[front cover]
SEPTEMBER 30, 1999
SEMIANNUAL REPORT
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AMERICAN CENTURY
[graphic of stairs]
PREMIUM BOND
[american century logo(reg. sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
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Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain operations
in the event of any Y2K-related incidents. We have conducted practice drills of
contingency scenarios and will continue to refine our plans during the rest of
1999 to respond quickly and effectively so that the date change is as seamless
as possible for investors. We expect the Year 2000 to be business as usual at
American Century.
Year 2000 Readiness Disclosure
[left margin]
PREMIUM BOND
(ACBPX)
- ----------------------------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY
FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
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Our Message to You
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[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
Strong economic growth and increasing inflation anxiety resulted in higher
interest rates during the six months ended September 30, 1999. The recovery of
overseas economies and unabated U.S. growth influenced the Federal Reserve (the
U.S. central bank) to raise short-term interest rates twice during the summer of
1999 to rein in the U.S. economy and reduce pressures on prices and wages.
In this difficult environment for U.S. bonds, Premium Bond continued to
provide competitive returns compared with similar funds. Premium Bond
shareholders have benefited from our commitment to build and maintain a talented
fund management group. American Century's entire investment management team has
doubled in size over the past three years.
Turning to corporate matters, American Century has long been an active
supporter of the development and use of technologies that improve the
efficiencies of capital markets, lower the costs of trading securities, and
ultimately offer better returns for shareholders. Toward that end, we've made
strategic investments in several other financial services firms, including
Archipelago, Optimark, Tradepoint Financial Networks, W.R. Hambrecht, and, most
recently, WorldStreet Corporation. WorldStreet, located in Boston, is developing
a customized software application that marries portfolio holdings with real-time
market information.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
This isn't American Century's first nod of approval from DALBAR. In June,
DALBAR recognized our statement's individual rate of return feature--part of the
personalized performance section--as the key reason it ranked our statement
second out of 88 mutual fund company statements in the nation.
One final note--in the spirit of our ongoing Year 2000 readiness
disclosures, we've provided a complete update on our preparations for Y2K on the
inside front cover of this report. We understand that our diligence in this area
is very important to you.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
PREMIUM BOND
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Yields ................................................................. 5
Types of Investments ................................................... 6
Schedule of Investments ................................................ 7
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 11
Statement of Operations ................................................ 12
Statements of Changes
in Net Assets ....................................................... 13
Notes to Financial
Statements .......................................................... 14
Financial Highlights ................................................... 16
OTHER INFORMATION
Retirement Account
Information ......................................................... 17
Background Information
Investment Philosophy
and Policies ..................................................... 18
Comparative Indices ................................................. 18
Lipper Rankings ..................................................... 18
Credit Rating
Guidelines ....................................................... 18
Investment Team
Leaders .......................................................... 18
Glossary ............................................................... 19
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* Inflation fears and rising interest rates created a difficult environment for
U.S. bonds in 1999, resulting in their worst showing since 1994.
* Responding to an unexpectedly vibrant U.S. economy, the Federal Reserve
raised short-term interest rates twice to head off inflation.
* Short-term securities, which are the least sensitive to interest rate
changes, produced modest gains, while intermediate- and long-term securities
generally suffered losses.
* Mortgage-backed securities were the best-performing U.S. bond sector during
the six months. Their relatively higher yields and shorter durations helped
cushion them somewhat from declining prices as interest rates rose.
* Corporate bonds performed worst, hurt by heavy issuance in the first six
months of 1999 and low liquidity later.
MANAGEMENT Q&A
* Rising interest rates hurt Premium Bond's returns; however, the fund
outperformed the average fund in its Lipper category (see page 4).
* The fund did well relative to the Lipper group because the portfolio held
fewer corporate securities and had a relatively short duration. A shorter
duration meant the fund held up well despite higher interest rates.
* Premium Bond's benchmark had a slightly higher return than the fund,
primarily because of fund expenses and fewer corporate securities in the
benchmark than in the fund.
* We overweighted corporate bonds relative to the benchmark because we were
able to buy them at attractive prices and yields during the summer.
* We think corporate bonds will perform well in the months ahead, so we expect
the overweighting in corporates to benefit the portfolio.
* Mortgage-backed securities also looked attractive during the summer, so we
increased that position as well.
* Looking ahead, we plan to keep the fund overweighted in corporate bonds
through the first few months of 2000 and maintain a duration position that is
in line with the fund's benchmark.
[left margin]
PREMIUM BOND
(ACBPX)
TOTAL RETURNS: AS OF 9/30/99
6 Months -0.63%*
1 Year -1.03%
30-DAY SEC YIELD: 6.44%
INCEPTION DATE: 4/1/93
NET ASSETS: $101.6 million
* Not annualized.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 19-20.
2 1-800-345-2021
Market Perspective from Randall W. Merk
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[photo of Randall W. Merk]
Randall W. Merk, chief investment officer of fixed income at American Century
RISING INTEREST RATES SQUEEZE U.S. BOND PRICES
Inflation fears and rising interest rates created a difficult environment
for U.S. bonds in 1999. For the six months ended September 30, 1999, the Lehman
Brothers Aggregate Bond Index--a broad measure of U.S. bond performance--
returned -0.21%.
A VIBRANT ECONOMY AND INFLATION FEARS
Responding to an unexpectedly vibrant U.S. economy, the Federal Reserve
(the Fed--the U.S. central bank) raised short-term interest rates on June 30 and
August 25 to head off inflation. With foreign economies steadily improving and
1998's global liquidity crisis apparently no longer an issue, the Fed appeared
to be in the process of taking back last year's three interest rate cuts.
That's not surprising given what's happened in 1999. U.S. unemployment
dipped to 30-year lows, commodity prices jumped, and the U.S. dollar weakened,
particularly against the Japanese yen. May turned out to be a pivotal month.
First, the inflation report for April (released in mid-May) showed the biggest
monthly consumer price increase in almost nine years. Then the Fed announced its
policy shift toward higher interest rates, which led to its first rate hikes
since March 1997.
NON-TREASURY SECTORS FINISHED ON TOP...
Mortgage-backed securities were the best-performing U.S. bond sector (see
the bond index table at right), primarily because they tend to have somewhat
less interest rate sensitivity--as measured by their shorter duration--than
other bond sectors.
Treasury bonds finished behind other bond sectors, but that wasn't the case
for the entire six months. Non-Treasurys suffered at first when yield
spreads--the difference between Treasury and non-Treasury yields--widened,
particularly in July and August. Decreased Treasury issuance, due to the federal
budget surplus, and increased agency issuance helped contribute to the spread
widening. However, better demand and reduced agency issuance caused yield
spreads to snap back in September.
The Treasury yield curve--which shows the yields of different maturity
Treasurys at a given date--rose and flattened (see graph below). That is, yields
rose on all Treasury securities, but the difference between short- and long-term
yields diminished. The rising and flattening yield curve led to falling Treasury
prices, especially for bonds that lay where the curve moved the most. That
caused Treasurys to lag other bond sectors.
...WITH THE EXCEPTION OF CORPORATE BONDS
A relative overabundance of new securities dampened corporate bond returns.
Companies eager to lock in low rates and avoid coming to market right before Y2K
issued a record amount of corporate debt in the first six months of 1999.
[right margin]
"INFLATION FEARS AND RISING INTEREST RATES CREATED A DIFFICULT ENVIRONMENT FOR
U.S. BONDS IN 1999."
U.S. BOND INDEX RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
LEHMAN AGGREGATE BOND INDEX -0.21%
LEHMAN FIXED-RATE MORTGAGE-
BACKED SECURITIES INDEX 0.47%
LEHMAN AGENCY BOND INDEX -0.15%
LEHMAN TREASURY BOND INDEX -0.22%
LEHMAN CORPORATE BOND INDEX -1.29%
Source: Bloomberg Financial Markets
[line graph - data below]
RISING TREASURY YIELD CURVE
3/31/99 9/30/99
YEARS TO
MATURITY
1 4.72% 5.19%
2 4.99% 5.60%
3 5.03% 5.65%
4 5.07% 5.70%
5 5.10% 5.76%
6 5.13% 5.78%
7 5.16% 5.80%
8 5.19% 5.82%
9 5.22% 5.84%
10 5.24% 5.87%
11 5.26% 5.88%
12 5.28% 5.89%
13 5.30% 5.90%
14 5.32% 5.91%
15 5.34% 5.92%
16 5.36% 5.93%
17 5.38% 5.94%
18 5.40% 5.95%
19 5.42% 5.96%
20 5.44% 5.97%
21 5.46% 5.98%
22 5.48% 5.99%
23 5.50% 6.00%
24 5.52% 6.01%
25 5.54% 6.01%
26 5.56% 6.02%
27 5.58% 6.02%
28 5.60% 6.03%
29 5.62% 6.04%
30 5.63% 6.05%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Premium Bond--Performance
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TOTAL RETURNS AS OF SEPTEMBER 30, 1999
PREMIUM LEHMAN AGGREGATE A-RATED CORPORATE DEBT FUNDS(2)
BOND BOND INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) -0.63% -0.21% -1.26% --
1 YEAR -1.03% -0.37% -2.19% 31 OUT OF 161
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 6.21% 6.82% 5.79% 37 OUT OF 133
5 YEARS 7.53% 7.84% 6.99% 20 OUT OF 95
LIFE OF FUND 5.74% 6.29% 5.61%(3) 22 OUT OF 65(3)
The fund's inception date was 4/1/93.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 4/30/93, the date nearest the fund's inception for which return data
are available.
See pages 18-19 for more information about returns, the comparative index, and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $100,000 OVER LIFE OF FUND
Value on 9/30/99
Lehman Aggregate
Bond Index $148,658
Premium Bond $143,770
Lehman Aggregate
Premium Bond Bond Index
DATE VALUE VALUE
4/1/1993 $100,000 $100,000
6/30/1993 $101,870 $102,650
9/30/1993 $104,620 $105,329
12/31/1993 $104,537 $105,392
3/31/1994 $100,909 $102,368
6/30/1994 $99,537 $101,313
9/30/1994 $100,025 $101,931
12/31/1994 $100,245 $102,319
3/31/1995 $105,427 $107,475
6/30/1995 $112,618 $114,021
9/30/1995 $114,814 $116,255
12/31/1995 $120,382 $121,208
3/31/1996 $117,565 $119,063
6/30/1996 $117,847 $119,741
9/30/1996 $119,969 $121,956
12/31/1996 $123,676 $125,615
3/31/1997 $122,946 $124,912
6/30/1997 $127,028 $129,496
9/30/1997 $131,169 $133,795
12/31/1997 $134,645 $137,729
3/31/1998 $136,664 $139,877
6/30/1998 $139,644 $143,151
9/30/1998 $145,271 $149,206
12/31/1998 $145,213 $149,713
3/31/1999 $144,691 $148,965
6/30/1999 $142,925 $147,654
9/30/1999 $143,770 $148,658
$100,000 investment made 4/1/93
The graph at left shows the growth of a $100,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
Lehman Aggregate Bond Index is provided for comparison in each graph. Premium
Bond's total returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the total returns of the index do
not. Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED SEPTEMBER 30)
Lehman Aggregate
Premium Bond Bond Index
DATE RETURN RETURN
9/30/1993* 4.62% 5.33%
9/30/1994 -4.39% -3.22%
9/30/1995 14.80% 14.06%
9/30/1996 4.49% 4.90%
9/30/1997 9.32% 9.71%
9/30/1998 10.75% 11.51%
9/30/1999 -1.03% -0.37%
* From 4/1/93 (the fund's inception date) to 9/30/93.
4 1-800-345-2021
Premium Bond--Q&A
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[photo of Jeff Houston]
An interview with Jeff Houston, a portfolio manager on the Premium Bond
fund investment team.
HOW DID PREMIUM BOND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
Premium Bond returned -0.63% in the midst of what appeared to be the worst
year for U.S. bonds since 1994. The fund beat the -1.26% average return of the
171 funds in the "A-Rated Corporate Debt Funds" category tracked by Lipper Inc.
The portfolio's benchmark, the Lehman Brothers Aggregate Bond Index, returned
- -0.21.
WHY DIDN'T PREMIUM BOND MATCH THE PERFORMANCE OF ITS BENCHMARK INDEX?
First, the fund's management fees and expenses will always reduce its
returns relative to the unmanaged index. Second, the index held fewer corporate
securities than Premium Bond--corporates represented over 30% of the portfolio's
assets. Unfortunately, corporates generally underperformed most U.S. government
bond issues during the six-month period (see page 3).
Corporate bond underperformance was partially offset by another strategy
- --we kept the portfolio's duration shorter than that of the index, especially
early in the period when we saw the biggest rise in rates. Duration is a measure
of interest rate sensitivity. The longer the duration, the more sensitive a bond
fund's value is to changes in interest rates. Conversely, a fund with a shorter
duration is less sensitive to interest rate changes. With the Fed and inflation
fears causing interest rates to rise--and bond prices to decline--Premium Bond's
short-duration position was beneficial.
WHAT HELPED PREMIUM BOND PERFORM BETTER THAN ITS LIPPER CATEGORY?
Although the fund had more corporates than the Lehman Brothers index, it
had fewer than most of the other funds in its Lipper category. That boosted
relative performance. In addition, we kept Premium Bond's duration shorter than
the average duration of the funds in the Lipper group. We manage the fund's
duration with an eye toward the Lehman Brothers index. The fund's duration was
shorter than the index's, which in turn is typically shorter than the average of
the Lipper category.
PLEASE DISCUSS YOUR CORPORATE BOND STRATEGY.
Because of heavy corporate bond issuance, we were able to buy high-quality
corporates at attractive prices and yields. As a result, we reduced Premium
Bond's investments in lower-rated BBB corporate securities. They had performed
well early in the period due to the strength of the economy, but as market
liquidity for lower-rated securities dried up, we moved away from them. Instead,
we bought higher-rated corporate bonds from issuers such as DuPont and
CitiGroup. Overall, our experienced credit research team did a good job of
avoiding corporate securities with credit difficulties during this period.
[right margin]
"WITH THE FED AND INFLATION FEARS CAUSING INTEREST RATES TO RISE, PREMIUM BOND'S
SHORT-DURATION POSITION WAS BENEFICIAL."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 136 138
WEIGHTED AVERAGE
MATURITY 8.3 YRS 8.2 YRS
AVERAGE DURATION 4.9 YRS 4.7 YRS
EXPENSE RATIO 0.45%* 0.45%
* Annualized.
YIELD AS OF SEPTEMBER 30, 1999
30-DAY SEC YIELD 6.44%
Investment terms are defined in the Glossary on pages 19-20.
www.americancentury.com 5
Premium Bond--Q&A
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(Continued)
We believe Premium Bond's overweighting in corporates relative to the
Lehman Brothers index will help in the months ahead when we expect corporate
bond prospects to reverse.
Our bullishness is based on several factors. First, corporates have rebound
potential, and have displayed a tendency to bounce back in the first quarter.
Second, the U.S. economy remains strong, and the overall corporate credit
environment still looks relatively healthy. Third, the inflation outlook remains
generally favorable--annual consumer price increases could approach a 3% rate,
but few analysts and observers expect inflation to get much higher than that.
WHAT OTHER MOVES DID YOU MAKE?
Our mortgage weighting increased from 25% to 29%, the second-largest
position in the fund. We added attractively valued mortgage-backed securities
when the spread, or difference in yield, between Treasurys and mortgage-backed
securities widened during the summer (see page 3). The wider the yield spread,
the more attractive mortgages became. Spreads later snapped back, which helped
mortgage securities to outperform Treasurys.
WHAT'S YOUR OUTLOOK FOR THE U.S. BOND MARKET?
We think we've seen the worst of the interest rate increases for this
cycle. However, the Fed still has reasons for concern in the near term,
including the housing market's reluctance to slow much despite higher interest
rates, continued strong consumer spending, tightening labor markets, and a large
trade deficit. Economic growth is still strong, as indicated by the estimated
4.8% annualized growth rate in the third quarter of 1999. Fed officials have
indicated that they are watching to see if the stock market declines a bit --
reducing the "wealth effect" of investors fueling the economy by spending their
stock earnings--and the housing market slows. The Fed will likely remain on
alert until consumer confidence falls further and spending moderates.
We believe the Fed will raise interest rates at least once more and take
back the last of the three interest rate cuts it gave the market in 1998. We
expect a 0.25 percentage point increase in the fed funds rate either in November
or in the first quarter of 2000. The rate hike could have a negative short-term
effect on the U.S. bond market, but we see reasons to be optimistic as 2000
unfolds.
GIVEN THAT BACKDROP, WHAT DO YOU PLAN TO DO WITH THE FUND?
Because of their historically strong relative performance in the first
quarter (as well as their currently attractive prices and yields), we plan to
keep the fund overweighted in corporate bonds through the first few months of
2000. Without stronger feelings about the direction of interest rates, we also
plan to maintain a duration position that is largely in line with the Lehman
Brothers index. Finally, since the fund already holds about 20% of its assets in
Treasury securities, we don't expect to increase Premium Bond's liquidity any
further for Y2K.
[left margin]
"WE BELIEVE PREMIUM BOND'S OVERWEIGHTING IN CORPORATES RELATIVE TO THE LEHMAN
BROTHERS INDEX WILL HELP IN THE MONTHS AHEAD."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Corporate Bonds 31%
Mortgage-Backed Securities 29%
U.S. Treasury Securities 21%
Asset-Backed Securities 10%
Govt. Agency Securities 7%
Other 2%
AS OF MARCH 31, 1999
Corporate Bonds 32%
Mortgage-Backed Securities 25%
U.S. Treasury Securities 24%
Asset-Backed Securities 10%
Govt. Agency Securities 6%
Other 3%
Investment terms are defined in the Glossary on pages 19-20.
6 1-800-345-2021
Premium Bond--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 21.3%
$1,000,000 U.S. Treasury Notes, 6.375%,
5/15/00 $ 1,006,846
1,000,000 U.S. Treasury Notes, 4.625%,
11/30/00 990,305
3,000,000 U.S. Treasury Notes, 4.875%,
3/31/01 2,969,591
3,400,000 U.S. Treasury Notes, 6.625%,
7/31/01 3,457,159
1,000,000 U.S. Treasury Notes, 7.50%,
11/15/01 1,036,015
400,000 U.S. Treasury Notes, 7.875%,
11/15/04 433,713
250,000 U.S. Treasury Notes, 7.50%,
2/15/05 267,335
1,000,000 U.S. Treasury Bonds, 12.00%,
8/15/08 1,381,925
1,200,000 U.S. Treasury Bonds, 9.25%,
2/15/16 1,536,517
1,400,000 U.S. Treasury Bonds, 8.875%,
8/15/17 1,755,181
750,000 U.S. Treasury Bonds, 9.125%,
5/15/18 964,608
400,000 U.S. Treasury Bonds, 7.125%,
2/15/23 434,364
1,600,000 U.S. Treasury Bonds, 7.50%,
11/15/24 1,820,524
475,000 U.S. Treasury Bonds, 7.625%,
2/15/25 548,801
300,000 U.S. Treasury Bonds, 6.00%,
2/15/26 286,250
650,000 U.S. Treasury Bonds, 6.375%,
8/16/27 651,204
1,900,000 U.S. Treasury Bonds, 5.25%,
11/15/28 1,646,498
750,000 U.S. Treasury Bonds, 5.25%,
2/15/29 655,966
------------
TOTAL U.S. TREASURY SECURITIES 21,842,802
------------
(Cost $21,917,228)
U.S. GOVERNMENT AGENCY SECURITIES -- 7.1%
1,500,000 FHLB, 5.50%, 8/13/01 1,486,821
500,000 FHLMC, 7.09%, 11/24/06 498,555
1,000,000 FHLMC, 5.75%, 4/15/08 940,802
1,000,000 FNMA, 6.50%, 4/29/09 958,738
1,000,000 FNMA MTN, 5.83%, 2/2/04 971,266
1,000,000 FNMA MTN, 5.54%, 2/5/04 956,435
1,000,000 FNMA MTN, 5.74%, 1/21/09 913,494
500,000 FNMA MTN, 7.00%, 2/20/07 500,164
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 7,226,275
------------
(Cost $7,499,180)
Principal Amount Value
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES(1) -- 29.2%
$ 747,461 FHLMC Pool #E68523, 6.50%,
12/1/12 $ 736,489
976,377 FHLMC Pool #E00724, 7.00%,
6/1/14 978,049
106,142 FHLMC Pool #D75034, 8.50%,
10/1/26 110,143
757,004 FHLMC Pool #C00553, 7.00%,
9/1/27 745,893
844,505 FHLMC Pool #C00578, 6.50%,
1/1/28 812,200
976,076 FHLMC Pool #C00731, 6.50%,
3/1/29 937,888
999,239 FHLMC Pool #C30257, 7.00%,
8/1/29 983,648
999,330 FHLMC Pool #C30060, 7.50%,
8/1/29 1,005,544
961,820 FNMA Pool #272894, 6.00%,
2/1/09 932,261
498,071 FNMA Pool #392607, 7.00%,
7/1/12 498,749
191,847 FNMA Pool #426130, 6.00%,
5/1/13 184,664
764,023 FNMA Pool #426773, 6.00%,
7/1/13 735,415
1,183,550 FNMA Pool #252736, 7.50%,
8/1/14 1,202,898
692,885 FNMA Pool #405425, 7.00%,
12/1/27 682,446
1,406,515 FNMA Pool #412562, 6.50%,
1/1/28 1,352,519
594,700 FNMA Pool #413812, 6.50%,
1/1/28 571,870
1,326,808 FNMA Pool #406904, 7.50%,
4/1/28 1,332,712
1,426,016 FNMA Pool #426069, 7.00%,
5/1/28 1,403,652
961,673 FNMA Pool #437421, 6.00%,
9/1/28 897,754
291,592 FNMA Pool #450619, 6.00%,
12/1/28 272,211
499,005 FNMA Pool #453956, 6.00%,
12/1/28 465,838
1,071,878 FNMA Pool #454947, 6.00%,
12/1/28 1,000,634
677,640 FNMA Pool #252211, 6.00%,
1/1/29 632,600
482,408 FNMA Pool #252212, 6.50%,
1/1/29 463,197
997,936 FNMA Pool #506995, 7.50%,
7/1/29 1,002,141
417,780 GNMA Pool #230356, 7.50%,
8/20/17 420,970
967,418 GNMA Pool #313107, 7.00%,
11/15/22 956,293
See Notes to Financial Statements www.americancentury.com 7
Premium Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 31,093 GNMA Pool #407141, 9.25%,
2/15/25 $ 33,224
220,567 GNMA Pool #408099, 8.75%,
3/15/25 231,285
35,834 GNMA Pool #407254, 9.25%,
3/15/25 38,290
487,696 GNMA Pool #780412, 7.50%,
8/15/26 490,291
492,129 GNMA Pool #423986, 8.00%,
8/15/26 504,045
87,450 GNMA Pool #432437, 7.50%,
4/15/27 87,869
560,075 GNMA Pool #447692, 7.50%,
5/15/27 562,761
652,940 GNMA Pool #423061, 8.00%,
6/15/27 668,626
248,245 GNMA Pool #443782, 7.50%,
11/15/27 249,436
84,754 GNMA Pool #461011, 7.50%,
11/15/27 85,160
563,971 GNMA Pool #467626, 7.00%,
2/15/28 554,246
435,461 GNMA Pool #458862, 7.50%,
2/15/28 437,356
466,111 GNMA Pool #436277, 6.50%,
3/15/28 446,104
750,740 GNMA Pool #471859, 7.00%,
4/15/28 737,794
31,814 GNMA Pool #455126, 6.50%,
5/15/28 30,449
1,939,034 GNMA Pool #458887, 6.50%,
5/15/28 1,855,805
487,467 GNMA Pool #463891, 6.50%,
5/15/28 466,543
1,057,612 GNMA Pool #469811, 7.00%,
12/15/28 1,039,375
------------
TOTAL MORTGAGE-BACKED SECURITIES 29,837,337
------------
(Cost $30,579,624)
ASSET-BACKED SECURITIES(1) -- 9.7%
1,000,000 BMW Vehicle Owner Trust, Series 1999-A,
Class A3 SEQ, 6.41%,
4/25/03 999,930
1,000,000 Case Equipment Loan Trust, Series
1998 B, Class A4 SEQ, 5.92%,
10/15/05 988,625
1,000,000 CIT RV Trust, Series 1997 A,
Class A6 SEQ, 6.35%,
4/15/11 998,995
750,000 CIT RV Trust, Series 1998 A,
Class A4 SEQ, 6.09%,
2/15/12 741,214
1,000,000 Comed Transitional Funding Trust,
Series 1998-1, Class A6 SEQ,
5.63%, 6/25/09 932,575
931,334 First Union-Lehman Brothers
Commercial Mortgage, Series
1998 C2, Class A1 SEQ,
6.28%, 6/18/07 909,695
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 $ 931,785
632,870 Money Store (The) Home Equity
Trust, Series 1994 B, Class A4
SEQ, 7.60%, 7/15/21 638,537
1,000,000 Money Store (The) Home Equity
Trust, Series 1997 C, Class
AF6 SEQ, 6.67%, 2/15/25 995,045
712,081 Nationslink Funding Corp., Series
1998-2, Class A1 SEQ, 6.00%,
11/20/07 686,493
121,519 Textron Financial Corp.
Receivables Trust, Series
1997 A, Class A SEQ, 6.05%,
3/16/09 (Acquired 9/18/97,
Cost $121,358)(2) 121,453
500,000 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A5 SEQ,
6.92%, 10/15/18 501,602
500,000 United Companies Financial Corp.,
Home Equity Loan, Series
1997 C, Class A7, 6.85%,
1/15/29 493,022
------------
TOTAL ASSET-BACKED SECURITIES 9,938,971
------------
(Cost $10,168,694)
CORPORATE BONDS -- 30.9%
AIRLINES -- 1.0%
700,000 Continental Airlines, Inc., 8.00%,
12/15/05 652,750
442,948 Delta Air Lines, Inc., 7.54%,
10/11/11 427,367
------------
1,080,117
------------
BANKS -- 3.0%
500,000 Bank of America N.A., 6.125%,
7/15/04 487,950
1,000,000 Citigroup Inc., 5.80%, 3/15/04 961,774
250,000 Corestates Capital Corp., 5.875%,
10/15/03 240,269
500,000 Fleet National Bank, 5.75%,
1/15/09 448,669
500,000 National Bank of Canada, 8.125%,
8/15/04 521,315
500,000 U.S. Bank, NA, 5.70%, 12/15/08 453,887
------------
3,113,864
------------
CHEMICALS -- 0.9%
300,000 ARCO Chemical Co., 10.25%,
11/1/10 309,158
700,000 Monsanto Co., 6.60%, 12/1/28
(Acquired 12/4/98, Cost
$697,480)(2) 609,509
------------
918,667
------------
8 1-800-345-2021 See Notes to Financial Statements
Premium Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
DEPARTMENT STORES -- 0.3%
$ 300,000 Sears, Roebuck & Co., Inc.,
9.375%, 11/1/11 $ 344,392
------------
ELECTRICAL UTILITIES -- 0.8%
400,000 Duke Energy Corp., 6.875%,
8/1/23 364,977
500,000 Yorkshire Power Finance,
Series B, 6.15%, 2/25/03 481,864
------------
846,841
------------
ENERGY EQUIPMENT & SERVICES -- 0.7%
850,000 Petroleum Geo-Services ASA,
7.125%, 3/30/28 743,999
------------
ENERGY RESERVES & PRODUCTION -- 0.9%
1,000,000 EOG Resources Inc., 6.70%,
11/15/06 975,151
------------
EQUITY REAL ESTATE
INVESTMENT TRUST -- 1.7%
850,000 Chelsea GCA Realty Partners,
7.25%, 10/21/07 793,609
450,000 Price REIT, Inc. (The), 7.25%,
11/1/00 454,057
500,000 Spieker Properties, Inc., 6.80%,
12/15/01 498,228
------------
1,745,894
------------
FINANCIAL SERVICES -- 2.9%
500,000 Associates Corp., N.A., 6.625%,
6/15/05 492,627
1,000,000 Comdisco, Inc., 6.375%,
11/30/01 985,641
1,000,000 Ford Motor Credit Co., 6.125%,
4/28/03 976,741
500,000 Toyota Motor Credit Corp.,
5.625%, 11/13/03 481,809
------------
2,936,818
------------
FOOD & BEVERAGE -- 0.9%
1,000,000 Pepsi Bottling Group Inc., 5.625%,
2/17/09 (Acquired 2/3/99,
Cost $995,670)(2) 911,112
------------
FOREST PRODUCTS & PAPER -- 0.7%
750,000 Abitibi-Consolidated Inc., 7.40%,
4/1/18 675,038
------------
GAS & WATER UTILITIES -- 1.0%
500,000 Columbia Energy Group, 6.80%,
11/28/05 490,142
500,000 K N Energy, Inc., 6.45%,
11/30/01 494,435
------------
984,577
------------
GOLD -- 0.4%
450,000 Barrick Gold Corp., 7.50%,
5/1/07 450,218
------------
Principal Amount Value
- --------------------------------------------------------------------------------
GROCERY STORES -- 1.0%
$1,000,000 Kroger Co. (The), 7.25%, 6/1/09
(Acquired 6/18/99, Cost
$999,370)(2) $ 978,212
------------
HEAVY ELECTRICAL EQUIPMENT -- 0.2%
200,000 Anixter International Inc., 8.00%,
9/15/03 201,724
------------
INDUSTRIAL PARTS -- 1.4%
750,000 Caterpillar Financial Services
Corp., 5.90%, 9/10/02 736,173
650,000 Caterpillar Inc., 7.25%, 9/15/09 653,612
------------
1,389,785
------------
LIFE AND HEALTH INSURANCE -- 1.0%
1,000,000 Conseco Inc., 6.40%, 6/15/01 980,185
------------
MEDIA -- 2.0%
500,000 British Sky Broadcasting, 6.875%,
2/23/09 454,419
500,000 CSC Holdings Inc., 7.625%,
7/15/18 465,834
1,000,000 TCI Communications, Inc., 8.75%,
8/1/15 1,124,469
------------
2,044,722
------------
MINING & METALS -- 0.9%
1,000,000 Owens-Illinois Inc., 7.15%,
5/15/05 946,121
------------
MOTOR VEHICLES & PARTS -- 1.3%
350,000 General Motors Corp., 7.00%,
6/15/03 355,048
1,000,000 Lear Corp., 7.96%, 5/15/05
(Acquired 5/13/99, Cost
$1,000,000)(2) 986,250
------------
1,341,298
------------
NATURAL GAS -- 0.7%
750,000 Enron Corp., 6.625%, 11/15/05 724,248
------------
OIL REFINING -- 0.7%
700,000 USX Corp., 6.85%, 3/1/08 669,424
------------
RAILROADS -- 1.0%
1,000,000 Norfolk Southern Corp., 6.95%,
5/1/02 1,004,113
------------
SECURITIES & ASSET MANAGEMENT -- 0.8%
500,000 Merrill Lynch & Co., Inc., 6.50%,
4/1/01 500,134
300,000 Paine Webber Group Inc., 7.875%,
2/15/03 306,804
------------
806,938
------------
SPECIALTY STORES -- 0.9%
1,000,000 Rite Aid Corp., 6.70%, 12/15/01 935,000
------------
TELEPHONE -- 2.8%
1,000,000 GTE North Inc., Series H, 5.65%,
11/15/08 908,840
See Notes to Financial Statements www.americancentury.com 9
Premium Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 650,000 LCI International, Inc., 7.25%,
6/15/07 $ 635,350
500,000 MCI WorldCom, Inc., 8.875%,
1/15/01 526,570
300,000 MCI WorldCom, Inc., 7.55%,
4/1/04 308,343
500,000 Qwest Communications
International Inc., Series B,
7.50%, 11/1/08 495,435
------------
2,874,538
------------
WIRELESS TELECOMMUNICATIONS -- 1.0%
1,000,000 AirTouch Communications, Inc.,
7.125%, 7/15/01 1,009,528
------------
TOTAL CORPORATE BONDS 31,632,524
------------
(Cost $32,877,412)
Principal Amount Value
- --------------------------------------------------------------------------------
SOVEREIGN GOVERNMENTS & AGENCIES -- 1.0%
500,000 Hydro-Quebec, 8.05%, 7/7/24 $ 537,754
550,000 Province of British Columbia,
5.375%, 10/29/08 497,918
------------
TOTAL SOVEREIGN GOVERNMENTS &
AGENCIES 1,035,672
------------
(Cost $1,087,249)
TEMPORARY CASH INVESTMENTS -- 0.8%
Repurchase Agreement, Goldman Sachs &
Co., Inc., (U.S. Treasury obligations), in a
joint trading account at 5.10%, dated
9/30/99, due 10/1/99 (Delivery value
$836,118) 836,000
------------
(Cost $836,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $102,349,581
============
(Cost $104,965,387)
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
MTN = Medium Term Note
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at September 30, 1999, was
$3,606,536, which represented 3.6% of net assets.
10 1-800-345-2021 See Notes to Financial Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $104,965,387)
(Note 3) ............................................... $ 102,349,581
Interest receivable ...................................... 1,328,935
-------------
103,678,516
-------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................................. 1,978,068
Accrued management fees (Note 2) ......................... 38,188
Dividends payable ........................................ 100,162
Payable for director's fees and expenses ................. 57
-------------
2,116,475
-------------
Net Assets ............................................... $ 101,562,041
=============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized ............................................... 100,000,000
=============
Outstanding .............................................. 10,423,129
=============
Net Asset Value Per Share ................................ $ 9.74
=============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) .................. $ 104,429,775
Accumulated net realized loss
on investments ......................................... (251,928)
Net unrealized depreciation
on investments (Note 3) ................................ (2,615,806)
-------------
$ 101,562,041
=============
See Notes to Financial Statements www.americancentury.com 11
Statement of Operations
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest ................................................ $ 3,318,490
-----------
Expenses (Note 2):
Management fees ......................................... 232,740
Directors' fees and expenses ............................ 484
-----------
233,224
-----------
Net investment income ................................... 3,085,266
-----------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments ........................ (263,879)
Change in net unrealized
appreciation on investments ........................... (3,371,267)
-----------
Net realized and unrealized
loss on investments ................................... (3,635,146)
-----------
Net Decrease in Net Assets
Resulting from Operations ............................. $ (549,880)
===========
12 1-800-345-2021 See Notes to Financial Statements
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND YEAR ENDED MARCH 31, 1999
SEPTEMBER 30, MARCH 31,
Increase (Decrease) in Net Assets 1999 1999
OPERATIONS
Net investment income ........................ $ 3,085,266 $ 5,443,871
Net realized gain (loss) on investments ...... (263,879) 121,024
Change in net unrealized
appreciation on investments ................ (3,371,267) (511,967)
------------- -------------
Net increase (decrease) in net assets
resulting from operations .................. (549,880) 5,052,928
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................... (3,085,266) (5,465,768)
From net realized gains on
investment transactions .................... -- (489,078)
------------- -------------
Decrease in net assets from distributions .... (3,085,266) (5,954,846)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................... 21,645,330 78,926,913
Proceeds from reinvestment of distributions .. 2,847,613 5,886,692
Payments for shares redeemed ................. (24,579,678) (43,798,905)
------------- -------------
Net increase (decrease) in net assets
from capital share transactions ............ (86,735) 41,014,700
------------- -------------
Net increase (decrease) in net assets ........ (3,721,881) 40,112,782
NET ASSETS
Beginning of period .......................... 105,283,922 65,171,140
------------- -------------
End of period ................................ $ 101,562,041 $ 105,283,922
============= =============
TRANSACTIONS IN SHARES OF THE FUND
Sold ......................................... 2,195,915 7,705,359
Issued in reinvestment of distributions ...... 289,242 574,382
Redeemed ..................................... (2,490,751) (4,269,904)
------------- -------------
Net increase (decrease) ...................... (5,594) 4,009,837
============= =============
See Notes to Financial Statements www.americancentury.com 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Premium Reserves, Inc. (the corporation) is
registered under the Investment Company Act of 1940 as an open-end management
investment company. Premium Bond Fund (the fund) is one of the three funds
issued by the corporation. The fund is diversified under the 1940 Act. The
investment objective of the fund is to obtain a high level of income from
investments in a portfolio of longer-term bonds and other debt obligations. The
following significant accounting policies are in accordance with generally
accepted accounting principles; these policies may require the use of estimates
by fund management.
SECURITY VALUATIONS -- Securities are valued through a commercial pricing
service or at the mean of the most recent bid and asked prices. When valuations
are not readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
FORWARD COMMITMENTS -- The fund may purchase and sell U.S. government
securities on a firm commitment basis. Under these arrangements, the securities'
prices and yields are fixed on the date of the commitment, but payment and
delivery are scheduled for a future date. During this period, securities are
subject to market fluctuations. The fund maintains segregated accounts
consisting of cash or liquid securities in an amount sufficient to meet the
purchase price.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities, received
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure the value including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account held at the fund's
custodian. These balances are invested in one or more repurchase agreements that
are collateralized by U.S. Treasury or Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under the provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared daily and distributed monthly. Distributions from net realized
gains are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee. The Agreement provides that all
expenses of the fund, except brokerage commissions, taxes, interest, expenses of
those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on the fund's average daily closing net assets during the previous month. The
annual management fee for the fund is 0.45%.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
the six months ended September 30, 1999, totaled $28,514,851, of which
$17,199,139, represented U.S. Treasury and Agency obligations. Sales of
investment securities, excluding short-term investments, for the six months
ended September 30, 1999, totaled $25,298,233, of which $13,712,498, represented
U.S. Treasury and Agency obligations.
As of September 30, 1999, accumulated net unrealized depreciation was
$2,617,712, based on the aggregate cost of investments for federal income tax
purposes of $104,967,293, which consisted of unrealized appreciation of
$309,250, and unrealized depreciation of $2,926,962.
- --------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $570,000,000 bank line of credit agreement with Chase Manhattan Bank.
Borrowings under the agreement bear interest at the Federal Funds rate plus
0.40%. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. The fund did not borrow from the line during the six
months ended September 30, 1999.
www.americancentury.com 15
<TABLE>
<CAPTION>
Premium Bond--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE
RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
1999(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $ 10.10 $ 10.15 $ 9.76 $ 9.93 $ 9.46 $ 9.64
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............... 0.29 0.59 0.61 0.61 0.61 0.59
Net Realized and Unrealized Gain
(Loss) on Investments ............... (0.36) -- 0.45 (0.17) 0.47 (0.18)
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Operations .... (0.07) 0.59 1.06 0.44 1.08 0.41
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......... (0.29) (0.59) (0.61) (0.61) (0.61) (0.59)
From Net Realized Gains
on Investments ...................... -- (0.05) (0.06) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions ................. (0.29) (0.64) (0.67) (0.61) (0.61) (0.59)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........ $ 9.74 $ 10.10 $ 10.15 $ 9.76 $ 9.93 $ 9.46
=========== =========== =========== =========== =========== ===========
Total Return(2) ..................... (0.63)% 5.88% 11.14% 4.57% 11.53% 4.48%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.45%(3) 0.45% 0.45% 0.45% 0.43% 0.45%
Ratio of Net Investment Income
to Average Net Assets ............... 5.97%(3) 5.70% 6.06% 6.20% 6.08% 6.30%
Portfolio Turnover .................... 25% 71% 138% 63% 92% 51%
Net Assets, End of Period
(in thousands) ...................... $ 101,562 $ 105,284 $ 65,171 $ 21,750 $ 20,280 $ 10,334
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
16 1-800-345-2021 See Notes to Financial Statements
Retirement Account Information
- --------------------------------------------------------------------------------
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
www.americancentury.com 17
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each is managed to provide a "pure play" on a specific sector of the
fixed-income market.
To ensure adherence to this principle, the basic structure of each
portfolio is tied to a specific market index. Fund managers attempt to add value
by making modest portfolio adjustments based on their analysis of prevailing
market conditions.
Investment decisions are made by management teams, which meet regularly to
discuss market analysis and investment strategies.
In addition to these principles, each fund has its own investment policies:
PREMIUM BOND seeks a high level of income from investment in longer-term
bonds and other debt instruments. It is designed for investors whose primary
goal is a level of income higher than is generally provided by money market or
short- and intermediate-term securities and who can accept the generally greater
price volatility associated with longer-term bonds.
COMPARATIVE INDICES
The following index is used in the report for fund performance comparisons.
It is not an investment product available for purchase.
The LEHMAN AGGREGATE BOND INDEX is composed of the Lehman
Government/Corporate Index and the Lehman Mortgage-Backed Securities Index. It
reflects the price fluctuations of Treasury securities, U.S. government agency
securities, corporate bond issues, and mortgage-backed securities.
LIPPER RANKINGS
LIPPER INC. is an independent mutual fund ranking service that groups funds
according to their investment objectives. Rankings are based on average annual
returns for each fund in a given category for the periods indicated. Rankings
are not included for periods less than one year.
The funds in Lipper's CORPORATE DEBT FUNDS RATED A category invest at least
65% of their assets in government issues or corporate debt issues rated A or
better.
CREDIT RATING GUIDELINES
Credit ratings are issued by independent research companies such as
Standard & Poor's and Moody's. They are based on an issuer's financial strength
and ability to pay interest and principal in a timely manner.
Securities rated AAA, AA, A, or BBB are considered "investment-grade"
securities, meaning they are relatively safe from default. Here are the most
common credit ratings and their definitions:
AAA -- extremely strong ability to meet financial obligations.
AA -- very strong ability to meet financial obligations.
A -- strong ability to meet financial obligations.
BBB -- good ability to meet financial obligations.
BB -- securities that are less vulnerable to default than other
lower-quality issues but do not quite meet investment-grade standards.
It's important to note that credit ratings are subjective, reflecting the
opinions of the rating agencies; they are not absolute standards of quality.
[left margin]
INVESTMENT TEAM LEADERS
Portfolio Managers
BUD HOOPS
JEFF HOUSTON
Credit Research Manager
GREG AFIESH
18 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on page 16.
YIELDS
* 30-DAY SEC YIELD represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's rate of investment income, and it may not equal the
fund's actual income distribution rate, the income paid to a shareholder's
account, or the income reported in the fund's financial statements.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES -- the number of different securities held by a fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM) -- a measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
* AVERAGE DURATION -- another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio. As the
duration of a portfolio increases, so does the impact of a change in interest
rates on the value of the portfolio.
* EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF FIXED-INCOME SECURITIES
* ASSET-BACKED SECURITIES -- debt securities that represent ownership in a pool
of assets, such as credit card debt, auto loans, or home equity loans.
* CORPORATE BONDS -- debt securities or instruments issued by companies and
corporations.
* MORTGAGE-BACKED SECURITIES -- debt securities that represent ownership in
pools of mortgage loans.
* U.S. GOVERNMENT AGENCY SECURITIES -- debt securities issued by U.S. government
agencies (such as the Federal Home Loan Bank and the Federal Farm Credit Bank).
Government agency securities include discount notes (maturing in one year or
less) and medium-term notes, debentures, and bonds (maturing in three months to
50 years).
* U.S. TREASURY SECURITIES -- debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S. government.
Treasury securities include bills (maturing in one year or less), notes
(maturing in two to 10 years), and bonds (maturing in more than 10 years).
www.americancentury.com 19
Glossary
- --------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
20 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Large Cap Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
- --------------------------------------------------------------------------------
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY GOVERNMENT INCOME TRUST
INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
Funds Distributor, Inc. is
9911 the distributor of American Century funds
SH-ANN-18632 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
SEPTEMBER 30, 1999
SEMIANNUAL REPORT
- ------------------
AMERICAN CENTURY
[graphic of stairs]
PREMIUM GOVERNMENT RESERVE
PREMIUM CAPITAL RESERVE
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain operations
in the event of any Y2K-related incidents. We have conducted practice drills of
contingency scenarios and will continue to refine our plans during the rest of
1999 to respond quickly and effectively so that the date change is as seamless
as possible for investors. We expect the Year 2000 to be business as usual at
American Century.
Year 2000 Readiness Disclosure
[left margin]
PREMIUM GOVERNMENT RESERVE
(TWPXX)
- ----------------------------------------
PREMIUM CAPITAL RESERVE
(TCRXX)
- ----------------------------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY
FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
RECEIVE YOUR ANNUAL REPORTS ONLINE
CHOOSE OUR ELECTRONIC COMMUNICATION PROGRAM
Access annual reports, newsletters and prospectuses electronically.
All you need is your OnePIN. Don't have a OnePIN? Visit
www.americancentury.com and set up your OnePIN by following two easy steps
using your automated phone line personal access code.
OnePIN opens the door to services that help you stay in control of your
money:
* MONITOR YOUR INVESTMENTS on your Personal Homepage any time, any day
* STAY INFORMED and set up a watch list of securities -- or even a test
portfolio
* REDUCE CLUTTER IN YOUR MAILBOX by selecting the electronic communication
link from your Personal Homepage
Set up your OnePIN and choose the electronic communication program today.
Questions? Call 1-800-345-2021 or go to www.americancentury.com.
Our Message to You
- --------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
Strong economic growth and increasing inflation anxiety resulted in higher
interest rates during the six months ended September 30, 1999. The recovery of
overseas economies and unabated U.S. growth influenced the Federal Reserve (the
U.S. central bank) to raise short-term interest rates twice during the summer of
1999 to rein in the U.S. economy and reduce pressures on prices and wages. In
this rising interest rate environment, Premium Government Reserve and Premium
Capital Reserve continued to provide competitive yields and preservation of
invested capital for shareholders.
Turning to corporate matters, American Century has long been an active
supporter of the development and use of technologies that improve the
efficiencies of capital markets, lower the costs of trading securities, and
ultimately offer better returns for shareholders. Toward that end, we've made
strategic investments in several other financial services firms, including
Archipelago, Optimark, Tradepoint Financial Networks, W.R. Hambrecht, and, most
recently, WorldStreet Corporation. WorldStreet, located in Boston, is developing
a customized software application that marries portfolio holdings with real-time
market information.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
This isn't American Century's first nod of approval from DALBAR. In June,
DALBAR recognized our statement's individual rate of return feature -- part of
the personalized performance section -- as the key reason it ranked our
statement second out of 88 mutual fund company statements in the nation.
One final note -- in the spirit of our ongoing Year 2000 readiness
disclosures, we've provided a complete update on our preparations for Y2K on the
inside front cover of this report. We understand that our diligence in this area
is very important to you.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Frequently Asked
Questions ............................................................ 3
PREMIUM GOVERNMENT RESERVE
Performance Information ................................................. 4
Portfolio at a Glance ................................................... 4
Yields .................................................................. 4
Management Q&A .......................................................... 5
Types of Investments .................................................... 5
Schedule of Investments ................................................. 6
PREMIUM CAPITAL RESERVE
Performance Information ................................................. 8
Portfolio at a Glance ................................................... 8
Yields .................................................................. 8
Management Q&A .......................................................... 9
Portfolio Composition
by Credit Rating ..................................................... 9
Types of Investments .................................................... 9
Schedule of Investments ................................................. 10
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities .......................................................... 13
Statements of Operations ................................................ 14
Statements of Changes
in Net Assets ........................................................ 15
Notes to Financial
Statements ........................................................... 16
Financial Highlights .................................................... 17
OTHER INFORMATION
Retirement Account
Information .......................................................... 19
Background Information
Investment Philosophy
and Policies ...................................................... 20
Comparative Indices .................................................. 20
Lipper Rankings ...................................................... 20
Portfolio Managers ................................................... 20
Credit Rating
Guidelines ........................................................ 20
Glossary ................................................................ 21
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
PREMIUM GOVERNMENT RESERVE
* Premium Government Reserve's return roughly kept pace with the average
Institutional U.S. government money market fund tracked by Lipper Inc.
* Two short-term interest rate increases by the Federal Reserve caused yields
on money market securities to rise over the six-month period, which sent
Premium Government Reserve's yield higher.
* Premium Government Reserve's weighted average maturity (WAM--the average time
until the securities in the portfolio mature) was a bit long relative to its
Lipper peers early in the period but was closer to neutral by the end of
September.
* By the end of the second quarter, the U.S. economy was proving surprisingly
robust and the chances of a Fed rate hike had increased. So we shortened the
fund's WAM by purchasing floating-rate government agency notes.
PREMIUM CAPITAL RESERVE
* Premium Capital Reserve's return compared favorably with the average
Institutional Money Market Fund tracked by Lipper Inc.
* The fund's 7-day yield rose in response to two short-term interest rate
increases by the Federal Reserve, one in late June and the other in August.
The rate hikes were a partial reversal of the Fed's rate cuts in the fall of
1998.
* In late March, muted economic data gave no clear indication that the Fed
needed to raise interest rates. Based on our belief that the Fed was "on
hold," we extended Premium Capital Reserve's weighted average maturity (WAM)
to 80 days.
* However, by late June the economy began to exhibit strength and consumer
prices surged, so we reduced the fund's WAM to 70 days.
[left margin]
PREMIUM GOVERNMENT RESERVE
(TWPXX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 2.31%*
1 Year 4.69%
7-DAY CURRENT YIELD: 4.80%
INCEPTION DATE: 4/1/93
NET ASSETS: $86.6 million
PREMIUM CAPITAL RESERVE
(TCRXX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 2.37%*
1 Year 4.85%
7-DAY CURRENT YIELD: 5.03%
INCEPTION DATE: 4/1/93
NET ASSETS: $327.4 million
* Annualized.
See Total Returns on pages 4 and 8.
Investment terms are defined in the Glossary on pages 21-22.
2 1-800-345-2021
Money Market Funds--Frequently Asked Questions
- --------------------------------------------------------------------------------
CAN I MAKE DIRECT DEPOSITS INTO MY MONEY MARKET FUND ACCOUNT?
Yes. You can arrange for direct deposit of your paycheck, Social Security
check, Treasury Direct interest payment, military allotment, or payments from
other government agencies. Give us a call, and we will send you the necessary
information to set it up.
WHAT IS THE HOLDING PERIOD ON NEW DEPOSITS INTO MY ACCOUNT?
Generally, there is an eight-business-day holding period for deposited
funds (initial investments in a new account are held for 15 calendar days).
There is a one-business-day holding period for U.S. Treasury checks, money
orders, and travelers' checks.
IS THERE A LIMIT ON THE NUMBER OF CHECKS I CAN WRITE ON MY MONEY MARKET ACCOUNT?
No. You can write as many checks as you like at no charge, as long as each
check is for $100 or more.
IS THERE AN EASY WAY TO MOVE MONEY FROM MY MONEY MARKET FUND INTO A STOCK OR
BOND FUND?
Yes. Moving money between funds is called an exchange, and there is no
limit on the number of exchanges you can make out of a money market fund
account. However, there is a limit of six exchanges per calendar year out of
stock and bond fund accounts.
Exchanges can be made by:
* visiting our Web site at
www.americancentury.com*
* using our Automated Information Line (1-800-345-8765)*
* calling an Investor Relations Representative at 1-800-345-2021*
* writing us a letter
HOW DO I DECIDE WHETHER A TAXABLE MONEY MARKET FUND OR A TAX-FREE MONEY MARKET
FUND IS RIGHT FOR ME?
The most important factor to consider is your tax bracket. Tax-free money
market funds typically offer lower yields than taxable funds, but you pay no
federal income taxes on the income from a tax-free fund.
If you are in one of the higher federal income tax brackets, taxes will eat
up a big part of your income from a taxable money market fund, so a tax-free
investment may be better for you. If you're in a lower tax bracket, then you can
usually earn more in a taxable fund even after taxes are deducted.
We can help you figure it out. If you give us a call and tell us what tax
bracket you're in, we can tell you whether you're likely to earn more after-tax
income in a tax-free or a taxable money market fund.
IF YOU HAVE ANY QUESTIONS ABOUT OUR MONEY MARKET FUNDS, CALL US TOLL FREE AT
1-800-345-2021 OR E-MAIL US AT OUR WEB SITE, WWW.AMERICANCENTURY.COM.
* Before an investor can make an exchange by calling an Investor Relations
Representative, using our Automated Information Line, or visiting our Web
site, the investor first must have provided us with written authorization to
do so.
[right margin]
A FASTER AND EASIER WAY TO DEPOSIT MUTUAL FUND DISTRIBUTIONS
If you prefer to have your fund dividend or capital gains distributions sent to
you instead of reinvesting them, there are a couple of ways to get access to
this money faster than waiting for a check in the mail:
* YOU CAN HAVE DISTRIBUTIONS DEPOSITED DIRECTLY INTO YOUR MONEY MARKET
ACCOUNT. The money will be deposited the same day that the distributions
are paid.
* DISTRIBUTIONS CAN BE SENT ELECTRONICALLY TO YOUR BANK ACCOUNT. The money
will be available in your bank account within three days.
Contact our Investor Relations Representatives to set up either of these
options.
www.americancentury.com 3
Premium Government Reserve--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
PREMIUM 90-DAY
GOVERNMENT TREASURY BILL INST. U.S. GOVT. MONEY MARKET FUNDS(2)
RESERVE INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 2.31% 2.30% 2.34% --
1 YEAR 4.69% 4.54% 4.75% 60 OUT OF 94
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.03% 4.93% 5.11% 51 OUT OF 74
5 YEARS 5.16% 5.12% 5.23% 41 OUT OF 60
LIFE OF FUND 4.69% 4.75% 4.78%(3) 32 OUT OF 45(3)
The fund's inception date was 4/1/93.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 4/30/93, the date nearest the fund's inception for which return data
are available.
See pages 20-21 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 25 24
WEIGHTED AVERAGE
MATURITY 55 DAYS 51 DAYS
EXPENSE RATIO 0.45%* 0.45%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 1999
7-DAY CURRENT YIELD 4.80%
7-DAY EFFECTIVE YIELD 4.92%
Investment terms are defined in the Glossary on pages 21-22.
Past performance does not guarantee future results.
Money market funds are neither insured nor guaranteed by the FDIC or any other
government agency.
Yields will fluctuate, and although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund. The 7-day yield more closely reflects earnings of the fund than the total
return.
4 1-800-345-2021
Premium Government Reserve--Q&A
- --------------------------------------------------------------------------------
[photo of Beth Bunnell Hunter]
An interview with Beth Bunnell Hunter, a portfolio manager on the Premium
Government Reserve fund investment team. Beth replaced Amy O'Donnell, who left
American Century to pursue other opportunities.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
Premium Government Reserve returned 2.31% for the six-month period,
compared with the 2.34% average return of the 96 "Institutional U.S. Government
Money Market Funds" tracked by Lipper Inc. (See the previous page for other fund
performance comparisons.)
THE FUND'S YIELD ROSE QUITE A BIT (FROM 4.43% TO 4.80%) OVER THE SIX MONTHS.
WHAT PROMPTED THE INCREASE?
The Federal Reserve raised short-term interest rates twice during the
period, in late June and August, providing the catalyst for the fund's higher
yield. That's because the Fed's rate hikes drove an important overnight bank
lending rate--the federal funds rate target--from 4.75% to 5.25%. Money market
yields, which tend to track such rate changes closely, rose quickly in response.
The two rate increases were a partial reversal of the rate cuts the Fed
made in the fall of 1998 to stabilize the markets during a period of global
economic turmoil. Since that time, foreign economies and markets have improved,
so the financial strain from overseas has become less of a concern.
HOW DID YOU POSITION THE FUND IN THAT ENVIRONMENT?
Premium Government Reserve's weighted average maturity (WAM) was a bit long
relative to its Lipper peers early in the period, but was closer to neutral by
the end of September. The slightly longer WAM was mainly a result of the fund's
agency discount note holdings. These securities enhanced the fund's yield, but
because they had fairly long average maturities, they also extended the fund's
WAM.
By the end of the second quarter, the U.S. economy was proving to be
surprisingly robust, and a Fed rate increase became more likely. So we shortened
the fund's WAM by replacing some of the maturing agency discount notes with
floating-rate agency notes (floaters).
WHAT MADE THE FLOATERS SO APPEALING?
The floaters provided two main benefits. One, as just mentioned, was to
shorten the fund's WAM. In addition, the floaters that we purchased were tied to
three-month Treasury-bill rates and reset weekly. So they provided a good
vehicle to capture the rise in interest rates.
SPEAKING OF INTEREST RATES, WHAT'S YOUR OUTLOOK FOR RATES GOING FORWARD AND HOW
DO YOU THINK YOU'LL POSITION THE FUND?
The outlook for interest rates remains uncertain. While the Fed could raise
rates again as early as mid-November, it may elect to leave rates unchanged if
inflationary pressures remain subdued. In light of that outlook, we will
probably keep the fund's WAM conservatively positioned for now, but we may
extend a bit if attractive opportunities present themselves.
[right margin]
"WHILE THE FED COULD RAISE RATES AGAIN AS EARLY AS MID-NOVEMBER, IT MAY ELECT TO
LEAVE RATES UNCHANGED IF INFLATIONARY PRESSURES REMAIN SUBDUED."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
U.S. Govt. Agency
Discount Notes 50%
U.S. Govt. Agency
Securities 45%
Repurchase Agreements 5%
AS OF MARCH 31, 1999
U.S. Govt. Agency
Discount Notes 82%
U.S. Govt. Agency
Securities 8%
Repurchase Agreements 10%
Investment terms are defined in the Glossary on pages 21-22.
www.americancentury.com 5
Premium Government Reserve--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's amortized cost, as of the last day of the reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES(1) -- 49.5%
$4,000,000 FFCB Discount Notes, 5.18%,
10/15/99 $ 3,991,942
5,000,000 FHLB Discount Notes, 5.23%,
11/17/99 4,965,860
2,000,000 FHLMC Discount Notes, 5.06%,
10/7/99 1,998,313
2,000,000 FHLMC Discount Notes, 5.07%,
10/12/99 1,996,902
4,514,000 FHLMC Discount Notes, 5.20%,
11/2/99 4,493,135
2,000,000 FHLMC Discount Notes, 4.75%,
11/4/99 1,991,028
1,000,000 FHLMC Discount Notes, 5.03%,
12/14/99 989,660
3,982,000 FHLMC Discount Notes, 5.51%,
1/14/00 3,918,005
3,000,000 FHLMC Discount Notes, 5.50%,
1/27/00 2,945,917
4,500,000 FHLMC Discount Notes, 5.53%,
2/2/00 4,414,332
3,000,000 FHLMC Discount Notes, 5.40%,
2/3/00 2,943,750
2,000,000 FHLMC Discount Notes, 5.44%,
2/10/00 1,960,107
4,000,000 FNMA Discount Notes, 5.05%,
10/15/99 3,992,144
2,200,000 FNMA Discount Notes, 5.07%,
10/21/99 2,193,803
-----------
TOTAL U.S. GOVERNMENT
AGENCY DISCOUNT NOTES 42,794,898
-----------
U.S. GOVERNMENT AGENCY SECURITIES(1) -- 45.3%
2,000,000 FFCB MTN, VRN, 5.35%,
10/1/99, resets monthly off the
3-month T-Bill rate plus 0.36%
with no caps 1,999,935
3,200,000 FHLB, 5.00%, 3/30/00 3,191,966
Principal Amount Value
- --------------------------------------------------------------------------------
$2,000,000 FHLB, 5.05%, 4/26/00 $ 1,999,506
4,000,000 FHLB, 5.08%, 4/28/00 3,999,666
5,000,000 FHLB, VRN, 5.26%, 10/1/99,
resets daily off the
Fed Funds rate with no caps 5,000,031
4,000,000 FHLB, VRN, 5.32%, 10/6/99,
resets weekly off the 3-month
T-Bill rate plus 0.46% with no
caps 3,999,121
2,050,000 FNMA, 8.35%, 11/10/99 2,056,424
4,000,000 SLMA, VRN, 5.49%, 10/5/99,
resets weekly off the 3-month
T-Bill rate plus 0.63% with
no caps 4,000,000
3,000,000 SLMA MTN, VRN, 5.29%,
10/5/99, resets weekly off the
3-month T-Bill rate plus 0.43%
with no caps 3,000,000
5,000,000 SLMA MTN, VRN, 5.36%,
10/5/99, resets weekly off the
3-month T-Bill rate plus 0.50%
with no caps 4,998,771
5,000,000 SLMA MTN, VRN, 5.53%,
10/7/99, resets weekly off the
3-month T-Bill rate plus 0.67%
with no caps 5,000,000
-----------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 39,245,420
-----------
TEMPORARY CASH INVESTMENTS -- 5.2%
259,000 Units of Participation in Chase Vista
U.S. Government Money Market Fund
(Institutional Shares) 259,000
Repurchase Agreement, Goldman Sachs &
Co., Inc., (U.S. Treasury obligations), in a
joint trading account at 5.10%, dated
9/30/99, due 10/1/99 (Delivery value
$4,229,599) 4,229,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS 4,488,000
-----------
TOTAL INVESTMENT SECURITIES -- 100.0% $86,528,318
===========
6 1-800-345-2021 See Notes to Financial Statements
Premium Government Reserve--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
MTN = Medium Term Note
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a security resets,
the less risk the investor is taking that the coupon will vary significantly
from current market rates.
SLMA = Student Loan Marketing Association
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate indicated is effective
September 30, 1999.
(1) The rates for U.S. Government Agency Discount Notes are the yield to
maturity at purchase. The rates for U.S. Government Agency securities are
the stated coupon rates.
See Notes to Financial Statements www.americancentury.com 7
Premium Capital Reserve--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
PREMIUM 90-DAY
CAPITAL TREASURY BILL INSTITUTIONAL MONEY MARKET FUNDS(2)
RESERVE INDEX AVERAGE RETURN FUND'S RANKING
6 MONTHS(1) 2.37% 2.30% 2.37% --
1 YEAR 4.85% 4.54% 4.84% 109 OUT OF 193
===============================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.15% 4.93% 5.18% 88 OUT OF 154
5 YEARS 5.26% 5.12% 5.30% 71 OUT OF 118
LIFE OF FUND 4.78% 4.75% 4.87%(3) 56 OUT OF 81(3)
The fund's inception date was 4/1/93.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 4/30/93, the date nearest the fund's inception for which return data
are available.
See pages 20-21 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 64 61
WEIGHTED AVERAGE
MATURITY 73 DAYS 72 DAYS
EXPENSE RATIO 0.45%* 0.45%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 1999
7-DAY CURRENT YIELD 5.03%
7-DAY EFFECTIVE YIELD 5.16%
Investment terms are defined in the Glossary on pages 21-22.
Past performance does not guarantee future results.
Money market funds are neither insured nor guaranteed by the FDIC or any other
government agency.
Yields will fluctuate, and although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund. The 7-day yield more closely reflects earnings of the fund than the total
return.
8 1-800-345-2021
Premium Capital Reserve--Q&A
- --------------------------------------------------------------------------------
[photo of John Walsh]
An interview with John Walsh, a portfolio manager on the Premium Capital
Reserve fund investment team.
HOW DID PREMIUM CAPITAL RESERVE PERFORM FOR THE SIX MONTHS ENDED SEPTEMBER 30,
1999?
Premium Capital Reserve's return compared favorably with its peer group.
For the six months ended September 30, 1999, the fund returned 2.37%, matching
the average return of the 196 "Institutional Money Market Funds" tracked by
Lipper Inc. (See the previous page for other fund performance comparisons.)
THE FUND'S 7-DAY YIELD ROSE SUBSTANTIALLY (FROM 4.53% TO 5.03%) DURING THE
PERIOD. WHY?
Premium Capital Reserve's 7-day yield reflected the higher overall interest
rates on money market securities. Two interest rate hikes by the Federal
Reserve, one in late June and another in August, raised the federal funds rate
target (an influential overnight lending rate for banks). Money market yields,
which tend to track such rate changes closely, followed suit.
WHY DID THE FEDERAL RESERVE INCREASE RATES IN JUNE AND AUGUST?
The rate hikes were a partial reversal of the Fed's rate cuts in the fall
of 1998. At that time, the Fed reduced the federal funds rate target to help
stabilize financial markets during a period of global economic turmoil.
Since then, global economies and financial markets have improved. That has
reduced the financial strain from overseas and the need for the high degree of
liquidity the Fed injected into the markets with its 1998 rate reductions.
GIVEN THAT ENVIRONMENT, HOW DID YOU POSITION THE FUND?
We extended Premium Capital Reserve's weighted average maturity (WAM--the
average time until the securities in the portfolio mature) to 80 days in late
March because muted economic data gave no clear indication that the Fed needed
to raise interest rates.
However, by late June the economy began to exhibit strength and consumer
prices surged, so we reduced the fund's WAM to 70 days and kept it near that
level throughout the remainder of the period.
LOOKING AHEAD, HOW DO YOU PLAN TO POSITION THE PORTFOLIO?
Based upon the contradictory economic indicators of strong growth and low
inflation, we will continue to manage the fund in a fairly defensive manner for
now. Currently, securities maturing in three to five months offer very
attractive yields, so we expect to add them while offsetting these holdings with
shorter-term securities.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
9/30/99 3/31/99
A-1+ 60% 92%
A-1 40% 8%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 20
for more information.
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Commercial Paper 71%
CDs 11%
Variable-Rate Notes 11%
Bank Notes 3%
Asset-Backed Securities 2%
Other 2%
AS OF MARCH 31, 1999
Commercial Paper 76%
CDs 8%
Variable-Rate Notes 8%
Bank Notes 3%
Asset-Backed Securities 3%
Other 2%
Investment terms are defined in the Glossary on pages 21-22.
www.americancentury.com 9
Premium Capital Reserve--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's amortized cost, as of the last day of the reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
COMMERCIAL PAPER(1) -- 70.6%
BANKS -- 5.2%
$ 3,500,000 Banca Serfin S.A., 5.35%,
10/25/99 (LOC: Barclays
Bank PLC) $ 3,487,517
3,000,000 National Australia Bank Ltd. SA,
4.92%, 2/7/00 2,947,110
10,000,000 Spintab-Swedmortgage AB,
4.81%-5.37%,
11/4/99-12/8/99 9,918,738
1,000,000 Unibanco-Uniao de Bancos
Brasileiros S.A. Grand Cayman,
4.80%, 10/21/99 (LOC:
Barclays Bank PLC) 997,333
------------
17,350,698
------------
CHEMICALS -- 0.4%
1,500,000 Formosa Plastics Corp. USA,
5.43%, 1/28/00 (LOC:
Barclays Bank PLC) 1,473,076
------------
CREDIT CARD & TRADE RECEIVABLES -- 8.2%
13,800,000 Dakota Certificates (Citibank),
5.16%-5.37%,
10/13/99-11/10/99
(Acquired 7/7/99-9/9/99,
Cost $13,653,905)(2) 13,752,043
13,700,000 WCP Funding Inc., 5.35%-5.82%,
11/15/99-2/16/00 (Acquired
9/10/99-9/28/99, Cost
$13,528,048)(2) 13,560,667
------------
27,312,710
------------
EDUCATION -- 0.7%
2,300,000 Yale University, 5.76%, 2/14/00 2,249,952
------------
ELECTRICAL UTILITIES -- 1.4%
4,800,000 National Rural Utilities
Cooperative Finance Corp.,
5.75%, 3/13/00 4,674,267
------------
ENERGY RESERVES & PRODUCTION -- 7.5%
6,000,000 Chevron Transport Corp.,
4.80%-5.78%,
10/6/99-2/17/00 (Acquired
4/23/99-9/7/99, Cost
$5,855,088)(2) 5,931,048
4,000,000 Chevron U.K. Investment PLC,
4.80%, 10/21/99 3,989,333
3,000,000 Equilon Enterprises LLC, 5.77%,
1/24/00 2,944,704
Principal Amount Value
- --------------------------------------------------------------------------------
$12,000,000 Sand Dollar Funding LLC,
5.34%-5.35%,
10/15/99-12/7/99 (Acquired
8/31/99-9/16/99, Cost
$11,908,382)(2) $ 11,949,231
------------
24,814,316
------------
FINANCIAL SERVICES -- 36.0%
5,400,000 AES Shady Point, Inc., 5.35%,
10/26/99 5,379,938
3,000,000 Caisse D'Amortissement de la
Dette Sociale, 4.84%, 12/3/99 2,974,589
9,000,000 Countrywide Home Loans, Inc.,
5.37%-5.50%,
10/4/99-11/24/99 8,965,488
9,500,000 Credit Suisse First Boston Inc.,
5.68%-5.79%,
2/3/00-3/8/00 (Acquired
8/9/99-9/20/99, Cost
$9,246,259)(2) 9,290,476
2,000,000 Deutsche Bank Financial, Inc.,
5.26%, 2/1/00 1,964,032
8,138,000 Falcon Asset Securities Corp.,
4.83%-5.40%,
10/20/99-11/4/99 (Acquired
5/4/99-9/15/99, Cost
$8,025,907)(2) 8,108,977
9,900,000 General Electric Financial
Assurance Holdings,
5.17%-5.80%,
10/7/99-2/22/00 (Acquired
7/2/99-9/30/99, Cost
$9,719,409)(2) 9,776,856
10,900,000 GMAC Mortgage Corp.,
5.18%-5.40%,
10/1/99-11/1/99 10,872,496
6,000,000 Goldman Sachs Group Inc.,
4.82%-4.94%,
10/28/99-2/4/00 5,937,286
2,900,000 Marsh USA Inc., 5.53%, 2/14/00
(Acquired 7/30/99, Cost
$2,811,351)(2) 2,839,416
9,500,000 Park Avenue Receivables Corp.,
5.37%-5.60%,
10/1/99-10/13/99 (Acquired
8/31/99-9/30/99, Cost
$9,472,492)(2) 9,493,727
9,837,000 Quincy Capital Corp.,
5.23%-5.38%,
10/7/99-12/17/99
(Acquired 8/2/99-9/13/99,
Cost $9,721,733)(2) 9,769,980
12,857,000 Receivables Capital Corp.,
5.37%-5.80%,
10/8/99-1/14/00 (LOC:
Bank of America N.T. & S.A.)
(Acquired 8/26/99-9/21/99,
Cost $12,710,727)(2) 12,751,930
10 1-800-345-2021 See Notes to Financial Statements
Premium Capital Reserve--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 8,100,000 Transamerica Asset Funding Corp.,
5.37%-5.82%,
11/3/99-2/10/00 (Acquired
8/10/99-8/27/99, Cost
$7,922,120)(2) $ 7,978,473
3,000,000 UBS Finance (Delaware) Inc.,
4.92%, 10/12/99 2,995,490
10,800,000 Windmill Funding Corp.,
5.25%-5.94%,
11/8/99-1/26/00 (Acquired
8/2/99-9/22/99, Cost
$10,593,979)(2) 10,659,858
------------
119,759,012
------------
FOOD & BEVERAGE -- 2.0%
4,200,000 Brown-Forman Corp., 5.63%,
10/1/99 (Acquired 9/30/99,
Cost $4,199,343)(2) 4,200,000
2,500,000 Diageo plc, 5.16%, 11/18/99
(Acquired 7/2/99, Cost
$2,450,192)(2) 2,482,800
------------
6,682,800
------------
HEAVY ELECTRICAL EQUIPMENT -- 1.2%
4,000,000 Dover Corp., 5.32%, 10/27/99
(Acquired 9/24/99, Cost
$3,980,493)(2) 3,984,631
------------
INDUSTRIAL PARTS -- 4.3%
14,400,000 Invensys plc, 5.34%-5.83%,
12/6/99-1/25/00 (Acquired
9/17/99-9/28/99, Cost
$14,160,010)(2) 14,178,754
------------
MINING & METALS -- 0.6%
2,000,000 Rio Tinto America Inc., 4.93%,
1/24/00 (Acquired 5/4/99,
Cost $1,927,419)(2) 1,968,503
------------
OIL REFINING -- 3.1%
10,500,000 Motiva Enterprises LLC,
5.22%-5.78%,
10/5/99-1/21/00 10,369,912
------------
TOTAL COMMERCIAL PAPER 234,818,631
------------
CORPORATE DEBT -- 11.1%
BANKS -- 0.7%
2,500,000 Bank One Corp. MTN, Series B,
VRN, 5.45%, 11/9/99, resets
quarterly off the 3-month
LIBOR plus 0.02% with no caps 2,500,000
------------
CREDIT CARD & TRADE RECEIVABLES -- 0.9%
3,000,000 Corporate Receivables Corp., VRN,
5.40%, 10/15/99, resets
monthly off the 1-month
LIBOR plus 0.02% with no caps 3,000,000
------------
Principal Amount Value
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 2.4%
$ 4,000,000 General Electric Capital Corp.
MTN, Series A, VRN, 5.26%,
10/13/99, resets quarterly off
the 3-month LIBOR minus
0.05% with no caps $ 4,000,000
4,000,000 Park Avenue Receivables Corps.,
VRN, 5.43%, 10/13/99, resets
monthly off the 1-month
LIBOR plus 0.05% with no caps 4,000,000
------------
8,000,000
------------
LIFE AND HEALTH INSURANCE -- 5.7%
1,000,000 American International Group, Inc.
MTN, 6.05%, 11/1/99 1,000,256
3,000,000 Jackson National Life Insurance
Co., VRN, 5.57%, 10/12/99,
resets monthly off the 1-month LIBOR
plus 0.19% with no caps
(Acquired 6/8/99, Cost
$3,000,000)(2) 3,000,000
5,400,000 Metropolitan Life Insurance Company,
VRN, 5.59%, 10/1/99,
resets monthly off the
1-month LIBOR plus
0.25% with no caps 5,400,000
5,000,000 Transamerica Occidental Life
Insurance Co., VRN, 5.50%, 10/1/99,
resets monthly off the 1-month LIBOR
plus 0.13% with no caps (Acquired
11/5/98, Cost $5,000,000)(2) 5,000,000
1,600,000 Travelers Insurance Company
(The), VRN, 5.42%, 10/9/99,
resets monthly off the 1-month
LIBOR plus 0.04% with no
caps (Acquired 6/4/99, Cost
$1,600,000)(2) 1,600,000
3,000,000 Travelers Insurance Company (The),
VRN, 5.42%, 10/22/99, resets monthly
off the 1-month LIBOR plus 0.04%
with no caps (Acquired 5/19/99, Cost
$3,000,000)(2) 3,000,000
------------
19,000,256
------------
SECURITIES & ASSET MANAGEMENT -- 1.4%
4,500,000 Morgan Stanley Dean Witter &
Co., 6.25%, 3/15/00 4,514,209
------------
TOTAL CORPORATE DEBT 37,014,465
------------
CERTIFICATES OF DEPOSIT -- 11.5%
6,500,000 Abbey National Treasury Services
PLC MTN, 5.04%-5.97%,
2/8/00-8/14/00 6,498,616
3,000,000 Chase Manhattan Bank N.A.,
5.61%, 2/3/00 3,000,000
See Notes to Financial Statements www.americancentury.com 11
Premium Capital Reserve--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,000,000 First Union National Bank, VRN, 5.43%,
10/1/99, resets daily off
the Federal Funds rate plus
0.17% with no caps $ 2,999,664
8,000,000 National Westminster Bank PLC
(New York), 4.98%-5.06%,
1/10/00-2/9/00 7,999,365
4,000,000 Royal Bank of Canada (New York),
5.07%-5.12%,
2/10/00-2/18/00 3,999,497
1,500,000 U.S. Bank, NA, 5.35%, 12/13/99 1,500,000
2,500,000 U.S. Bank, NA Minnesota, 5.41%,
12/14/99 2,500,000
6,500,000 UBS AG, 5.29%-5.46%,
5/19/00-6/5/00 6,498,124
3,200,000 Westdeutsche Landesbank,
5.43%, 12/27/99 3,200,000
------------
TOTAL CERTIFICATES OF DEPOSIT 38,195,266
------------
ASSET-BACKED SECURITIES(3) -- 2.3%
321,714 Americredit Automobile Receivables Trust,
Series 1999 A, Class A1 SEQ, 4.98%,
3/12/00 321,714
2,000,000 Americredit Automobile Receivables Trust,
Series 1999 C, Class A1A SEQ, 5.67%,
9/5/00 2,000,000
5,000,000 BMW Vehicle Owner Trust, Series 1999 A,
Class A1 SEQ, 5.64%,
8/25/00 5,000,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 127,788 WFS Financial Owner Trust,
Series 1999 A, Class A1 SEQ,
5.01%, 2/20/00 $ 127,788
------------
TOTAL ASSET-BACKED SECURITIES 7,449,502
------------
BANK NOTES -- 4.1%
4,000,000 American Express Centurion Bank,
VRN, 5.34%, 10/14/99,
resets monthly off the 1-month LIBOR
minus 0.04% with
no caps 4,000,000
3,000,000 U.S. Bank, NA Minnesota, VRN,
5.32%, 10/8/99, resets
monthly off the 1-month LIBOR
minus 0.06% with no caps 2,999,991
4,000,000 U.S. Bank, NA Minnesota, VRN,
5.26%, 10/20/99, resets
monthly off the 1-month LIBOR
minus 0.12% with no caps 3,998,515
2,500,000 U.S. Bank, NA Minnesota, VRN,
5.33%, 10/20/99, resets
monthly off the 1-month LIBOR
minus 0.05% with no caps 2,498,922
------------
TOTAL BANK NOTES 13,497,428
------------
U.S. GOVERNMENT AGENCY SECURITIES -- 0.4%
1,460,000 FHLB, 8.375%, 10/25/99 1,463,430
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $332,438,722
============
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
LIBOR = London Interbank Offered Rate
LOC = Letter of Credit
MTN = Medium Term Note
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a security resets,
the less risk the investor is taking that the coupon will vary significantly
from current market rates.
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate indicated is effective
September 30, 1999.
(1) Rate indicated is the yield to maturity at purchase.
(2) Security was purchased under Rule 144A or Section 4(2) of the Securities Act
of 1933 or is a private placement and, unless registered under the Act or
exempted from registration, may only be sold to qualified institutional
investors. The aggregate value of restricted securities at September 30,
1999 was $165,277,370, which represented 50.4% of net assets. Restricted
securities considered illiquid represent 3.8% of net assets.
(3) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
12 1-800-345-2021 See Notes to Financial Statements
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
PREMIUM PREMIUM
GOVERNMENT CAPITAL
SEPTEMBER 30, 1999 (UNAUDITED) RESERVE RESERVE
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) .............. $ 86,528,318 $ 332,438,722
Interest and other receivables .............. 436,352 1,053,675
--------------- ---------------
86,964,670 333,492,397
--------------- ---------------
LIABILITIES
Disbursements in excess of
demand deposit cash ....................... 228,142 1,238,699
Payable for investments purchased ........... -- 4,479,057
Accrued management fees (Note 2) ............ 32,162 114,069
Dividends payable ........................... 68,424 259,971
Payable for directors' fees and expenses .... 48 170
--------------- ---------------
328,776 6,091,966
--------------- ---------------
Net Assets .................................. $ 86,635,894 $ 327,400,431
=============== ===============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized .................................. 1,000,000,000 1,000,000,000
=============== ===============
Outstanding ................................. 86,638,583 327,395,778
=============== ===============
Net Asset Value Per Share ................... $ 1.00 $ 1.00
=============== ===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ..... $ 86,638,583 $ 327,395,778
Accumulated undistributed net
realized gain (loss) on investments ....... (2,689) 4,653
--------------- ---------------
$ 86,635,894 $ 327,400,431
=============== ===============
See Notes to Financial Statements www.americancentury.com 13
Statements of Operations
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
PREMIUM PREMIUM
GOVERNMENT CAPITAL
RESERVE RESERVE
INVESTMENT INCOME
Income:
Interest .................................. $ 2,358,750 $ 7,382,922
----------- -----------
Expenses (Note 2):
Management fees ........................... 212,297 647,628
Directors' fees and expenses .............. 442 1,341
----------- -----------
212,739 648,969
----------- -----------
Net investment income ..................... 2,146,011 6,733,953
----------- -----------
Net realized gain (loss)
on investments .......................... (2,689) 7,707
----------- -----------
Net Increase in Net Assets
Resulting from Operations ............... $ 2,143,322 $ 6,741,660
=========== ===========
14 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND YEAR ENDED MARCH 31, 1999
Increase (Decrease) PREMIUM GOVERNMENT RESERVE PREMIUM CAPITAL RESERVE
in Net Assets SEPT. 30, 1999 MARCH 31, 1999 SEPT. 30, 1999 MARCH 31, 1999
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income .........$ 2,146,011 $ 3,379,825 $ 6,733,953 $ 10,460,773
Net realized gain (loss)
on investments .............. (2,689) 5,484 7,707 1,320
------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ... 2,143,322 3,385,309 6,741,660 10,462,093
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .... (2,146,011) (3,379,825) (6,733,953) (10,460,773)
From net realized gains on
investment transactions ..... -- (5,104) -- --
------------- ------------- ------------- -------------
Decrease in net assets
from distributions .......... (2,146,011) (3,384,929) (6,733,953) (10,460,773)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ..... 164,664,831 483,425,779 266,698,591 533,120,417
Proceeds from reinvestment
of distributions ............ 2,094,092 3,241,460 6,318,172 9,901,509
Payments for shares redeemed .. (201,413,865) (409,868,798) (221,672,491) (449,461,484)
------------- ------------- ------------- -------------
Net increase (decrease) in
net assets from
capital share transactions .. (34,654,942) 76,798,441 51,344,272 93,560,442
------------- ------------- ------------- -------------
Net increase (decrease)
in net assets ............... (34,657,631) 76,798,821 51,351,979 93,561,762
NET ASSETS
Beginning of period ........... 121,293,525 44,494,704 276,048,452 182,486,690
------------- ------------- ------------- -------------
End of period .................$ 86,635,894 $ 121,293,525 $ 327,400,431 $ 276,048,452
============= ============= ============= =============
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold .......................... 164,664,831 483,425,779 266,698,591 533,120,417
Issued in reinvestment
of distributions ............ 2,094,092 3,241,460 6,318,172 9,901,509
Redeemed ...................... (201,413,865) (409,868,798) (221,672,491) (449,461,484)
------------- ------------- ------------- -------------
Net increase (decrease) ....... (34,654,942) 76,798,441 51,344,272 93,560,442
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements www.americancentury.com 15
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Premium Reserves, Inc. (the corporation) is
registered under the Investment Company Act of 1940 as an open-end management
investment company. Premium Government Reserve Fund (Government Reserve) and
Premium Capital Reserve Fund (Capital Reserve) (the funds) are two of the three
funds issued by the corporation. The funds are diversified under the 1940 Act.
The investment objective of Government Reserve and Capital Reserve is to obtain
as high a level of current income as is consistent with preservation of capital
and maintenance of liquidity. The following significant accounting policies are
in accordance with generally accepted accounting principles; these policies may
require the use of estimates by fund management.
SECURITY VALUATIONS -- Securities are valued at amortized cost, which
approximates current value. When valuations are not readily available,
securities are valued at fair value as determined in accordance with procedures
adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that the funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The funds require that the collateral, represented by securities, received
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the funds to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the funds under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the funds, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account held at the funds'
custodian. These balances are invested in one or more repurchase agreements that
are collateralized by U.S. Treasury or Agency obligations.
INCOME TAX STATUS -- It is the funds' policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under the provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared daily and distributed monthly. The funds do not expect to realize
any long-term capital gains and, accordingly do not expect to pay any long-term
capital gains distributions.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
At March 31, 1999, accumulated net realized short-term capital loss
carryovers of $3,052 for Capital Reserve (expiring in 2004 through 2007) may be
used to offset future taxable gains.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the funds with investment advisory and management services
in exchange for a single, unified management fee. The Agreement provides that
all expenses of the funds, except brokerage commissions, taxes, interest,
expenses of those directors who are not considered "interested persons" as
defined in the Investment Company Act of 1940 (including counsel fees) and
extraordinary expenses, will be paid by ACIM. The fee is computed daily and paid
monthly based on each fund's average daily closing net assets during the
previous month. The annual management fee for each fund is 0.45%.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
16 1-800-345-2021
<TABLE>
<CAPTION>
Premium Government Reserve--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), and
EXPENSE RATIO (operating expenses as a percentage of average net assets).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
1999(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ......... 0.02 0.05 0.05 0.05 0.05 0.05
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .... (0.02) (0.05) (0.05) (0.05) (0.05) (0.05)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== ===========
Total Return(2) ............... 2.31% 4.98% 5.25% 5.07% 5.49% 4.62%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ......... 0.45%(3) 0.45% 0.45% 0.45% 0.44% 0.45%
Ratio of Net Investment Income
to Average Net Assets ......... 4.55%(3) 4.82% 5.13% 4.96% 5.30% 4.84%
Net Assets, End of Period
(in thousands) ................ $ 86,636 $ 121,294 $ 44,495 $ 38,838 $ 26,191 $ 16,381
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
See Notes to Financial Statements www.americancentury.com 17
<TABLE>
<CAPTION>
Premium Capital Reserve--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), and
EXPENSE RATIO (operating expenses as a percentage of average net assets).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
1999(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ......... 0.02 0.05 0.05 0.05 0.05 0.05
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .... (0.02) (0.05) (0.05) (0.05) (0.05) (0.05)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== ===========
Total Return(2) ............... 2.37% 5.14% 5.38% 5.13% 5.58% 4.66%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ......... 0.45%(3) 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of Net Investment Income
to Average Net Assets ......... 4.68%(3) 4.99% 5.26% 5.01% 5.50% 4.76%
Net Assets, End of Period
(in thousands) ................ $ 327,400 $ 276,048 $ 182,487 $ 153,958 $ 133,417 $ 138,428
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
18 1-800-345-2021 See Notes to Financial Statements
Retirement Account Information
- --------------------------------------------------------------------------------
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
www.americancentury.com 19
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each is managed to provide a "pure play" on a specific sector of the
fixed-income market.
To ensure adherence to this principle, the basic structure of each
portfolio is tied to a specific market index. Fund managers attempt to add value
by making modest portfolio adjustments based on their analysis of prevailing
market conditions.
Investment decisions are made by management teams, which meet regularly to
discuss market analysis and investment strategies.
In addition to these principles, each fund has its own investment policies:
PREMIUM GOVERNMENT RESERVE and PREMIUM CAPITAL RESERVE seek to provide
interest income while maintaining a stable share price. Premium Government
Reserve invests in U.S. government money market securities, while Premium
Capital Reserve invests in a diversified portfolio of money market securities.
An investment in the funds is neither insured nor guaranteed by the FDIC or
any other government agency. Yields will fluctuate, and although the funds seek
to preserve the value of your investment at $1 per share, it is possible to lose
money by investing in the funds.
COMPARATIVE INDICES
The following index is used in the report for a fund performance
comparison. It is not an investment product available for purchase.
The 90-DAY TREASURY BILL INDEX is derived from secondary market interest
rates as published by the Federal Reserve Bank.
LIPPER RANKINGS
LIPPER INC. is an independent mutual fund ranking service that groups funds
according to their investment objectives. Rankings are based on average annual
returns for each fund in a given category for the periods indicated. Rankings
are not included for periods less than one year.
The Lipper categories for the Premium Reserve Money Market funds are:
INSTITUTIONAL U.S. GOVERNMENT MONEY MARKET FUNDS (Premium Government
Reserve) -- funds with dollar-weighted average maturities of less than 90 days
that intend to maintain a stable net asset value and that invest principally in
financial instruments issued or guaranteed by the U.S. government, its agencies,
or instrumentalities.
INSTITUTIONAL MONEY MARKET FUNDS (Premium Capital Reserve) -- funds with
dollar-weighted average maturities of less than 90 days that intend to maintain
a stable net asset value and that invest in high-quality financial instruments
rated in the top two grades.
But unlike most of the funds in their Lipper categories, the Premium
Reserve Money Market funds are not really institutional funds. Instead, they are
intended for high-net-worth individual investors. Institutional funds typically
have higher minimum balance requirements (often $1 million or more) and, more
importantly, lower expenses. The Premium Reserve Money Market funds' higher
expenses give them a disadvantage compared with their Lipper group.
However, the Premium Reserve Money Market funds have lower expenses than
the average non-institutional money market fund (according to Lipper), so they
can offer attractive yields to individuals able to meet their $100,000
investment minimum.
[left margin]
PORTFOLIO MANAGERS
Premium Government Reserve
BETH BUNNELL HUNTER
Premium Capital Reserve
JOHN WALSH
CREDIT RATING GUIDELINES
CREDIT RATINGS ARE ISSUED BY INDEPENDENT RESEARCH COMPANIES SUCH AS
STANDARD & POOR'S AND MOODY'S. RATINGS ARE BASED ON AN ISSUER'S FINANCIAL
STRENGTH AND ABILITY TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.
A-1+ AND A-1 ARE STANDARD & POOR'S HIGHEST RATINGS FOR COMMERCIAL PAPER.
IT'S IMPORTANT TO NOTE THAT CREDIT RATINGS ARE SUBJECTIVE, REFLECTING THE
OPINIONS OF THE RATING AGENCIES; THEY ARE NOT ABSOLUTE STANDARDS OF QUALITY.
20 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in the fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 17-18.
YIELDS
* 7-DAY CURRENT YIELD is calculated based on the income generated by an
investment in the fund over a seven-day period and is expressed as an annual
percentage rate.
* 7-DAY EFFECTIVE YIELD is calculated similarly, although this figure is
slightly higher than the fund's 7-Day Current Yield because of the effects of
compounding. The 7-Day Effective Yield assumes that income earned from the
fund's investments is reinvested and generating additional income.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES -- the number of different securities held by the fund on
a given date.
* WEIGHTED AVERAGE MATURITY (WAM) -- a measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
* EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF MONEY MARKET SECURITIES
* ASSET-BACKED SECURITIES -- debt securities that represent ownership in a pool
of receivables, such as credit card debt, auto loans, or mortgages.
* BANK NOTES -- promissory notes issued in the U.S. by domestic commercial
banks.
* CERTIFICATES OF DEPOSIT (CDS) -- CDs represent a bank's obligation to repay
money deposited with it for a specified period of time.
* COMMERCIAL PAPER (CP) -- short-term debt issued by large corporations to raise
cash and to cover current expenses in anticipation of future revenues.
* REPURCHASE AGREEMENTS (REPOS) -- short-term debt agreements in which a fund
buys a security at one price and simultaneously agrees to sell it back to the
seller at a slightly higher price on a specified date (usually within seven
days). The fund does not own the security; instead, the security serves as
collateral for the agreement.
* U.S. GOVERNMENT AGENCY NOTES -- intermediate-term debt securities issued by
U.S. government agencies (such as the Federal Home Loan Bank). These notes are
issued with maturities ranging from three months to 30 years, but the funds only
invest in those with remaining maturities of 13 months or less.
* U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- short-term debt securities issued by
U.S. government agencies (such as the Federal Home Loan Bank). These notes are
issued at a discount and achieve full value at maturity (typically one year or
less).
* VARIABLE-RATE NOTES (VRNS) -- debt securities whose interest rates change when
a designated base rate changes. The base rate is often the federal funds rate,
the 90-day Treasury bill rate, or the London Interbank Offered Rate.
www.americancentury.com 21
Glossary
- --------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
22 1-800-345-2021
Notes
- --------------------------------------------------------------------------------
www.americancentury.com 23
Notes
- --------------------------------------------------------------------------------
24 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Large Cap Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
- --------------------------------------------------------------------------------
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY GOVERNMENT INCOME TRUST
INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
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American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
Funds Distributor, Inc. is
9911 the distributor of American Century funds
SH-ANN-18631 (c)1999 American Century Services Corporation
