Plans
1-800-345-3533
Automated Information Line
1-800-345-8765
OPEN AN ACCOUNT
If you are a current investor, you can open an account by exchanging shares from
another American Century account.
EXCHANGE SHARES
Call us or use our Automated Information Line if you have authorized us to
accept telephone instructions.
MAKE ADDITIONAL INVESTMENTS
Call us or use our Automated Information Line if you have authorized us to
invest from your bank account.
SELL SHARES
Call an Investor Relations Representative.
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BY MAIL OR FAX
[envelope icon]
P.O. Box 419200
Kansas City, MO 64141-6200
Fax
816-340-7962
OPEN AN ACCOUNT
Send a signed, completed application and check or money order payable to
American Century Investments.
EXCHANGE SHARES
Send us written instructions to exchange your shares from one American Century
account to another.
MAKE ADDITIONAL INVESTMENTS
Send us your check or money order for at least $50 with an investment slip or
$250 without an investment slip. If you don't have an investment slip, include
your name, address and account number on your check or money order.
SELL SHARES
Send us written instructions to sell shares or send us a redemption form. Call
an Investor Relations Representative to request a form.
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ONLINE
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www.americancentury.com
OPEN AN ACCOUNT
If you are a current investor, you can open an account by exchanging shares from
another American Century account.
EXCHANGE SHARES
Exchange shares from another American Century account.
MAKE ADDITIONAL INVESTMENTS
Make an additional investment into an established American Century account if
you have authorized us to invest from your bank account.
SELL SHARES
Not available.
www.americancentury.com American Century Investments 13
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce expenses and demonstrate respect for our environment, we will deliver
most financial reports, prospectuses and account statements to households in a
single envelope, even if the accounts are registered under different names. If
you would like additional copies of financial reports and prospectuses or
separate mailing of account statements, please call us.
YOUR GUIDE TO SERVICES AND POLICIES
When you open an account, you will receive a services guide, which explains the
services available to you and the policies of the funds and the transfer agent.
- --------------------------------------------------------------------------------
BY WIRE
[wire machine icon]
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Please remember that if you request redemptions by wire, $10 will be deducted
from the amount redeemed. Your bank also may charge a fee.
OPEN AN ACCOUNT
Call us to set up your account or mail a completed application to the address
provided in the "By mail" section and give your bank the following information
* Our bank information:
Commerce Bank N.A.
Routing No. 101000019
Account No. 2804918
* The fund name
* Your American Century account number+
* Your name
* The contribution year (for IRAs only)
+ For additional investments only
MAKE ADDITIONAL INVESTMENTS
Follow the wire instructions provided in the "Open an account" section.
SELL SHARES
You can receive redemption proceeds by wire or electronic transfer.
EXCHANGE SHARES
Not applicable.
- --------------------------------------------------------------------------------
AUTOMATICALLY
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OPEN AN ACCOUNT
Not available.
EXCHANGE SHARES
Send us written instructions to set up an automatic exchange of shares from one
American Century account to another.
MAKE ADDITIONAL INVESTMENTS
With the automatic investment privilege, you can purchase shares on a regular
basis. You must invest at least $600 per year per account.
SELL SHARES
You may sell shares automatically by establishing Check-A-Month or Automatic
Redemption plans.
- --------------------------------------------------------------------------------
IN PERSON
[person icon]
If you prefer to handle your transactions in person, visit one of our Investor
Centers and a representative can help you open an account, make additional
investments, and sell or exchange shares.
4500 Main St.
Kansas City, Missouri
8 a.m. to 5:30 p.m., Monday - Friday
1665 Charleston Road
Mountain View, California
8 a.m. to 5 p.m., Monday - Friday
4917 Town Center Drive
Leawood, Kansas
8 a.m. to 6 p.m., Monday - Friday
8 a.m. to noon, Saturday
9445 East County Line Road, Suite A
Englewood, Colorado
8 a.m. to 6 p.m., Monday - Friday
8 a.m. to noon, Saturday
14 American Century Investments 1-800-345-2021
MINIMUM INITIAL INVESTMENT AMOUNTS
To open an account, the minimum investments are:
- ------------------------------------------------
Individual or Joint $100,000
Traditional IRA $100,000
Roth IRA $100,000
UGMA/UTMA $100,000
403(b) $100,000
Qualified Retirement Plan $100,000
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
If your redemption activity causes your account balance to fall below the
minimum initial investment amount, we will notify you and give you 90 days to
meet the minimum. If you do not meet the deadline, American Century will redeem
the shares in the account and send the proceeds to your address of record.
ABUSIVE TRADING PRACTICES
We do not permit market timing or other abusive trading practices in our funds.
Excessive, short-term (market timing) or other abusive trading practices may
disrupt portfolio management strategies and harm fund performance. To minimize
harm to the funds and their shareholders, we reserve the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading or whose trading, in our judgment, has been or may be
disruptive to a fund. In making this judgment, we may consider trading done in
multiple accounts under common ownership or control. We also reserve the right
to delay delivery of your redemption proceeds -- up to seven days -- or to honor
certain redemptions with securities, rather than cash, as described in the next
section.
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the assets of the fund if that percentage is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of cash. If we make payment
in securities, we will value the securities selected by the fund managers in the
same manner as we do in computing the fund's net asset value. We may provide
these securities in lieu of cash without prior notice.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on the fund and its remaining shareholders.
www.americancentury.com American Century Investments 15
INVESTING THROUGH FINANCIAL INTERMEDIARIES
If you do business with us through a financial intermediary or a retirement
plan, your ability to purchase, exchange and redeem shares will depend on the
policies of that entity. Some policy differences may include
* minimum investment requirements
* exchange policies
* fund choices
* cutoff time for investments
Please contact your financial intermediary or plan sponsor for a complete
description of its policies. Copies of the funds' annual reports, semiannual
reports and Statement of Additional Information are available from your
intermediary or plan sponsor.
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, American Century will pay the
service provider a fee for performing those services.
Although transactions in fund shares may be made directly with American Century
at no charge, you also may purchase, redeem and exchange fund shares through
financial intermediaries that charge a transaction-based or other fee for their
services. Those charges are retained by the intermediary and are not shared with
American Century or the funds.
American Century has contracts with certain financial intermediaries requiring
them to track the time investment orders are received and to comply with
procedures relating to the transmission of orders. The funds have authorized
those intermediaries to accept orders on their behalf up to the time at which
the net asset value is determined. If those orders are transmitted to American
Century and paid for in accordance with the contract, they will be priced at the
net asset value next determined after your request is received in the form
required by the intermediary on a fund's behalf.
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Financial intermediaries include banks, broker-dealers, insurance companies and
investment advisors.
16 American Century Investments 1-800-345-2021
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century determines the NET ASSET VALUE (NAV) of the funds as of the
close of regular trading on the New York Stock Exchange (usually 4 p.m. Eastern
time) each day the Exchange is open. On days when the Exchange is not open
(including certain U.S. holidays), we do not calculate the NAV. The NAV of a
fund share is the current value of the fund's assets, minus any liabilities,
divided by the number of fund shares outstanding.
The portfolio securities of the money market funds are valued at amortized cost.
This means that the securities are initially valued at their cost when
purchased. After the initial purchase, the difference between the purchase price
and the known value at maturity will be reduced at a constant rate until
maturity. This valuation will be used regardless of the impact of interest rates
on the market value of the security. The Board has adopted procedures to ensure
that this type of pricing is fair to the funds' shareholders.
If current market prices of securities owned by Premium Bond are not readily
available from an independent pricing service, the advisor may determine their
fair value in accordance with procedures adopted by the fund's Board of
Directors.
We will price your purchase, exchange or redemption at the NAV next determined
after we receive your transaction request in good order.
DISTRIBUTIONS
Federal tax laws require the funds to make distributions to its shareholders in
order to qualify as a "regulated investment company." Qualification as a
regulated investment company means that the funds will not be subject to state
or federal income tax on amounts distributed. The distributions generally
consist of dividends and interest received as well as CAPITAL GAINS realized on
the sale of investment securities. The funds declare distributions from net
income daily and pay these distributions monthly. Premium Government Reserve and
Premium Capital Reserve declare and pay distributions of net realized capital
gains, if any, in the same manner as income distributions. Premium Bond
generally pays distributions of capital gains, if any, once a year in December.
A fund may make more frequent distributions if necessary to comply with Internal
Revenue Code provisions.
You will participate in fund distributions, when they are declared, starting on
the day after your purchase is effective. For example, if you purchase shares on
a day that a distribution is declared, you will not receive that distribution.
If you redeem shares, you will receive any distribution declared on the day you
redeem. If you redeem all shares, we will include any distributions received
with your redemption proceeds.
Participants in employer-sponsored retirement or savings plans must reinvest all
distributions. For shareholders investing through taxable accounts, we will
reinvest distributions unless you elect to receive them in cash. Please consult
your services guide for further information regarding distributions and your
distribution options.
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The NET ASSET VALUE of a fund is the price of the fund's shares.
CAPITAL GAINS are increases in the values of capital assets, such as stock, from
the time the assets are purchased. Tax becomes due on capital gains once an
asset is sold.
www.americancentury.com American Century Investments 17
TAXES
The tax consequences of owning shares of the funds will vary depending on
whether you own them through a taxable or tax-deferred account. Tax consequences
result from distributions by the funds of dividend and interest income they have
received or capital gains they have generated through their investment
activities. Tax consequences also result from sales of fund shares by investors
after the net asset value has increased or decreased.
Tax-Deferred Accounts
If you purchase fund shares through a tax-deferred account, such as an IRA or a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions usually will not be subject to current taxation, but will
accumulate in your account under the plan on a tax-deferred basis. Likewise,
moving from one fund to another fund within a plan or tax-deferred account
generally will not cause you to be taxed. For information about the tax
consequences of making purchases or withdrawals through an employer-sponsored
retirement or savings plan, or through an IRA, please consult your plan
administrator, your summary plan description or a professional tax advisor.
Taxable Accounts
If you own fund shares through a taxable account, distributions by the fund and
sales by you of fund shares may cause you to be taxed.
Taxability of Distributions
Fund distributions may consist of income earned by the funds from sources such
as dividends and interest, or capital gains generated from the sale of fund
investments. Distributions of income are taxed as ordinary income. Distributions
of capital gains are classified either as short term or long term and are taxed
as follows:
Type of Tax Rate for Tax Rate for
Distribution 15% Bracket 28% Bracket or above
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income rate Ordinary income rate
Long-term capital gains 10% 20%
The tax status of any distributions of capital gains is determined by how long
the fund held the underlying security that was sold, not by how long you have
been invested in the fund or whether you reinvest your distribution in
additional shares or take them in cash. American Century will send you the tax
status of fund distributions for each calendar year in an annual tax mailing
(Form 1099-DIV) from the funds.
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, always consult your tax professional about federal,
state and local tax consequences.
Taxes on Transactions
Your redemptions--including exchanges to other American Century funds--are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. However, you should note that any loss realized upon
the sale or redemption of shares held for six months or less will be treated as
a long-term capital loss to the extent of any distribution of long-term capital
gains to you with respect to such shares. If a loss is realized on the
redemption of fund shares, the reinvestment in additional fund shares within 30
days before or after the redemption may be subject to the wash sale rules of the
Internal Revenue Code. This may result in a postponement of the recognition of
such loss for federal income tax purposes. If you have not certified to us that
your Social Security number or tax identification number is correct and that you
are not subject to 31% withholding, we are required to withhold and remit 31% of
dividends, capital gains distributions and redemptions to the IRS.
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BUYING A DIVIDEND
Purchasing fund shares in a taxable account shortly before a distribution is
sometimes known as buying a dividend. In taxable accounts, you must pay income
taxes on the distribution whether you reinvest the distribution or take it in
cash. In addition, you will have to pay taxes on the distribution whether the
value of your investment decreased, increased or remained the same after you
bought the fund shares.
The risk in buying a dividend is that a fund's portfolio may build up taxable
gains throughout the period covered by a distribution, as securities are sold at
a profit. We distribute those gains to you, after subtracting any losses, even
if you did not own the shares when the gains occurred.
If you buy a dividend, you incur the full tax liability of the distribution
period, but you may not enjoy the full benefit of the gains realized in the
fund's portfolio.
18 American Century Investments 1-800-345-2021
FINANCIAL HIGHLIGHTS
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The tables on the next few pages itemize what contributed to the changes in
share price during the period. They also show the changes in share price for
this period in comparison to changes over the last five fiscal years.
On a per-share basis, each table includes as appropriate
* share price at the beginning of the period
* investment income and capital gains or losses
* distributions of income and capital gains paid to shareholders
* share price at the end of the period
Each table also includes some key statistics for the period as appropriate
* TOTAL RETURN -- the overall percentage of return of the fund, assuming the
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 fund's buying and selling
activity
The Financial Highlights have been audited by Deloitte & Touche LLP, independent
auditors. Their Independent Auditors' Reports are included in the funds' annual
reports for the fiscal year ended March 31, 1999, which are incorporated by
reference into the Statement of Additional Information, and are available upon
request.
www.americancentury.com American Century Investments 19
<TABLE>
<CAPTION>
PREMIUM GOVERNMENT RESERVE FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
Per-Share Data
- -----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ....... $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------
Income From Investment Operations
Net Investment Income ................ 0.05 0.05 0.05 0.05 0.05
----------------------------------------------
Distributions
From Net Investment Income ........... (0.05) (0.05) (0.05) (0.05) (0.05)
----------------------------------------------
Net Asset Value, End of Year ............. $1.00 $1.00 $1.00 $1.00 $1.00
==============================================
Total Return(1) ...................... 4.98% 5.25% 5.07% 5.49% 4.62%
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
Ratio of Operating Expenses
to Average Net Assets ................ 0.45% 0.45% 0.45% 0.44% 0.45%
Ratio of Net Investment Income
to Average Net Assets ................ 4.82% 5.13% 4.96% 5.30% 4.84%
Net Assets, End of Year (in thousands) ..$121,294 $44,495 $38,838 $26,191 $16,381
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
20 American Century Investments 1-800-345-2021
PREMIUM CAPITAL RESERVE FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
Per-Share Data
- -----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
Net Asset Value, Beginning of Year ...... $1.00 $1.00 $1.00 $1.00 $1.00
-----------------------------------------------
Income From Investment Operations
Net Investment Income ............... 0.05 0.05 0.05 0.05 0.05
-----------------------------------------------
Distributions
From Net Investment Income .......... (0.05) (0.05) (0.05) (0.05) (0.05)
-----------------------------------------------
Net Asset Value, End of Year ............ $1.00 $1.00 $1.00 $1.00 $1.00
===============================================
Total Return(1) ..................... 5.14% 5.38% 5.13% 5.58% 4.66%
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
Ratio of Operating Expenses
to Average Net Assets ............... 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of Net Investment Income
to Average Net Assets ............... 4.99% 5.26% 5.01% 5.50% 4.76%
Net Assets, End of Year (in thousands) .$276,048 $182,487 $153,958 $133,417 $138,428
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
www.americancentury.com American Century Investments 21
PREMIUM BOND FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
Per-Share Data
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1999 1998 1997 1996 1995
Net Asset Value, Beginning of Year ..... $10.15 $ 9.76 $9.93 $9.46 $9.64
-----------------------------------------------
Income From Investment Operations
Net Investment Income .............. 0.59 0.61 0.61 0.61 0.59
Net Realized and Unrealized Gain (Loss)
on Investments ..................... -- 0.45 (0.17) 0.47 (0.18)
-----------------------------------------------
Total From Investment Operations ... 0.59 1.06 0.44 1.08 0.41
-----------------------------------------------
Distributions
From Net Investment Income ......... (0.59) (0.61) (0.61) (0.61) (0.59)
From Net Realized Gains
on Investments ................... (0.05) (0.06) -- -- --
-----------------------------------------------
Total Distributions ................ (0.64) (0.67) (0.61) (0.61) (0.59)
-----------------------------------------------
Net Asset Value, End of Year ........... $10.10 $10.15 $9.76 $9.93 $9.46
===============================================
Total Return(1) ...................... 5.88% 11.14% 4.57% 11.53% 4.48%
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
Ratio of Operating Expenses
to Average Net Assets .............. 0.45% 0.45% 0.45% 0.43% 0.45%
Ratio of Net Investment Income
to Average Net Assets .............. 5.70% 6.06% 6.20% 6.08% 6.30%
Portfolio Turnover ..................... 71% 138% 63% 92% 51%
Net Assets, End of Year
(in thousands) ....................$105,284 $65,171 $21,750 $20,280 $10,334
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
22 American Century Investments 1-800-345-2021
NOTES
www.americancentury.com American Century Investments 23
NOTES
24 American Century Investments 1-800-345-2021
NOTES
www.americancentury.com American Century Investments 25
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
Annual and Semiannual Reports
These reports contain more information about the funds' investments and the
market conditions and investment strategies that significantly affected the
funds' performance during the most recent fiscal period.
Statement of Additional Information (SAI)
The SAI contains a more detailed, legal description of the funds' operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this Prospectus. This means that it is legally part of this
Prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
any questions about the funds or your accounts, by contacting American Century
at the address or one of the telephone numbers listed below.
You also can get information about the funds (including the SAI) from the
Securities and Exchange Commission (SEC).
* In person SEC Public Reference Room
Washington, D.C.
Call 1-800-SEC-0330 for location and hours.
* On the Internet www.sec.gov
* By mail SEC Public Reference Section
Washington, D.C. 20549-6009
(The SEC will charge a fee for copying the
documents.)
Investment Company Act File No. 811-7446
[american century logo (reg.sm)]
American
Century
AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021 or 816-531-5575
9908
SH-PRS-16641
<PAGE>
AMERICAN CENTURY
Statement of Additional Information
Premium Government Reserve Fund
Premium Capital Reserve Fund
Premium Bond Fund
[american century logo (reg.sm)]
American
Century
[left margin]
August 1, 1999
American Century
Premium Reserves, Inc.
THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE FUNDS'
PROSPECTUS, DATED AUGUST 1, 1999, BUT IS NOT A PROSPECTUS. THE STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FUNDS' CURRENT
PROSPECTUS. IF YOU WOULD LIKE A COPY OF THE PROSPECTUS, PLEASE CONTACT US AT
THE ADDRESS OR TELEPHONE NUMBERS LISTED ON THE BACK
COVER OR VISIT AMERICAN CENTURY'S WEB SITE AT
WWW.AMERICANCENTURY.COM.
THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE CERTAIN
INFORMATION THAT APPEARS IN THE FUNDS' ANNUAL AND SEMIANNUAL REPORTS, WHICH ARE
DELIVERED TO ALL SHAREHOLDERS. YOU MAY OBTAIN A FREE COPY OF THE FUNDS' ANNUAL
OR SEMIANNUAL REPORTS BY CALLING 1-800-345-2021.
Distributed by Funds Distributor, Inc.
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1999
TABLE OF CONTENTS
The Funds' History ........................................................ 2
Fund Investment Guidelines ................................................ 2
Premium Government Reserve ............................................ 2
Premium Capital Reserve ............................................... 3
Premium Bond .......................................................... 3
Detailed Information About the Funds ...................................... 5
Investment Strategies and Risks ....................................... 5
Investment Policies ................................................... 11
Portfolio Turnover .................................................... 14
Management ................................................................ 14
The Board of Directors ................................................ 14
Officers .............................................................. 17
The Funds' Principal Shareholders ......................................... 19
Service Providers ......................................................... 20
Investment Advisor .................................................... 20
Transfer Agent and Administrator ...................................... 21
Distributor ........................................................... 21
Other Service Providers ................................................... 21
Custodian Banks ....................................................... 21
Independent Auditors .................................................. 21
Brokerage Allocation ...................................................... 22
Information About Fund Shares ............................................. 22
Buying and Selling Fund Shares ........................................ 22
Valuation of a Fund's Securities ...................................... 22
Taxes ..................................................................... 24
Federal Income Tax .................................................... 24
State and Local Tax ................................................... 25
How Fund Performance
Information Is Calculated ................................................. 25
Performance Comparisons ............................................... 26
Permissible Advertising Information ................................... 26
Financial Statements ...................................................... 27
Explanation of Fixed-Income
Securities Ratings ........................................................ 28
STATEMENT OF ADDITIONAL INFORMATION 1
THE FUNDS' HISTORY
American Century Premium Reserves, Inc. is a registered open-end management
investment company that was organized as a Maryland corporation in January
1993. Throughout this Statement of Additional Information we refer to American
Century Premium Reserves, Inc. as the corporation.
Each fund described in this Statement of Additional Information is a
separate series of the corporation and operates for many purposes as if it were
an independent company. Each fund has its own investment objective, strategy,
management team, assets, tax identification and stock registration numbers.
Inception Ticker
Fund Date Symbol
- --------------------------------------------------------------------------------
Premium Government Reserve 4/1/1993 TWPXX
Premium Capital Reserve 4/1/1993 TCRXX
Premium Bond 4/1/1993 ACBPX
FUND INVESTMENT GUIDELINES
This section explains the extent to which the funds' advisor, American
Century Investment Management, Inc., can use various investment vehicles and
strategies in managing a fund's assets. Descriptions of the investment
techniques and risks associated with each appear in the section, "Investment
Strategies and Risks," which begins on page 5. In the case of the funds'
principal investment strategies, these descriptions elaborate upon discussions
contained in the Prospectus.
Each fund is a diversified open-end investment company as defined in the
Investment Company Act of 1940 (the Investment Company Act). Diversified means
that, with respect to 75% of its total assets, each fund will not invest more
than 5% of its total assets in the securities of a single issuer.
Premium Government Reserve and Premium Capital Reserve each operates
pursuant to Rule 2a-7 under the Investment Company Act. That rule permits the
valuation of portfolio securities on the basis of amortized cost. To rely on the
rule, each fund must be diversified with regard to 100% of its assets other than
U.S. government securities. This operating policy is more restrictive than the
Investment Company Act, which requires a diversified investment company to be
diversified with regard to only 75% of its assets.
To meet federal tax requirements for qualification as a regulated investment
company, each fund must limit its investments so that at the close of each
quarter of its taxable year (1) no more than 25% of its total assets are
invested in the securities of a single issuer (other than the U.S. government or
a regulated investment company), and (2) with respect to at least 50% of its
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer.
In general, within the restrictions outlined here and in the funds'
Prospectus, the fund managers have broad powers to decide how to invest fund
assets, including the power to hold them uninvested.
Investments are varied according to what is judged advantageous under
changing economic conditions. It is the advisor's policy to retain maximum
flexibility in management without restrictive provisions as to the proportion of
one or another class of securities that may be held, subject to the investment
restrictions described below. Subject to the specific limitations applicable to
a fund, the funds' management teams may invest the assets of each fund in
varying amounts in other instruments, such as those reflected in Table 1 on page
5, when such a course is deemed appropriate in order to attempt to attain a
fund's investment objective.
PREMIUM GOVERNMENT RESERVE
Premium Government Reserve will invest substantially all of its assets in a
portfolio of U.S. dollar-denominated securities issued or guaranteed by the U.S.
government and its agencies and instrumentalities. Specifically, it may invest
in (1) direct obligations of the United States, such as Treasury bills, notes
and bonds, which are supported by the full faith and credit of the United
States, and (2) obligations (including mortgage-related securities) issued or
guaranteed by agencies and instrumentalities of the U.S. government. These
agencies and instrumentalities may include, but are not limited to, the
Government National Mortgage Association, Federal National Mortgage Association,
Federal Home Loan Mortgage Corporation, Student Loan Marketing Association,
Federal Farm Credit Banks, Federal Home Loan Banks and Resolution Funding
Corporation. The
2 AMERICAN CENTURY INVESTMENTS
securities of some of these agencies and instrumentalities, such as the
Government National Mortgage Association, are guaranteed as to principal and
interest by the U.S. Treasury, and other securities are supported by the right
of the issuer, such as the Federal Home Loan Banks, to borrow from the Treasury.
Other obligations, including those issued by the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, are supported only
by the credit of the instrumentality.
Premium Government Reserve will invest in mortgage-related securities only
if they have a stated final maturity of 397 days or less.
PREMIUM CAPITAL RESERVE
Premium Capital Reserve will invest substantially all of its assets in a
diversified portfolio of U.S. dollar-denominated money market instruments.
Specifically, it may invest in the following:
(1) Securities issued or guaranteed by the U.S. government and its agencies and
instrumentalities, as described under "Premium Government Reserve," page 2.
(2) Commercial paper.
(3) Short-term notes, bonds, debentures or other debt instruments.
(4) Certificates of deposit, bankers acceptances and time deposit obligations of
U.S. banks, foreign branches of U.S. banks (Eurodollars), U.S. branches and
agencies of foreign banks (Yankee dollars) and foreign branches of foreign
banks.
With the exception of the obligations of foreign branches of U.S. banks and
U.S. branches of foreign banks, which are limited to 25% of net assets, these
classes of securities may be held in any proportion, and such proportion may
vary as market conditions change.
All portfolio holdings are limited to those that at the time of purchase
have received a rating from two nationally recognized statistical ratings
organizations, or if rated by only one agency, from that one, in one of their
two highest short-term categories (including any subcategories or gradations
indicating relative standing), or if they have no short-term rating are of
comparable quality to such a rated security, as determined or ratified by the
fund's Board of Directors.
PREMIUM BOND
Premium Bond seeks a high level of income from investment in debt
securities. Under normal market conditions, at least 65% of Premium Bond's
assets will be invested in non-money market debt securities. The balance of the
fund's assets will be invested in shorter-term debt securities.
There are no maturity restrictions on the individual securities in which
Premium Bond may invest, but the weighted average maturity and the weighted
average adjusted duration of the fund's portfolio must be 3.5 years or greater.
Adjusted duration, which is an indication of the relative sensitivity of a
security's market value to changes in interest rates, is based upon the
aggregate of the present value of all principal and interest payments to be
received, discounted at the current market rate of interest, and expressed in
years.
Adjusted duration is different from dollar-weighted average portfolio
maturity in that it attempts to measure the interest rate sensitivity of a
security, as opposed to its expected final maturity. Further, the adjusted
duration of a portfolio will change in response to a change in interest rates,
whereas average maturity may not. Duration is generally shorter than remaining
time to final maturity because it gives weight to periodic interest payments, as
well as the payment of principal at maturity. The longer the duration of a
portfolio, the more sensitive its market value is to interest rate fluctuation.
However, due to factors other than interest rate changes that affect the price
of a specific security, there generally is not an exact correlation between the
price volatility of a security indicated by adjusted duration and the actual
price volatility of a security.
Subject to the aggregate portfolio maturity and duration minimums, the
manager will actively manage the portfolio, adjusting the weighted average
portfolio maturity in response to expected changes in interest rates.
During periods of rising interest rates, a shorter weighted average maturity
may be adopted in order to reduce the effect of bond price declines on the
fund's net asset value. When interest rates are falling and bond prices rising,
a longer weighted average portfolio maturity may be adopted.
To achieve its objective, Premium Bond may invest in a diversified portfolio
of high- and medium-grade
STATEMENT OF ADDITIONAL INFORMATION 3
debt securities payable in both U.S. and foreign currencies. The fund may invest
in securities that at the time of purchase are rated by a nationally recognized
statistical rating organization, such as Moody's Investor Services (Moody's) and
Standard & Poor's Corporation (S&P), as follows:
EXAMPLES OF
MINIMUM RATINGS
Type of General
Security Credit Limit Moody's S&P
Short-term notes two highest MIG-2 SP-2
categories
Corporate, sovereign five highest Ba BB
and municipal bonds categories
U.S. government and none n/a n/a
government agency
securities
Other types two highest P-2 A-2
categories
The fund also may invest in unrated securities if the manager determines
that they are of equivalent credit quality.
Corporate, sovereign and municipal bonds that the fund may buy include
securities known as "medium-grade securities." Medium-grade securities are those
rated in the fifth and sixth highest ratings categories. Medium-grade securities
are somewhat speculative. Adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal by issuers of fourth-category-rated securities (Moody's Baa, S&P's
BBB) than more highly rated securities. This sensitivity and exposure to adverse
or changing economic conditions is heightened in fifth-category-rated (Moody's
Ba, S&P's BB) securities. The fund may not invest more than 15% of its total
assets in securities rated Ba or BB (or their equivalent).
Premium Bond may invest in U.S. government and government agency securities
as described under "Premium Government Reserve," page 2.
Mortgage-related securities in which the funds may invest include
collateralized mortgage obligations (CMOs) issued by a U.S. agency or
instrumentality. A CMO is a debt security that is collateralized by a portfolio
or pool of mortgages or mortgage-backed securities. The issuer's obligation to
make interest and principal payments is secured by the underlying pool or
portfolio of mortgages or securities.
The market value of mortgage-related securities, even those in which the
underlying pool of mortgage loans is guaranteed as to the payment of principal
and interest by the U.S. government, is not insured. When interest rates rise,
the market value of those securities may decrease in the same manner as other
debt, but when interest rates decline, their market value may not increase as
much as other debt instruments because of the prepayment feature inherent in the
underlying mortgages. If such securities are purchased at a premium, the fund
will suffer a loss if the obligation is prepaid. Prepayments will be reinvested
at prevailing rates, which may be less than the rate paid by the prepaid
obligation.
For the purpose of determining the weighted average portfolio maturity of
the funds, the managers shall consider the maturity of a mortgage-related
security to be the remaining expected average life of the security. The average
life of such securities is likely to be substantially less than the original
maturity as a result of prepayments of principal on the underlying mortgages,
especially in a declining interest rate environment. In determining the
remaining expected average life, the managers make assumptions regarding
repayments on underlying mortgages. In a rising interest rate environment, those
prepayments generally decrease, and may decrease below the rate of prepayment
assumed by the managers when purchasing those securities. Such slowdown may
cause the remaining maturity of those securities to lengthen, which will
increase the relative volatility of those securities and, hence, the fund
holding the securities. See "Basics of Fixed-Income Investing," in the funds'
Prospectus.
The following table identifies some of the investments and techniques the
funds' managers may use. A percentage is listed for those investments and
techniques that have a limitation on the amount of a fund's assets that can be
invested in that way.
4 AMERICAN CENTURY INVESTMENTS
TABLE 1
Premium Premium
Government Capital Premium
Reserve Reserve Bond
------- ------- ----
Foreign Securities X X
Short Sales X X X
Portfolio Lending 33(1)/3% 33(1)/3% 33(1)/3%
Derivative Securities X X X
Investments in
Companies with Limited
Operating Histories 5% 5%
Repurchase Agreements X X X
When-Issued and
Forward Commitment
Agreements X X X
Restricted and Illiquid
Securities 10% 10% 15%
Futures & Options X X
Forward Currency
Exchange Contracts X
DETAILED INFORMATION ABOUT THE FUNDS
INVESTMENT STRATEGIES AND RISKS
This section describes various investment vehicles and techniques that the
fund managers can use in managing a fund's assets. It also details the risks
associated with each, because each technique contributes to a fund's overall
risk profile. To determine whether a fund may invest in a particular investment
vehicle, consult Table 1.
FOREIGN SECURITIES
Some funds may invest in the securities of foreign issuers, including
foreign governments, when these securities meet their standards of selection.
Securities of foreign issuers may trade in the U.S. or foreign securities
markets.
Investments in foreign securities may present certain risks, including:
CURRENCY RISK. The value of the foreign investments held by the funds may be
significantly affected by changes in currency exchange rates. The dollar value
of a foreign security generally decreases when the value of the dollar rises
against the foreign currency in which the security is denominated and tends to
increase when the value of the dollar falls against such currency. In addition,
the value of fund assets may be affected by losses and other expenses incurred
in converting between various currencies in order to purchase and sell foreign
securities and by currency restrictions, exchange control regulation, currency
devaluations and political developments.
POLITICAL AND ECONOMIC RISK. The economies of many of the countries in which
the funds invest are not as developed as the economy of the United States and
may be subject to significantly different forces. Political or social
instability, expropriation, nationalization, or confiscatory taxation, and
limitations on the removal of funds or other assets, could also adversely affect
the value of investments. Further, the funds may encounter difficulties or be
unable to enforce ownership rights, pursue legal remedies or obtain judgments in
foreign courts.
REGULATORY RISK. Foreign companies generally are not subject to the
regulatory controls imposed on U.S. issuers and, in general, there is less
publicly available information about foreign securities than is available about
domestic securities. Many foreign companies are not subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies. Income from
foreign securities owned by the funds may be reduced by a withholding tax at the
source, which would reduce dividend income payable to shareholders.
MARKET AND TRADING RISK. Brokerage commission rates in foreign countries,
which are generally fixed rather than subject to negotiation as in the United
States, are likely to be higher. The securities markets in many of the countries
in which the funds invest will have substantially less trading volume than the
principal U.S. markets. As a result, the securities of some companies in these
countries may be less liquid and more volatile than comparable U.S. securities.
Furthermore, one securities broker may represent all or a significant part of
the trading volume in a particular country, resulting in higher trading costs
and decreased liquidity due to a lack of alternative trading partners. There is
generally less government regulation and supervision of foreign stock exchanges,
brokers and issuers, which may make it difficult to enforce contractual
obligations.
STATEMENT OF ADDITIONAL INFORMATION 5
CLEARANCE AND SETTLEMENT RISK. Foreign securities markets also have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in clearance and settlement could result in temporary periods when assets
of the funds are uninvested and no return is earned thereon. The inability of
the funds to make intended security purchases due to clearance and settlement
problems could cause the funds to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to clearance and settlement
problems could result either in losses to the funds due to subsequent declines
in the value of the portfolio security or, if the fund has entered into a
contract to sell the security, liability to the purchaser.
OWNERSHIP RISK. Evidence of securities ownership may be uncertain in many
foreign countries. In many of these countries, the most notable of which is the
Russian Federation, the ultimate evidence of securities ownership is the share
register held by the issuing company or its registrar. While some companies may
issue share certificates or provide extracts of the company's share register,
these are not negotiable instruments and are not effective evidence of
securities ownership. In an ownership dispute, the company's share register is
controlling. As a result, there is a risk that a fund's trade details could be
incorrectly or fraudulently entered on the issuer's share register at the time
of the transaction, or that a fund's ownership position could thereafter be
altered or deleted entirely, resulting in a loss to the fund. While the funds
intend to invest directly in Russian companies that utilize an independent
registrar, there can be no assurance that such investments will not result in a
loss to the funds.
SHORT SALES
A fund may engage in short sales if, at the time of the short sale, the fund
owns or has the right to acquire securities equivalent in kind and amount to the
securities being sold short.
In a short sale, the seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
To make delivery to the purchaser, the executing broker borrows the securities
being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If a fund engages in a short sale, the collateral account will be
maintained by the fund's custodian. While the short sale is open, the fund will
maintain in a segregated custodial account an amount of securities convertible
into, or exchangeable for, such equivalent securities at no additional cost.
These securities would constitute the fund's long position.
A fund may make a short sale, as described above, when it wants to sell the
security it owns at a current attractive price, but also wishes to defer
recognition of gain or loss for federal income tax purposes. There will be
certain additional transaction costs associated with short sales, but the fund
will endeavor to offset these costs with income from the investment of the cash
proceeds of short sales.
PORTFOLIO LENDING
Some funds lend their portfolio securities in order to realize additional
income. Such loans may not exceed one-third of the fund's total assets valued at
market except (i) through the purchase of debt securities in accordance with its
investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
DERIVATIVE SECURITIES
Some funds may invest in securities that are commonly referred to as
derivative securities. Generally, a derivative is a financial arrangement the
value of which is based on, or derived from, a traditional security, asset or
market index. Certain derivative securities are described more accurately as
index/structured securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts), currencies, interest rates, indices or other financial
indicators (reference indices).
Some derivatives, such as mortgage-related and other asset-backed
securities, are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
6 AMERICAN CENTURY INVESTMENTS
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a fund from exposure to changing interest rates, securities
prices or currency exchange rates and for cash management purposes as a low-cost
method of gaining exposure to a particular securities market without investing
directly in those securities.
No fund may invest in a derivative security unless the reference index or
the instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the price of oil would
not be a permissible investment because the funds may not invest in oil and gas
leases or futures.
The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates.
There are a range of risks associated with derivative investments,
including:
* the risk that the underlying security, interest rate, market index or
other financial asset will not move in the direction the fund managers
anticipate;
* the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange, either
of which may make it difficult or impossible to close out a position when
desired;
* the risk that adverse price movements in an instrument can result in a
loss substantially greater than a fund's initial investment; and
* the risk that the counterparty will fail to perform its obligations.
The Board of Directors has approved the advisor's policy regarding
investments in derivative securities. That policy specifies factors that must be
considered in connection with a purchase of derivative securities. The policy
also establishes a committee that must review certain proposed purchases before
the purchases can be made. The advisor will report on fund activity in
derivative securities to the Board of Directors as necessary. In addition, the
Board will review the advisor's policy for investments in the derivative
securities annually.
INVESTMENT IN COMPANIES WITH LIMITED OPERATING HISTORIES
Some funds may invest a portion of their assets in the securities of issuers
with limited operating histories. The fund managers consider an issuer to have a
limited operating history if that issuer has a record of less than three years
of continuous operation. The managers will consider periods of capital
formation, incubation, consolidations, and research and development in
determining whether a particular issuer has a record of three years of
continuous operation.
Investments in securities of issuers with limited operating histories may
involve greater risks than investments in securities of more mature issuers. By
their nature, such issuers present limited operating histories and financial
information upon which the managers may base their investment decision on behalf
of the funds. In addition, financial and other information regarding such
issuers, when available, may be incomplete or inaccurate.
REPURCHASE AGREEMENTS
Some funds may invest in repurchase agreements when such transactions
present an attractive short-term return on cash that is not otherwise committed
to the purchase of securities pursuant to the investment policies of the funds.
A repurchase agreement occurs when, at the time the fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to purchase it on a specified
date in the future at an agreed-upon price. The repurchase price reflects an
agreed-upon interest rate during the time the fund's money is invested in the
security.
Because the security purchased constitutes security for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The fund's risk is the ability of the seller to pay the
agreed-upon repurchase price on the repurchase date. If the seller defaults, the
fund may incur costs in disposing of the collateral, which would reduce the
amount realized thereon. If the seller seeks relief under the bankruptcy laws,
the disposition of the collateral may be delayed or limited. To the extent the
value of the security decreases, the fund could experience a loss.
STATEMENT OF ADDITIONAL INFORMATION 7
The funds will limit repurchase agreement transactions to securities issued
by the U.S. government and its agencies and instrumentalities, and will enter
into such transactions with those banks and securities dealers who are deemed
creditworthy pursuant to criteria adopted by the funds' Board of Directors.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
Some funds may sometimes purchase new issues of securities on a when-issued
or forward commitment basis in which the transaction price and yield are each
fixed at the time the commitment is made, but payment and delivery occur at a
future date (typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, a
fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. Market rates of interest on debt securities at the time of
delivery may be higher or lower than those contracted for on the when-issued
security. Accordingly, the value of such security may decline prior to delivery,
which could result in a loss to the fund. While the fund will make commitments
to purchase or sell securities with the intention of actually receiving or
delivering them, it may sell the securities before the settlement date if doing
so is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a
fund will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents or other appropriate liquid securities in
an amount sufficient to meet the purchase price. When the time comes to pay for
the when-issued securities, a fund will meet its obligations with available
cash, through the sale of securities, or, although it would not normally expect
to do so, by selling the when-issued securities themselves (which may have a
market value greater or less than the fund's payment obligation). Selling
securities to meet when-issued or forward commitment obligations may generate
taxable capital gains or losses.
RESTRICTED AND ILLIQUID SECURITIES
Some funds may, from time to time, purchase restricted or illiquid
securities, including Rule 144A securities, when they present attractive
investment opportunities that otherwise meet the funds' criteria for selection.
Rule 144A securities are securities that are privately placed with and traded
among qualified institutional investors rather than the general public. Although
Rule 144A securities are considered restricted securities, they are not
necessarily illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of
the Securities and Exchange Commission (SEC) has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the Board of Directors to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the Board
of Directors is responsible for developing and establishing the guidelines and
procedures for determining the liquidity of Rule 144A securities. As allowed by
Rule 144A, the Board of Directors of the funds has delegated the day-to-day
function of determining the liquidity of Rule 144A securities to the fund
managers. The Board retains the responsibility to monitor the implementation of
the guidelines and procedures it has adopted.
Because the secondary market for such securities is limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and a fund may, from time to time, hold a Rule 144A or other
security that is illiquid. In such an event, the fund managers will consider
appropriate remedies to minimize the effect on such fund's liquidity.
FUTURES AND OPTIONS
Some funds may enter into futures contracts, options or options on futures
contracts. The funds may not, however, enter into a futures transaction for
speculative purposes. Generally, futures transactions will be used to:
* protect against a decline in market value of the fund's securities (taking
a short futures posi-tion), or
* protect against the risk of an increase in market value for securities in
which the fund generally invests at a time when the fund is not fully invested
(taking a long futures position), or
* provide a temporary substitute for the purchase of an individual security
that may be purchased in an orderly fashion.
8 AMERICAN CENTURY INVESTMENTS
Some futures and options strategies, such as selling futures, buying puts
and writing calls, hedge a fund's investments against price fluctuations. Other
strategies, such as buying futures, writing puts and buying calls, tend to
increase market exposure.
Although other techniques may be used to control a fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
For example, the sale of a future by a fund means the fund becomes obligated
to deliver the security (or securities, in the case of an index future) at a
specified price on a specified date. The purchase of a future means the fund
becomes obligated to buy the security (or securities) at a specified price on a
specified date. Futures contracts provide for the sale by one party and purchase
by another party of a specific security at a specified future time and price.
The fund managers may engage in futures and options transactions based on
securities indices that are consistent with the fund's investment objective.
Examples of indices that may be used include the Bond Buyer Index of Municipal
Bonds for fixed-income funds, or the S&P 500 Index for equity funds. The
managers also may engage in futures and options transactions based on specific
securities, such as U.S. Treasury bonds or notes. Futures contracts are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC), a
U.S. government agency.
Index futures contracts differ from traditional futures contracts in that
when delivery takes place, no stocks or bonds change hands. Instead, these
contracts settle in cash at the spot market value of the index. Although other
types of futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date. A futures position may be closed by taking an opposite
position in an identical contract (i.e., buying a contract that has previously
been sold or selling a contract that has previously been bought).
Unlike when the fund purchases or sells a bond, no price is paid or received
by the fund upon the purchase or sale of the future. Initially, the fund will be
required to deposit an amount of cash or securities equal to a varying specified
percentage of the contract amount. This amount is known as initial margin. The
margin deposit is intended to assure completion of the contract (delivery or
acceptance of the underlying security) if it is not terminated prior to the
specified delivery date. A margin deposit does not constitute margin
transactions for purposes of the fund's investment restrictions. Minimum initial
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish margin deposit requirements that are higher
than the exchange minimums. Cash held in the margin account generally is not
income-producing. Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the underlying debt
securities or index fluctuates, making the future more or less valuable, a
process known as marking the contract to market. Changes in variation margin are
recorded by the fund as unrealized gains or losses. At any time prior to
expiration of the future, the fund may elect to close the position by taking an
opposite position that will operate to terminate its position in the future. A
final determination of variation margin is then made; additional cash is
required to be paid by or released to the fund and the fund realizes a loss or
gain.
RISKS RELATED TO FUTURES AND OPTIONS TRANSACTIONS
Futures and options prices can be volatile, and trading in these markets
involves certain risks. If the fund managers apply a hedge at an inappropriate
time or judge interest rate or equity market trends incorrectly, futures and
options strategies may lower a fund's return.
A fund could suffer losses if it is unable to close out its position because
of an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when the fund managers consider it appropriate or desirable to
STATEMENT OF ADDITIONAL INFORMATION 9
do so. In the event of adverse price movements, a fund would be required to
continue making daily cash payments to maintain its required margin. If the fund
had insufficient cash, it might have to sell portfolio securities to meet daily
margin requirements at a time when the fund managers would not otherwise elect
to do so. In addition, a fund may be required to deliver or take delivery of
instruments underlying futures contracts it holds. The fund managers will seek
to minimize these risks by limiting the contracts entered into on behalf of the
funds to those traded on national futures exchanges and for which there appears
to be a liquid secondary market.
A fund could suffer losses if the prices of its futures and options
positions were poorly correlated with its other investments, or if securities
underlying futures contracts purchased by a fund had different maturities than
those of the portfolio securities being hedged. Such imperfect correlation may
give rise to circumstances in which a fund loses money on a futures contract at
the same time that it experiences a decline in the value of its hedged portfolio
securities. A fund also could lose margin payments it has deposited with a
margin broker, if, for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond the limit. However, the daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses. In addition, the daily limit may prevent liquidation
of unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
OPTIONS ON FUTURES
By purchasing an option on a futures contract, a fund obtains the right, but
not the obligation, to sell the futures contract (a put option) or to buy the
contract (a call option) at a fixed strike price. A fund can terminate its
position in a put option by allowing it to expire or by exercising the option.
If the option is exercised, the fund completes the sale of the underlying
security at the strike price. Purchasing an option on a futures contract does
not require a fund to make margin payments unless the option is exercised.
Although they do not currently intend to do so, some funds may write (or
sell) call options that obligate them to sell (or deliver) the option's
underlying instrument upon exercise of the option. While the receipt of option
premiums would mitigate the effects of price declines, the funds would give up
some ability to participate in a price increase on the underlying security. If a
fund were to engage in options transactions, it would own the futures contract
at the time a call were written and would keep the contract open until the
obligation to deliver it pursuant to the call expired.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS
Under the Commodity Exchange Act, a fund may enter into futures and options
transactions (a) for hedging purposes without regard to the percentage of assets
committed to initial margin and option premiums or (b) for purposes other than
hedging, provided that assets committed to initial margin and option premiums do
not exceed 5% of the fund's total assets. To the extent required by law, each
fund will segregate cash or securities on its records in an amount sufficient to
cover its obligations under the futures contracts and options.
FORWARD CURRENCY EXCHANGE CONTRACTS
Some funds may purchase and sell foreign currency on a spot (i.e., cash)
basis and may engage in forward currency contracts, currency options and futures
transactions for hedging or any other lawful purpose. See "Derivative
Securities," page 6.
Forward contracts may be used under two circumstances:
(1) When the fund managers wish to lock in the U.S. dollar price of a
security when a fund is purchasing or selling a security denominated in a
foreign currency, the fund would be able to enter into a forward contract to do
so; or
10 AMERICAN CENTURY INVESTMENTS
(2) When the fund managers believe that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, a fund would
be able to enter into a forward contract to sell foreign currency for a fixed
U.S. dollar amount approximating the value of some or all of its portfolio
securities either denominated in, or whose value is tied to, such foreign
currency.
In the first circumstance, when a fund enters into a trade for the purchase
or sale of a security denominated in a foreign currency, it may be desirable to
establish (lock in) the U.S. dollar cost or proceeds. By entering into forward
contracts in U.S. dollars for the purchase or sale of a foreign currency
involved in an underlying security transaction, the fund will be able to protect
itself against a possible loss between trade and settlement dates resulting from
the adverse change in the relationship between the U.S. dollar and the subject
foreign currency.
Under the second circumstance, when the fund managers believe that the
currency of a particular country may suffer a substantial decline relative to
the U.S. dollar, a fund could enter into a foreign contract to sell for a fixed
dollar amount the amount in foreign currencies approximating the value of some
or all of its portfolio securities either denominated in, or whose value is tied
to, such foreign currency. The fund will segregate on its records cash or
securities in an amount sufficient to cover its obligations under the contract.
The precise matching of forward contracts in the amounts and values of
securities involved generally would not be possible because the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of short-term hedging strategy
is highly uncertain. The fund managers do not intend to enter into such
contracts on a regular basis. Normally, consideration of the prospect for
currency parities will be incorporated into the long-term investment decisions
made with respect to overall diversification strategies. However, the fund
managers believe that it is important to have flexibility to enter into such
forward contracts when they determine that a fund's best interests may be
served.
At the maturity of the forward contract, the fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate the obligation to deliver the foreign currency by
purchasing an offsetting forward contract with the same currency trader
obligating the fund to purchase, on the same maturity date, the same amount of
the foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the forward contract. Accordingly, it
may be necessary for a fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency the fund is obligated to deliver.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations
on borrowing, the restrictions apply at the time transactions are entered into.
Accordingly, any later increase or decrease beyond the specified limitation
resulting from a change in a fund's net assets will not be considered in
determining whether it has complied with its investment restrictions.
FUNDAMENTAL INVESTMENT POLICIES
The funds' investment restrictions are set forth below. These investment
restrictions are fundamental and may not be changed without approval of a
majority of the outstanding votes of shareholders of a fund, as determined in
accordance with the Investment Company Act.
For purposes of the investment restriction relating to concentration, a fund
shall not purchase any securities that would cause 25% or more of the value of
the fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government, any state, territory or
possession of the United States, the District of Columbia or any of
STATEMENT OF ADDITIONAL INFORMATION 11
their authorities, agencies, instrumentalities or political subdivisions and
repurchase agreements secured by such instruments; (b) wholly owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; (c)
utilities will be divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry; and (d) personal credit and business credit businesses will
be considered separate industries.
Subject Policy
- --------------------------------------------------------------------------------
Senior Securities A fund may not issue senior securities, except as
permitted under the Investment Company Act.
- --------------------------------------------------------------------------------
Borrowing A fund may not borrow money, except for temporary or
emergency purposes (not for leveraging or investment) in an
amount not exceeding 33 1/3% of the fund's total assets.
- --------------------------------------------------------------------------------
Lending A fund may not lend any security or make any other loan if,
as a result, more than 33 1/3% of the fund's total assets
would be lent to other parties, except (i) through the
purchase of debt securities in accordance with its investment
objective, policies and limitations or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
- --------------------------------------------------------------------------------
Real Estate A fund may not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments.
This policy shall not prevent a fund from investing in
securities or other instruments backed by real estate or
securities of companies that deal in real estate or are
engaged in the real estate business.
- --------------------------------------------------------------------------------
Concentration A fund may not concentrate its investments in securities of
issuers in a particular industry (other than securities
issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities).
- --------------------------------------------------------------------------------
Underwriting A fund may not act as an underwriter of securities issued by
others, except to the extent that the fund may be considered
an underwriter within the meaning of the Securities Act of
1933 in the disposition of restricted securities.
- --------------------------------------------------------------------------------
Commodities A fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments, provided that this limitation shall not prohibit
the fund from purchasing or selling options and futures
contracts or from investing in securities or other
instruments backed by physical commodities.
- --------------------------------------------------------------------------------
Control A fund may not invest for purposes of exercising control over
management.
- --------------------------------------------------------------------------------
12 AMERICAN CENTURY INVESTMENTS
NONFUNDAMENTAL INVESTMENT POLICIES
In addition, the funds are subject to the following additional investment
restrictions that are not fundamental and may be changed by the Board of
Directors.
Subject Policy
- --------------------------------------------------------------------------------
Diversification A fund may not purchase additional investment securities at
any time during which outstanding borrowings exceed 5% of the
total assets of the fund.
- --------------------------------------------------------------------------------
Liquidity A fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 15% (10% for
money market funds) of its net assets would be invested in
repurchase agreements not entitling the holder to payment of
principal and interest within seven days and in securities
that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available
market.
- --------------------------------------------------------------------------------
Short Sales A fund may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions
in futures contracts and options are not deemed to constitute
selling securities short.
- --------------------------------------------------------------------------------
Margin A fund may not purchase securities on margin, except to obtain
such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection
with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
- --------------------------------------------------------------------------------
Futures & A fund may enter into futures contracts and write and buy put
Options and call options relating to futures contracts. A fund may
not, however, enter into leveraged futures transactions if it
(Premium Bond) would be possible for the fund to lose more money than it
invested.
- --------------------------------------------------------------------------------
Issuers with A fund may invest up to 5% of its assets in the securities of
Limited issuers with limited operating histories. An issuer is
Operating considered to have a limited operating history if that issuer
Histories has a record of less than three years of continuous operation.
Periods of capital formation, incubation, consolidations, and
(Premium Capital research and development may be considered in determining
Reserve and whether a particular issuer has a record of three years of
Premium Bond) continuous operation.
- --------------------------------------------------------------------------------
The Investment Company Act imposes certain additional restrictions upon
acquisition by the funds of securities issued by insurance companies,
broker-dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership. Neither the SEC nor any other agency of the
federal or state government participates in or supervises the management of the
funds or their investment practices or policies.
The Investment Company Act also provides that the funds may not invest more
than 25% of their assets in the securities of issuers engaged in a single
industry. In determining industry groups for purposes of this restriction, the
SEC ordinarily uses the Standard Industry Classification codes developed by the
United States Office of Management and Budget. In the interest of ensuring
adequate diversification, the funds monitor industry concentration using a more
restrictive list of industry groups than that recommended by the SEC. The funds
believe that these classifications are reasonable and are not so broad that the
primary economic characteristics of the companies in a single class are
materially different. The use of these restrictive industry classifications may,
however, cause the funds to forego investment possibilities that may otherwise
be available to them under the Investment Company Act.
STATEMENT OF ADDITIONAL INFORMATION 13
PORTFOLIO TURNOVER
The portfolio turnover rate of Premium Bond is shown in the Financial
Highlights table in the Prospectus.
The fund managers will purchase and sell securities without regard to the
length of time the security has been held. Accordingly, the fund's rate of
portfolio turnover may be substantial.
The fund managers intend to purchase a given security whenever they believe
it will contribute to the stated objective of the fund. In order to achieve each
fund's investment objective, the managers may sell a given security, no matter
how long or how short a period it has been held in the portfolio, and no matter
whether the sale is at a gain or at a loss, if the managers believe that the
security is not fulfilling its purpose, either because, among other things, it
did not live up to the managers' expectations, or because it may be replaced
with another security holding greater promise, or because it has reached its
optimum potential, or because of a change in the circumstances of a particular
company or industry or in general economic conditions, or because of some
combination of such reasons.
When a general decline in security prices is anticipated, the equity funds
may decrease or eliminate entirely their equity positions and increase their
cash positions, and when a rise in price levels is anticipated, the equity funds
may increase their equity positions and decrease their cash positions. However,
it should be expected that the funds will, under most circumstances, be
essentially fully invested in equity securities.
Because investment decisions are based on the anticipated contribution of
the security in question to a fund's objective, the managers believe that the
rate of portfolio turnover is irrelevant when they believe a change is in order
to achieve the objective. As a result, a fund's annual portfolio turnover rate
cannot be anticipated and may be higher than other mutual funds with similar
investment objectives. Higher turnover would generate correspondingly greater
brokerage commissions, which is a cost the funds pay directly. Portfolio
turnover also may affect the character of capital gains realized and distributed
by the fund, if any, since short-term capital gains are taxable as ordinary
income. This disclosure regarding portfolio turnover is a statement of
fundamental policy and may be changed only by a vote of the shareholders.
Because the managers do not take portfolio turnover rate into account in
making investment decisions, (1) the managers have no intention of accomplishing
any particular rate of portfolio turnover, whether high or low, and (2) the
portfolio turnover rates in the past should not be considered as representative
of the rates that will be attained in the future.
For Premium Bond, the higher portfolio turnover rate for the fiscal year
ended March 31, 1998 resulted from efforts to shift the fund's assets to more
closely reflect the composition of its benchmark, the Lehman Aggregate Bond
Index. The purpose of this shift was to allow more meaningful comparisons
between the fund and the benchmark and to offer investors a fund that more
closely represents the performance of the fixed-income market as a whole, rather
than only the corporate sector. As a result, a greater number of securities were
sold and purchased during that period than has been the fund's historical
practice.
MANAGEMENT
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the funds and meets at
least quarterly to review reports about fund operations. Although the Board of
Directors does not manage the funds, it has hired the advisor to do so.
Two-thirds of the directors are independent of the funds' advisor, that is, they
are not employed by and have no financial interest in the advisor.
The individuals listed in the following table on the next page whose names
are marked by an asterisk (*) are interested persons of the funds (as defined in
the Investment Company Act) by virtue of, among other considerations, their
affiliation with either the funds; the advisor, American Century Investment
Management, Inc. (ACIM); the funds' agent for transfer and administrative
services, American Century Services Corporation (ACSC); the parent corporation,
American Century Companies, Inc. (ACC) or ACC's
14 AMERICAN CENTURY INVESTMENTS
subsidiaries; the funds' distribution agent and co-administrator, Funds
Distributor, Inc. (FDI); or other funds advised by the advisor. Each director
listed serves as a director of six registered investment companies in the
American Century family of funds, which are also advised by the advisor.
<TABLE>
Name (Age) Position(s) Held With Principal Occupation(s)
Address the Funds During Past Five Years
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James E. Stowers, Jr.* (75) Director, Chairman, Director and controlling
4500 Main Street Chairman of the Board shareholder, ACC
Kansas City, MO 64111 Chairman and Director, ACIM, ACSC
and ACIS
Father of James E. Stowers III
- ----------------------------------------------------------------------------------------------------------------
James E. Stowers III* (40) Director Director and Chief Executive Officer,
4500 Main Street ACC, ACIM, ACSC and ACIS
Kansas City, MO 64111 Son of James E. Stowers, Jr.
- ----------------------------------------------------------------------------------------------------------------
Thomas A. Brown (59) Director Director of Plains States Development,
4500 Main Street Applied Industrial Technologies, Inc.,
Kansas City, MO 64111 a corporation engaged in the sale of
bearings and power transmission
products
- ----------------------------------------------------------------------------------------------------------------
Robert W. Doering, M.D. (66) Director Retired, formerly a general surgeon
4500 Main Street
Kansas City, MO 64111
- ----------------------------------------------------------------------------------------------------------------
Andrea C. Hall, Ph.D. (54) Director Senior Vice President and Associate
4500 Main Street Director, Midwest Research Institute
Kansas City, MO 64111
- ----------------------------------------------------------------------------------------------------------------
D.D. (Del) Hock (64) Director Retired, formerly Chairman, Public
4500 Main Street Service Company of Colorado
Kansas City, MO 64111 Director, Service Tech, Inc., Hathaway
Corporation, and J.D. Edwards &
Company
- ----------------------------------------------------------------------------------------------------------------
Donald H. Pratt (61) Director, Chairman and Director, Butler
4500 Main Street Vice Chairman of the Board Manufacturing Company
Kansas City, MO 64111
- ----------------------------------------------------------------------------------------------------------------
Lloyd T. Silver, Jr. (71) Director President, LSC, Inc., manufacturer's
4500 Main Street representative
Kansas City, MO 64111
- ----------------------------------------------------------------------------------------------------------------
M. Jeannine Strandjord (53) Director Senior Vice President, Finance, Sprint
4500 Main Street Corporation
Kansas City, MO 64111 Director, DST Systems, Inc.
- ----------------------------------------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION 15
COMMITTEES
The Board has four standing committees to oversee specific functions of the
funds' operations. Information about these committees appears in the table
below. The director first named acts as chairman of the committee.
Committee Members Function of Committee
- ----------------------------------------------------------------------------------------------------------------
Executive James E. Stowers, Jr. The Executive Committee performs the function of the Board of
James E. Stowers III Directors between Board meetings, subject to the limitations on
Donald H. Pratt its power set out in the Maryland General Corporation Law, and
except for matters required by the Investment Company Act to be
acted upon by the whole Board.
- ----------------------------------------------------------------------------------------------------------------
Compliance Thomas A. Brown The Compliance Committee reviews the results of the funds'
Donald H. Pratt compliance testing program, reviews quarterly reports from the
Lloyd T. Silver, Jr. advisor to the Board regarding various compliance matters and
Andrea C. Hall, Ph.D monitors the implementation of the funds' Code of Ethics, including
any violations thereof.
- ----------------------------------------------------------------------------------------------------------------
Audit M. Jeannine Strandjord The Audit Committee recommends the engagement of the funds'
Robert W. Doering, M.D. independent auditors and oversees its activities. The committee
D.D. (Del) Hock receives reports from the advisor's Internal Audit Department,
which is accountable to the committee. The committee also receives
reporting about compliance matters affecting the funds.
- ----------------------------------------------------------------------------------------------------------------
Nominating Donald H. Pratt The Nominating Committee primarily considers and recommends
D.D. (Del) Hock individuals for nomination as directors. The names of potential
James E. Stowers III director candidates are drawn from a number of sources, including
recommendations from Board members, management and shareholders. This
committee also reviews and makes recommendations to the Board with
respect to the composition of Board committees and other Board-related
matters, including its organization, size, composition,
responsibilities, functions and compensation.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION OF DIRECTORS
The directors also serve as directors for five American Century investment
companies other than the corporation. Each director who is not an interested
person as defined in the Investment Company Act receives compensation for
service as a member of the Board of all six such companies based on a schedule
that takes into account the number of meetings attended and the assets of the
funds for which the meetings are held. These fees and expenses are divided among
the six investment companies based, in part, upon their relative net assets.
Under the terms of the management agreement with the advisor, the funds are
responsible for paying such fees and expenses.
The following table shows the aggregate compensation paid by the corporation
for the periods indicated and by the six investment companies served by this
Board to each director who is not an interested person as defined in the
Investment Company Act.
Aggregate Director Compensation for Fiscal Year Ended March 31, 1999
- --------------------------------------------------------------------------------
Total Total Compensation
Compensation from the
from the American Century
Name of Director Funds(1) Family of Funds(2)
- --------------------------------------------------------------------------------
Thomas A. Brown $370 $54,166
Robert W. Doering, M.D. 356 52,166
Andrea C. Hall, Ph.D. 356 52,166
D.D. (Del) Hock 356 52,166
Donald H. Pratt 368 54,166
Lloyd T. Silver, Jr. 356 52,166
M. Jeannine Strandjord 383 54,166
- --------------------------------------------------------------------------------
(1) Includes compensation paid to the directors during the fiscal year ended
March 31, 1999, and also includes amounts deferred at the election of the
directors under the American Century Mutual Funds Deferred Compensation Plan for
Non-Interested Directors and Trustees. The total amount of deferred compensation
included in the preceding table is as follows: Mr. Brown, $55; Dr. Hall, $160;
Mr. Hock, $262; Mr. Pratt, $110; Mr. Silver, $208; and Ms. Strandjord, $303.
(2) Includes compensation paid by the six investment company members of the
American Century family of funds served by this Board.
16 AMERICAN CENTURY INVESTMENTS
The funds have adopted the American Century Deferred Compensation Plan for
Non-Interested Directors and Trustees. Under the plan, the independent directors
may defer receipt of all or any part of the fees to be paid to them for serving
as directors of the funds.
All deferred fees are credited to an account established in the name of the
directors. The amounts credited to the account then increase or decrease, as the
case may be, in accordance with the performance of one or more of the American
Century funds that are selected by the director. The account balance continues
to fluctuate in accordance with the performance of the selected fund or funds
until final payment of all amounts credited to the account. Directors are
allowed to change their designation of mutual funds from time to time.
No deferred fees are payable until such time as a director resigns, retires
or otherwise ceases to be a member of the Board of Directors. Directors may
receive deferred fee account balances either in a lump sum payment or in
substantially equal installment payments to be made over a period not to exceed
10 years. Upon the death of a director, all remaining deferred fee account
balances are paid to the director's beneficiary or, if none, to the director's
estate.
The plan is an unfunded plan and, accordingly, the funds have no obligation
to segregate assets to secure or fund the deferred fees. The rights of directors
to receive their deferred fee account balances are the same as the rights of a
general unsecured creditor of the funds. The plan may be terminated at any time
by the administrative committee of the plan. If terminated, all deferred fee
account balances will be paid in a lump sum.
No deferred fees were paid to any director under the plan during the fiscal
year ended March 31, 1999.
OFFICERS
Background information for the officers of the corporation is provided in
the following table. All persons named as officers of the corporation also serve
in similar capacities for the 12 other investment companies advised by ACIM. Not
all officers of the corporation are listed; only those officers with
policy-making functions for the corporation are listed. No officer is
compensated for his or her service as an officer of the corporation. The
individuals listed in the table are interested persons of the funds (as defined
in the Investment Company Act) by virtue of, among other considerations, their
affiliation with either the funds, ACC, ACC's subsidiaries (including ACIM and
ACSC), or the funds' distributor (FDI), as specified in the following table.
STATEMENT OF ADDITIONAL INFORMATION 17
<TABLE>
Name (Age) Positions Held With Principal Occupation(s)
Address the Funds During Past Five Years
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
George A. Rio (44) President Executive Vice President and Director of Client Services, FDI
60 State St. (March 1998 to present)
Boston, MA 02109 Senior Vice President and Senior Key Account Manager, Putnam
Mutual Funds (June 1995 to March 1998)
Director Business Development, First Data Corporation
(May 1994 to June 1995)
Senior Vice President and Manager of Client services and
Director of Internal Audit, The Boston Company, Inc.
(September 1983 to May 1994)
- ----------------------------------------------------------------------------------------------------------------
Christopher J. Kelley (34) Vice President Vice President and Associate General Counsel, FDI
60 State St. (July 1996 to present)
Boston, MA 02109 Assistant Counsel, Forum Financial Group
(April 1994 to July 1996)
Compliance Officer, Putnam Investments (1992 to April 1994)
- ----------------------------------------------------------------------------------------------------------------
Mary A. Nelson (35) Vice President Vice President and Manager of Treasury Services and
60 State St. Administration, FDI (1994 to present)
Boston, MA 02109 Assistant Vice President and Client Manager, The Boston
Company, Inc. (1989 to 1994)
- ----------------------------------------------------------------------------------------------------------------
Maryanne Roepke, CPA (43) Vice President Senior Vice President, Treasurer and Principal Accounting
4500 Main St. and Treasurer Officer, ACSC
Kansas City, MO 64111
- ----------------------------------------------------------------------------------------------------------------
David C. Tucker (41) Vice President Senior Vice President and General Counsel, ACSC and ACIM
4500 Main St. (June 1998 to present)
Kansas City, MO 64111 General Counsel, ACC (June 1998 to present)
Consultant to mutual fund industry (May 1997 to April 1998)
Vice President and General Counsel, Janus Companies
(1990 to 1997)
- ----------------------------------------------------------------------------------------------------------------
Paul J. Carrigan Jr. (49) Secretary Secretary, ACC (December 1998 to present)
4500 Main St. Director of Legal Operations (February 1996 to present)
Kansas City, MO 64111 Board Communications Manager, The Benham Company
(April 1994 to January 1996)
Legal Coordinator, State of California Health & Welfare
Agency (February 1992 to March 1994)
- ----------------------------------------------------------------------------------------------------------------
C. Jean Wade (35) Controller Controller-Fund Accounting, ACSC
4500 Main St.
Kansas City, MO 64111
- ----------------------------------------------------------------------------------------------------------------
Jon Zindel (32) Tax Officer Vice President and Director of Taxation, ACSC (1996 to present)
4500 Main St. Tax Manager, Price Waterhouse LLP (1989 to 1996)
Kansas City, MO 64111
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
18 AMERICAN CENTURY INVESTMENTS
THE FUNDS' PRINCIPAL SHAREHOLDERS
As of July 2, 1999, the following companies were the record owners of more
than 5% of a fund's outstanding shares:
The funds are unaware of any other shareholders, beneficial or of record,
who own more than 5% of a fund's outstanding shares. As of July 2, 1999, the
officers and directors of the funds, as a group, own less than 1% of any fund's
outstanding shares.
Percentage
of Shares
Fund Shareholder Outstanding
- --------------------------------------------------------------------------------
Premium Government Chase Management Bank NA 21.8%
Reserve Lorillard Inc. Hourly Paid Plan and Trust
770 Broadway, Fl 19
New York, NY 10003
Rancho San Antonio Retirement Services, Inc. 10.7%
23600 Via Esplendor
Cupertino, CA 95014
Cornelia M. Small 9.6%
60 E. End Avenue
Apt. 26B
New York, NY 10028
UMB Bank NA Trustee 5.6%
Insilco Corporation Employee Thrift Plan Trust
P.O. Box 419692
Kansas City, MO 64141
- --------------------------------------------------------------------------------
Premium Bond Trustees of Presbyterian Healthcare 13.2%
System 401-A Retirement Plan and Trust
P.O. Box 419692
Kansas City, MO 64141
UMB Bank NA Trustee 9.1%
Harris Methodist Health System 403 B
P.O. Box 419692
Kansas City, MO 64141
Trustees of Texas Health 7.3%
Retirement Program
8220 Walnut Hill Lane, Suite 700
Dallas, TX 75131
North Carolina Engineering Foundation, Inc. 6.8%
Campus Box 7207, Room 19 Avent
Raleigh, NC 27695
UMB Bank NA Custodian 6.0%
Presbyterian Healthcare System Section 403-B Plan
P.O. Box 419692
Kansas City, MO 64141
Trustees of Harris Methodist Health 5.2%
System Productivity Plan and Trust
6000 Western Pl, Suite 700
Fort Worth, TX 76107
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION 19
SERVICE PROVIDERS
The funds have no employees. To conduct the funds' day-to-day activities,
the funds have hired a number of service providers. Each service provider has a
specific function to fill on behalf of the funds and is described below.
ACIM and ACSC are both wholly owned by ACC. James E. Stowers Jr., Chairman
of ACC, controls ACC by virtue of his ownership of a majority of its voting
stock.
INVESTMENT ADVISOR
A description of the responsibilities of the advisor appears in the
Prospectus under the heading "Management."
For the services provided to the funds, the advisor receives a monthly fee
based on a percentage of the average net assets of the fund.
On the first business day of each month, the funds pay a management fee to
the advisor for the previous month at the specified rate. The fee for the
previous month is calculated by multiplying the applicable fee for the fund by
the aggregate average daily closing value of a fund's net assets during the
previous month by a fraction, the numerator of which is the number of days in
the previous month and the denominator of which is 365 (366 in leap years).
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually by (1) the funds'
Board of Directors, or by the vote of a majority of outstanding votes (as
defined in the Investment Company Act) and (2) the vote of a majority of the
directors of the funds who are not parties to the agreement or interested
persons of the advisor, cast in person at a meeting called for the purpose of
voting on such approval.
The management agreement provides that it may be terminated at any time
without payment of any penalty by the funds' Board of Directors, or by a vote of
a majority of outstanding votes, on 60 days' written notice to the advisor, and
that it shall be automatically terminated if it is assigned.
The management agreement provides that the advisor shall not be liable to
the funds or their shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties.
The management agreement also provides that the advisor and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
Certain investments may be appropriate for the funds and also for other
clients advised by the advisor. Investment decisions for the funds and other
clients are made with a view to achieving their respective investment objectives
after consideration of such factors as their current holdings, availability of
cash for investment and the size of their investment generally. A particular
security may be bought or sold for only one client or fund, or in different
amounts and at different times for more than one but less than all clients or
funds. In addition, purchases or sales of the same security may be made for two
or more clients or funds on the same date. Such transactions will be allocated
among clients in a manner believed by the advisor to be equitable to each. In
some cases this procedure could have an adverse effect on the price or amount of
the securities purchased or sold by a fund.
The advisor may aggregate purchase and sale orders of the funds with
purchase and sale orders of its other clients when the advisor believes that
such aggregation provides the best execution for the funds. The corporation's
Board of Directors has approved the policy of the advisor with respect to the
aggregation of portfolio transactions. Where portfolio transactions have been
aggregated, the funds participate at the average share price for all
transactions in that security on a given day and share transaction costs on a
pro rata basis. The advisor will not aggregate portfolio transactions of the
funds unless it believes such aggregation is consistent with its duty to seek
best execution on behalf of the funds and the terms of the management agreement.
The advisor receives no additional compensation or remuneration as a result of
such aggregation.
20 AMERICAN CENTURY INVESTMENTS
Unified management fees incurred by each fund by class for the fiscal
periods ended March 31, 1999, 1998 and 1997, are indicated in the following
table.
UNIFIED MANAGEMENT FEES
Fund 1999 1998 1997
- --------------------------------------------------------------------------------
Premium Government Reserve $315,756 $203,339 $138,640
Premium Capital Reserve 942,501 763,533 640,040
Premium Bond 429,782 258,139 91,566
- --------------------------------------------------------------------------------
OTHER ADVISORY RELATIONSHIPS
In addition to managing the funds, the advisor also serves as an investment
advisor to seven institutional accounts and to the following registered
investment companies:
American Century Mutual Funds, Inc.
American Century World Mutual Funds, Inc.
American Century Variable Portfolios, Inc.
American Century Capital Portfolios, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Municipal Trust
American Century Government Income Trust
American Century Investment Trust
American Century Target Maturities Trust
American Century Quantitative Equity Funds
American Century International Bond Funds
American Century California Tax-Free and Municipal Funds
TRANSFER AGENT AND ADMINISTRATOR
American Century Services Corporation, 4500 Main Street, Kansas City,
Missouri 64111, acts as transfer agent and dividend-paying agent for the funds.
It provides physical facilities, computer hardware and software and personnel,
for the day-to-day administration of the funds and of the advisor. The advisor
pays ACSC for such services.
From time to time, special services may be offered to shareholders who
maintain higher share balances in our family of funds. These services may
include the waiver of minimum investment requirements, expedited confirmation of
shareholder transactions, newsletters and a team of personal representatives.
Any expenses associated with these special services will be paid by the advisor.
Pursuant to a Sub-Administration Agreement with the advisor, Funds
Distributor, Inc. (FDI) serves as the co-administrator for the funds. FDI is
responsible for (i) providing certain officers of the funds and (ii) reviewing
and filing marketing and sales literature on behalf of the funds. The fees and
expenses of FDI are paid by the advisor out of its unified fee.
DISTRIBUTOR
The funds' shares are distributed by FDI, a registered broker-dealer. The
distributor is a wholly owned, indirect subsidiary of Boston Institutional
Group, Inc. The distributor's principal business address is 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
The distributor is the principal underwriter of the funds' shares. The
distributor makes a continuous, best-efforts underwriting of the funds' shares.
This means that the distributor has no liability for unsold shares.
OTHER SERVICE PROVIDERS
CUSTODIAN BANKS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York
10003-9598, and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105,
each serves as custodian of the assets of the funds. The custodians take no part
in determining the investment policies of the funds or in deciding which
securities are purchased or sold by the funds. The funds, however, may invest in
certain obligations of the custodians and may purchase or sell certain
securities from or to the custodians.
INDEPENDENT AUDITORS
Deloitte & Touche LLP are the independent auditors of the funds. The address
of Deloitte & Touche LLP is 1010 Grand Boulevard, Kansas City, Missouri 64106.
As the independent auditors of the funds, Deloitte & Touche LLP provides
services including (1) audit of the annual financial statements for each fund,
(2) assistance and consultation in connection
STATEMENT OF ADDITIONAL INFORMATION 21
with SEC filings and (3) review of the annual federal income tax return filed
for each fund.
BROKERAGE ALLOCATION
Under the management agreement between the funds and the advisor, the
advisor has the responsibility of selecting brokers and dealers to execute
portfolio transactions. In many transactions, the selection of the broker or
dealer is determined by the availability of the desired security and its
offering price. In other transactions, the selection of broker or dealer is a
function of the selection of market and the negotiation of price, as well as the
broker's general execution and operational and financial capabilities in the
type of transaction involved. The advisor will seek to obtain prompt execution
of orders at the most favorable prices or yields. The advisor may choose to
purchase and sell portfolio securities to and from dealers who provide services
or research, statistical and other information to the funds and to the advisor.
Such information or services will be in addition to and not in lieu of the
services required to be performed by the advisor, and the expenses of the
advisor will not necessarily be reduced as a result of the receipt of such
supplemental information.
INFORMATION ABOUT FUND SHARES
Each of the three funds named on the front of this Statement of Additional
Information is a series of shares issued by the corporation, and shares of each
fund have equal voting rights. In addition, each series (or fund) may be divided
into separate classes. Additional funds and classes may be added without a
shareholder vote.
Each fund votes separately on matters affecting that fund exclusively.
Voting rights are not cumulative, so that investors holding more than 50% of the
corporation's (i.e., all funds') outstanding shares may be able to elect a Board
of Directors. The corporation undertakes dollar-based voting, meaning that the
number of votes a shareholder is entitled to is based upon the dollar amount of
the shareholder's investment. The election of directors is determined by the
votes received from all the corporation's shareholders without regard to whether
a majority of shares of any one fund voted in favor of a particular nominee or
all nominees as a group.
The assets belonging to each series or class of shares are held separately
by the custodian and the shares of each series or class represent a beneficial
interest in the principal, earnings and profit (or losses) of investments and
other assets held for each series or class. Your rights as a shareholder are the
same for all series or class of securities unless otherwise stated. Within their
respective series or class, all shares have equal redemption rights. Each share,
when issued, is fully paid and non-assessable.
In the event of complete liquidation or dissolution of the funds,
shareholders of each series or class of shares shall be entitled to receive, pro
rata, all of the assets less the liabilities of that series or class.
Each shareholder has rights to dividends and distributions declared by the
fund he or she owns and to the net assets of such fund upon its liquidation or
dissolution proportionate to his or her share ownership interest in the fund.
BUYING AND SELLING FUND SHARES
Information about buying, selling and exchanging fund shares is contained
in Your Guide to American Century Services. The guide is available to investors
without charge and may be obtained by calling us.
VALUATION OF A FUND'S SECURITIES
Each fund's net asset value per share (NAV) is calculated as of the close of
business of the New York Stock Exchange (the Exchange), usually at 4 p.m.
Eastern time on each day the Exchange is open for business. The Exchange
typically observes the following holidays: New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Although the funds expect the same
holidays to be observed in the future, the Exchange may modify its holiday
schedule at any time.
The advisor typically completes its trading on behalf of each fund in
various markets before the Exchange closes for the day. Each fund's NAV is
calculated by adding the value of all portfolio securities and other assets,
deducting liabilities and dividing the result by the number of shares
outstanding. Expenses and interest earned on portfolio securities are accrued
daily.
22 AMERICAN CENTURY INVESTMENTS
The portfolio securities of the fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
prices is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices, or
at the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the Board of Directors.
Debt securities not traded on a principal securities exchange are valued
through valuations obtained from a commercial pricing service or at the most
recent mean of the bid and asked prices provided by investment dealers in
accordance with procedures established by the Board of Directors.
Because there are hundreds of thousands of municipal issues outstanding, and
the majority of them do not trade daily, the prices provided by pricing services
for these types of securities are generally determined without regard to bid or
last sale prices. In valuing securities, the pricing services generally take
into account institutional trading activity, trading in similar groups of
securities, and any developments related to specific securities. The methods
used by the pricing service and the valuations so established are reviewed by
the advisor under the general supervision of the Board of Directors. There are a
number of pricing services available, and the advisor, on the basis of ongoing
evaluation of these services, may use other pricing services or discontinue the
use of any pricing service in whole or in part.
Securities maturing within 60 days of the valuation date may be valued at
cost, plus or minus any amortized discount or premium, unless the directors
determine that this would not result in fair valuation of a given security.
Other assets and securities for which quotations are not readily available are
valued in good faith at their fair value using methods approved by the Board of
Directors.
The value of an exchange-traded foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which it
is traded or as of the close of business on the New York Stock Exchange, if that
is earlier. That value is then translated to dollars at the prevailing foreign
exchange rate. Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed at various times
before the close of business on each day that the New York Stock Exchange is
open.
If an event were to occur after the value of a security was established, but
before the net asset value per share was determined, that was likely to
materially change the net asset value, then that security would be valued at
fair value as determined in accordance with procedures adopted by the Board of
Directors.
Trading of these securities in foreign markets may not take place on every
exchange business day. In addition, trading may take place in various foreign
markets on Saturdays or on other days when the exchange is not open and on which
the funds' net asset value is not calculated. Therefore, such calculations do
not take place contemporaneously with the determination of the prices of many of
the portfolio securities used in such calculation and the value of the funds'
portfolios may be affected on days when shares of the funds may not be purchased
or redeemed.
Each of the money market funds operates pursuant to Investment Company Act
Rule 2a-7, which permits valuation of portfolio securities on the basis of
amortized cost. When a security is valued at amortized cost, it is valued at its
cost when purchased and thereafter by assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the investment.
As required by the Rule, the Board of Directors has adopted procedures
designed to stabilize, to the extent reasonably possible, each fund's price per
share as computed for the purpose of sales and redemptions at $1.00. While the
day-to-day operation of each fund has been delegated to the manager, the quality
requirements established by the procedures limit investments to certain U.S.
dollar-denominated instruments that the Board of Directors has
STATEMENT OF ADDITIONAL INFORMATION 23
determined present minimal credit risks and that have been rated in one of the
two highest rating categories as determined by a nationally recognized
statistical rating organization or, in the case of an unrated security, of
comparable quality. The procedures require review of each fund's portfolio
holdings at such intervals as are reasonable in light of current market
conditions to determine whether the fund's net asset value calculated by using
available market quotations deviates from the per-share value based on amortized
cost. The procedures also prescribe the action to be taken if such deviation
should occur.
TAXES
FEDERAL INCOME TAX
Each fund intends to qualify annually as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code).
By so qualifying, a fund will be exempt from federal income taxes to the extent
that it distributes substantially all of its net investment income and net
realized capital gains (if any) to shareholders. If a fund fails to qualify as a
regulated investment company, it will be liable for taxes, significantly
reducing its distributions to shareholders and eliminating shareholders' ability
to treat distributions of the funds in the manner they were realized by the
funds.
If fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income. The dividends from net income may qualify for the 70% dividends
received deduction for corporations to the extent that the fund held shares
receiving the dividend for more than 45 days.
Distributions from gains on assets held longer than 12 months are taxable as
long-term gains regardless of the length of time you have held the shares.
However, you should note that any loss realized upon the sale or redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any distributions of long-term capital gain to you with respect
to such shares.
Dividends and interest received by a fund on foreign securities may give
rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Foreign countries generally do not impose taxes on capital
gains in respect to investments by non-resident investors. The foreign taxes
paid by the fund will reduce its dividends.
If more than 50% of the value of a fund's total assets at the end of its
fiscal year consists of securities of foreign corporations, the fund may qualify
for and make an election with the Internal Revenue Service with respect to such
fiscal year so that you may be able to claim a foreign tax credit in lieu of a
deduction for foreign income taxes paid by the fund. If such an election is
made, the foreign taxes paid by the fund will be treated as income received by
you. In order for you to utilize the foreign tax credit, you must have held your
shares for 16 days or more during the 30-day period, beginning 15 days prior to
the ex- dividend date for the shares. The fund must meet a similar holding
period requirement with respect to foreign securities to which a dividend is
attributable. Any portion of the foreign tax credit that is eligible will be
separately disclosed.
If you have not complied with certain provisions of the Internal Revenue
Code and Regulations, either American Century or your financial intermediary is
required by federal law to withhold and remit to the IRS 31% of reportable
payments (which may include dividends, capital gains distributions and
redemptions). Those regulations require you to certify that the Social Security
number or tax identification number you provide is correct and that you are not
subject to 31% withholding for previous under-reporting to the IRS. You will be
asked to make the appropriate certification on your application. Payments
reported by us that omit your Social Security number or tax identification
number will subject us to a penalty of $50, which will be charged against your
account if you fail to provide the certification by the time the report is
filed, and is not refundable.
Redemption of shares of a fund (including redemption made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize gain or loss in an amount equal to the
difference between the basis of the shares and the amount received. If a loss is
realized on the redemption of fund shares, the reinvestment in additional fund
shares within 30 days before or after the redemption may be subject to the
24 AMERICAN CENTURY INVESTMENTS
"wash sale" rules of the Code, resulting in a postponement of the recognition of
such loss for federal income tax purposes.
Premium Bond may adjust its dividends to take currency fluctuations into
account, which may cause the dividends to vary. If the fund's dividends exceed
its taxable income in any year, which is sometimes the result of
currency-related losses, all or a portion of the fund's dividends may be treated
as a return of capital to shareholders for tax purposes. Any return of capital
will reduce the cost basis of your shares, which will result in a higher
reported capital gain or a lower reported capital loss when you sell your
shares. The Form 1099-DIV you receive in January will specify if any
distributions included a return of capital.
STATE AND LOCAL TAX
Distributions also may be subject to state and local taxes, even if all or a
substantial part of such distributions are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. However, most but not all states allow this tax exemption
to pass through to fund shareholders when a fund pays distributions to its
shareholders. You should consult your tax advisor about the tax status of such
distributions in your own state.
HOW FUND PERFORMANCE INFORMATION IS CALCULATED
The funds may quote performance in various ways. Historical performance
information will be used in advertising and sales literature.
For the money market funds, yield quotations are based on the change in the
value of a hypothetical investment (excluding realized gains and losses from the
sale of securities and unrealized appreciation and depreciation of securities)
over a seven-day period (base period) and stated as a percentage of the
investment at the start of the base period (base-period return). The base-period
return is then annualized by multiplying by 365/7 with the resulting yield
figure carried to at least the nearest hundredth of one percent.
Calculations of effective yield begin with the same base-period return used
to calculate yield, but the return is then annualized to reflect weekly
compounding according to the following formula:
Effective Yield = [(Base-Period Return + 1)365/7] - 1
For the non-money market funds, yield quotations are based on the investment
income per share earned during a particular 30-day period, less expenses accrued
during the period (net investment income), and are computed by dividing the
fund's net investment income by its share price on the last day of the period
according to the following formula:
YIELD = (2 [(a - b + 1)6 - 1])/cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
MONEY MARKET FUND YIELDS
(seven-day period ended March 31, 1999)
Fund 7-Day Yield Effective Yield
- --------------------------------------------------------------------------------
Premium Government
Reserve 4.43% 4.53%
- --------------------------------------------------------------------------------
Premium Capital
Reserve 4.53% 4.63%
- --------------------------------------------------------------------------------
NON-MONEY MARKET FUND YIELDS
(30-day period ended March 31, 1999)
Fund 30-Day Yield
- --------------------------------------------------------------------------------
Premium Bond 5.80%
- --------------------------------------------------------------------------------
The following table sets forth the average annual total return for the
Investor Class of the funds for the periods indicated as of March 31, 1999.
AVERAGE ANNUAL TOTAL RETURNS -- INVESTOR CLASS
(fiscal year ended March 31, 1999)
Fund 1 year 5 years Life of Fund(1)
- --------------------------------------------------------------------------------
Premium Government
Reserve 4.80% 5.13% 4.68%
- --------------------------------------------------------------------------------
Premium Capital
Reserve 4.97% 5.23% 4.77%
- --------------------------------------------------------------------------------
Premium Bond 2.34% 7.50% 5.88%
- --------------------------------------------------------------------------------
(1) The inception date for the funds is April 1, 1993.
STATEMENT OF ADDITIONAL INFORMATION 25
Total returns quoted in advertising and sales literature reflect all aspects
of a fund's return, including the effect of reinvesting dividends and capital
gain distributions (if any) and any change in the fund's NAV during the period.
Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in a fund during a
stated period and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant throughout the period. For example, a cumulative total return
of 100% over 10 years would produce an average annual return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the funds' performance is
not constant over time, but changes from year-to-year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
In addition to average annual total returns, each fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as percentages or as dollar amounts and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) to illustrate the
relationship of these factors and their contributions to total return.
PERFORMANCE COMPARISONS
The funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indices of market
performance. This may include comparisons with funds that, unlike the American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons may include, but are not
limited to, U.S. Treasury bill, note and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated, tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper, Inc. or Morningstar, Inc.; mutual fund
rankings published in major, nationally distributed periodicals; data provided
by the Investment Company Institute; Ibbotson Associates, Stocks, Bonds, Bills,
and Inflation; major indices of stock market performance; and indices and
historical data supplied by major securities brokerage or investment advisory
firms. The funds also may utilize reprints from newspapers and magazines
furnished by third parties to illustrate historical performance or to provide
general information about the funds.
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment
26 AMERICAN CENTURY INVESTMENTS
products (including the funds) with relevant market or industry indices or other
appropriate benchmarks; (8) discussions of fund rankings or ratings by
recognized rating organizations; and (9) testimonials describing the experience
of persons who have invested in one or more of the funds. The funds also may
include calculations, such as hypothetical compounding examples, which describe
hypothetical investment results. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any of
the funds.
FINANCIAL STATEMENTS
The financial statements of the funds are included in the Annual Reports to
shareholders for the fiscal year ended March 31, 1999. Each Annual Report is
incorporated herein by reference. You may receive copies of the reports without
charge upon request to American Century at the address and telephone number
shown on the back cover of this Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION 27
EXPLANATION OF FIXED-INCOME SECURITIES RATINGS
As described in the Prospectus, the funds may invest in fixed-income
securities. Those investments, however, are subject to certain credit quality
restrictions, as noted in the Prospectus. The following is a summary of the
rating categories referenced in the prospectus disclosure.
BOND RATINGS
S&P Moody's Description
- --------------------------------------------------------------------------------
AAA Aaa These are the highest ratings assigned by S&P and Moody's to a
debt obligation. These ratings indicate an extremely strong
capacity to pay interest and repay principal.
- --------------------------------------------------------------------------------
AA Aa Debt rated in this category is considered to have a very strong
capacity to pay interest and repay principal. It differs from
AAA/Aaa issues only in a small degree.
- --------------------------------------------------------------------------------
A A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
- --------------------------------------------------------------------------------
BBB Baa Debt rated BBB/Baa is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
- --------------------------------------------------------------------------------
BB Ba Debt rated BB/Ba has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions that could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating
category also is used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
- --------------------------------------------------------------------------------
B B Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category also is
used for debt subordinated to senior debt that is assigned an
actual or implied BB/Ba or BB-/Ba3 rating.
- --------------------------------------------------------------------------------
CCC Caa Debt rated CCC/Caa has a currently identifiable vulnerability
to default and is dependent upon favorable business, financial
and economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC/Caa
rating category also is used for debt subordinated to senior
debt that is assigned an actual or implied B or B-/B3 rating.
- --------------------------------------------------------------------------------
CC Ca The rating CC/Ca typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC/Caa
rating.
- --------------------------------------------------------------------------------
C C The rating C typically is applied to debt subordinated to
senior debt, which is assigned an actual or implied CCC-/Caa3
debt rating. The C rating may be used to cover a situation
where a bankruptcy petition has been filed, but debt service
payments are continued.
- --------------------------------------------------------------------------------
CI -- The rating CI is reserved for income bonds on which no interest
is being paid.
- --------------------------------------------------------------------------------
D D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made
on the date due even if the applicable grace period has not
expired, unless S&P believes that such payments will be made
during such grace period. The D rating also is used upon the
filing of a bankruptcy petition if debt service payments are
jeopardized.
- --------------------------------------------------------------------------------
To provide more detailed indications of credit quality, the Standard &
Poor's ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within these major rating categories. Similarly,
Moody's adds numerical modifiers (1,2,3) to designate relative standing within
its major bond rating categories. Fitch Investors Service, Inc. also rates bonds
and uses a ratings system that is substantially similar to that used by Standard
& Poor's.
28 AMERICAN CENTURY INVESTMENTS
COMMERCIAL PAPER RATINGS
S&P Moody's Description
- --------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety regarding timely
(P-1) payment is strong. Standard & Poor's rates those issues
determined to possess extremely strong safety characteristics
as A-1+.
- --------------------------------------------------------------------------------
A-2 Prime-2 Capacity for timely payment on commercial paper is
(P-2) satisfactory, but the relative degree of safety is not as high
as for issues designated A-1. Earnings trends and coverage
ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriated, may
be more affected by external conditions. Ample alternate
liquidity is maintained.
- --------------------------------------------------------------------------------
A-3 Prime-3 Satisfactory capacity for timely repayment. Issues that carry
(P-3) this rating are somewhat more vulnerable to the
adverse changes in circumstances than obligations carrying the
higher designations.
- --------------------------------------------------------------------------------
NOTE RATINGS
S&P Moody's Description
- --------------------------------------------------------------------------------
SP-1 MIG-1; Notes are of the highest quality enjoying strong protection from
VMIG-1 established cash flows of funds for their servicing or
from established and broad-based access to the market for
refinancing, or both.
- --------------------------------------------------------------------------------
SP-2 MIG-2; Notes are of high quality, with margins of protection ample,
VMIG-2 although not so large as in the preceding group.
- --------------------------------------------------------------------------------
SP-3 MIG-3; Notes are of favorable quality, with all security elements
VMIG-3 accounted for, but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in particular,
is likely to be less well-established.
- --------------------------------------------------------------------------------
SP-4 MIG-4; Notes are of adequate quality, carrying specific risk but having
VMIG-4 protection and not distinctly or predominantly speculative.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION 29
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
ANNUAL AND SEMIANNUAL REPORTS
These contain more information about the funds' investments and the market
conditions and investment strategies that significantly affected the funds'
performance during the most recent fiscal period. The annual and semiannual
reports are incorporated by reference into this SAI. This means that these are
legally part of this SAI.
You can receive free copies of the annual and semiannual reports, and ask any
questions about the funds and your accounts, by contacting American Century at
the address or telephone numbers listed below.
If you own or are considering purchasing fund shares through
* an employer-sponsored retirement plan
* a bank
* a broker-dealer
* an insurance company
* another financial intermediary
you can receive the annual and semiannual reports directly from them.
You also can get information about the funds from the Securities and Exchange
Commission (SEC).
* In person SEC Public Reference Room
Washington, D.C.
Call 1-800-SEC-0330 for location and hours.
* On the Internet www.sec.gov
* By mail SEC Public Reference Section
Washington, D.C. 20549-6009
(The SEC will charge a fee for copying the
documents.)
Investment Company Act File No. 811-7446
[american century logo (reg.sm)]
American
Century
AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri 64141-6200
INVESTOR RELATIONS
1-800-345-2021 or 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
WWW.AMERICANCENTURY.COM
FAX
816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 or 816-444-3485
BUSINESS, NOT-FOR-PROFIT AND
EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
SH-SAI-16643 9908
