[front cover]
Your
AMERICAN CENTURY
prospectus
Premium Government Reserve Fund
Premium Capital Reserve Fund
Premium Bond Fund
[american century logo(reg.sm)]
American
Century
[sidebar]
AUGUST 1, 2000
INVESTOR CLASS
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO
TELLS YOU OTHERWISE IS COMMITTING A CRIME.
Funds Distributor, Inc. and
American Century Investment
Services, Inc., Distributors
[end of sidebar]
[inside front cover]
Dear Investor,
Planning and maintaining your investment portfolio is a big job. However, an
easy-to-understand Prospectus can make your work a lot less daunting. We hope
you'll find this Prospectus easy to understand, and more importantly, that it
gives you confidence in the investment decisions you have made or are soon to
make.
As you begin to read through this Prospectus, take a look at the table of
contents to understand how it is organized. The first four sections take a
close-up look at the funds.
An Overview of the Funds - Learn about fund goals, strategies and risks, and who
may or may not want to invest.
Fund Performance History - See how the funds performed from year to year.
Fees and Expenses - Find out about fund management fees and other expenses
associated with investing.
Objectives, Strategies and Risks - Take a more detailed look at the principal
investment objectives, strategies and risks presented in the Overview of the
Funds section.
As you continue to read, the Management section will acquaint you with the fund
management team, and Investing with American Century gives an overview about how
to invest and manage your account.
Share Price and Distributions, Taxes, and Financial Highlights wrap up the
Prospectus with important financial information you'll need to make an informed
decision.
Naturally, you may have questions about investing after you read through the
Prospectus. Our Web site, www.americancentury.com, offers information that could
answer many of your questions. Or, an Investor Relations Representative will be
happy to help weekdays, 7 a.m. to 7 p.m. and Saturdays, 9 a.m. to 2 p.m. Central
time. Give us a call at 1-800-345-2021.
Sincerely,
/signature/
Mark Killen
Senior Vice President
American Century Investment Services, Inc.
[sidebar]
[american century logo(reg.sm)]
American
Century
American Century
Investments
P.O. Box 419200
Kansas City, MO
64141-6200
[end of sidebar]
TABLE OF CONTENTS
An Overview of the Funds .................................................. 2
Fund Performance History .................................................. 3
Fees and Expenses ......................................................... 4
Objectives, Strategies and Risks .......................................... 5
Premium Government Reserve Fund
Premium Capital Reserve Fund
Premium Bond Fund
Basics of Fixed-Income Investing .......................................... 7
Management ................................................................ 9
Investing with American Century ........................................... 11
Share Price and Distributions ............................................. 15
Taxes ..................................................................... 16
Financial Highlights ...................................................... 17
[sidebar]
Throughout this book you'll find definitions of key investment terms and
phrases. When you see a word printed in BLUE ITALICS, look for its definition in
the left margin.
[graphic of hand pointing index finger]
This symbol highlights special information and helpful tips.
[end sidebar]
American Century Investments
AN OVERVIEW OF THE FUNDS
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
Premium Government Reserve and Premium Capital Reserve are money market funds
that seek to earn the highest level of current income while preserving the value
of your investment.
Premium Bond seeks a high level of income by investing primarily in non-money
market DEBT SECURITIES.
WHAT ARE THE FUNDS' PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
A more detailed description of the funds' investment strategies and risks begins
on page 5.
Fund Primary Investments Principal Risks
--------------------------------------------------------------------------------
Premium Government Very short-term U.S. Lower yield than longer-
Reserve government securities term or lower-quality
securities
--------------------------------------------------------------------------------
Premium Capital High-quality cash-equivalent Lower yield than longer-
Reserve securities of banks, term or lower-quality
governments and corporations securities
--------------------------------------------------------------------------------
Premium Bond High- and medium-grade non-money Interest rate, credit and
market debt securities prepayment risk
As with all funds, at any given time, your shares may be worth more or less than
the price you paid. As a result, it is possible to lose money by investing in
the funds. As money market funds, Premium Government Reserve and Premium Capital
Reserve seek to maintain a stable value of $1.00 per share. However, neither
these funds, nor any other money market funds, can guarantee you won't lose
money by investing in them.
WHO MAY WANT TO INVEST IN THE FUNDS?
The funds may be a good investment if you are
* seeking current income
* in the case of the money market funds, more concerned with preservation of
capital than long-term investment performance
* seeking diversification by investing in a fixed-income mutual fund
* comfortable with the funds' other investment risks
WHO MAY NOT WANT TO INVEST IN THE FUNDS?
The funds may not be a good investment if you are
* investing for long-term growth
* looking for the added security of FDIC insurance
[sidebar]
DEBT SECURITIES include fixed-income investments such as notes, bonds,
commercial paper and U.S. Treasury bills. Very short-term debt securities (those
with maturities shorter than 397 days) are called money market instruments.
[graphic of hand pointing index finger]
An investment in the funds is not a bank deposit, and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Although the money market funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
them.
[end of sidebar]
2 American Century Investments 1-800-345-2021
FUND PERFORMANCE HISTORY
PREMIUM GOVERNMENT RESERVE FUND
PREMIUM CAPITAL RESERVE FUND
PREMIUM BOND FUND
ANNUAL TOTAL RETURNS(1)
The following bar chart shows the performance of the funds' Investor Class
shares for each full calendar year in the life of the funds. It indicates the
volatility of the funds' historical returns from year to year.
[data shown in bar chart]
Premium Government Reserve Premium Capital Reserve Premium Bond
1999 4.78% 4.93% -1.17%
1998 5.15% 5.29% 7.85%
1997 5.20% 5.31% 8.85%
1996 5.10% 5.16% 2.73%
1995 5.63% 5.70% 20.10%
1994 3.90% 3.97% -4.10%
(1) As of June 30, 2000, the end of the most recent calendar quarter, Premium
Government Reserve's year-to-date return was 2.81%; Premium Capital
Reserve's year-to-date return was 2.90%; and Premium Bond's year-to-date
return was 3.24%.
The highest and lowest quarterly returns for the period reflected in the bar
chart are:
Highest Lowest
--------------------------------------------------------------------------------
Premium Government Reserve 1.45% (2Q 2000) 0.69% (1Q 1994)
--------------------------------------------------------------------------------
Premium Capital Reserve 1.49% (2Q 2000) 0.72% (1Q 1994)
--------------------------------------------------------------------------------
Premium Bond 6.82% (2Q 1995) -3.47% (1Q 1994)
AVERAGE ANNUAL TOTAL RETURNS
The following table shows the average annual total returns of the funds'
Investor Class shares for the periods indicated. The benchmarks are unmanaged
indices that have no operating costs and are included in the table for
performance comparison.
For the calendar year ended December 31, 1999 1 year 5 years Life of Fund(1)
------------------------------------------------------------------------------------------
Premium Government Reserve 4.78% 5.17% 4.71%
90-Day Treasury Bill Index 4.74% 5.11% 4.95%
------------------------------------------------------------------------------------------
Premium Capital Reserve 4.93% 5.28% 4.80%
90-Day Treasury Bill Index 4.74% 5.11% 4.95%
------------------------------------------------------------------------------------------
Premium Bond -1.17% 7.44% 5.50%
Lehman Aggregate Bond Index -0.82% 7.73% 6.03%
(1) The inception date for the funds is April 1, 1993.
[sidebar]
[graphic of hand pointing index finger]
The performance information on this page is designed to help you see how the
funds' returns can vary. Keep in mind that past performance does not predict how
the funds will perform in the future.
[graphic of hand pointing index finger]
For current performance information, including yields, please call us at
1-800-345-2021 or visit us at www.americancentury.com.
[end of sidebar]
www.americancentury.com American Century Investments 3
FEES AND EXPENSES
There are no sales loads, fees or other charges
* to buy fund shares directly from American Century
* to reinvest dividends in additional shares
* to exchange into the Investor Class shares of other American Century funds *
to redeem your shares
The following table describes the fees and expenses you will pay if you buy and
hold shares of the funds.
ANNUAL OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Distribution and Other Total Annual Fund
Fee Service (12b-1) Fees Expenses(1) Operating Expenses
-------------------------------------------------------------------------------------------------------------
Premium Government Reserve 0.45% None 0.00% 0.45%
-------------------------------------------------------------------------------------------------------------
Premium Capital Reserve 0.45% None 0.00% 0.45%
-------------------------------------------------------------------------------------------------------------
Premium Bond 0.45% None 0.00% 0.45%
(1) Other expenses, which include the fees and expenses of the funds'
independent directors and their legal counsel, as well as interest, were
less than 0.005% for the most recent fiscal year.
EXAMPLE
The examples in the table below are intended to help you compare the costs of
investing in a fund with the costs of investing in other mutual funds. Assuming
you . . .
* invest $10,000 in the fund
* redeem all of your shares at the end of the periods shown below
* earn a 5% return each year
* incur the same operating expenses as shown above
. . . your cost of investing in the fund would be:
1 year 3 years 5 years 10 years
-------------------------------------------------------------------------------
Premium Government Reserve $46 $144 $252 $566
-------------------------------------------------------------------------------
Premium Capital Reserve $46 $144 $252 $566
-------------------------------------------------------------------------------
Premium Bond $46 $144 $252 $566
[sidebar]
[graphic of hand pointing index finger]
Use this example to compare the costs of investing in other funds. Of course,
your actual costs may be higher or lower.
[end of sidebar]
4 American Century Investments 1-800-345-2021
OBJECTIVES, STRATEGIES AND RISKS
PREMIUM GOVERNMENT RESERVE FUND
PREMIUM CAPITAL RESERVE FUND
PREMIUM BOND FUND
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
Premium Government Reserve and Premium Capital Reserve are money market funds
that seek to earn the highest level of current income while preserving the value
of your investment.
Premium Bond seeks a high level of income by investing primarily in non-money
market debt securities.
HOW DO THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES?
PREMIUM GOVERNMENT RESERVE
Premium Government Reserve invests in very short-term U.S. government
securities. These securities may include direct obligations of the United
States, such as Treasury bills, notes and bonds. They may also include
obligations, such as mortgage-related securities, issued or guaranteed by
agencies and instrumentalities of the U.S. government.
PREMIUM CAPITAL RESERVE
Premium Capital Reserve invests in HIGH-QUALITY, cash-equivalent securities.
These securities include the kinds of U.S. government securities in which
Premium Government Reserve may invest, as well as short-term bank and corporate
obligations that are payable in U.S. dollars.
PREMIUM BOND
Premium Bond invests primarily in high- and medium-grade, non-money market debt
securities. These securities, which may be payable in U.S. or foreign
currencies, may include corporate bonds and notes, government securities and
securities backed by mortgages or other assets. Shorter-term debt securities
round out the portfolio.
The fund invests most of its assets in QUALITY debt securities. However, up to
15% of the fund's assets may be invested in securities rated in the
fifth-highest category by an independent rating agency, or determined to be of
comparable quality by the advisor. Corporations usually issue these securities
to finance existing operations or expand their businesses.
The WEIGHTED AVERAGE MATURITY of the fund's portfolio must be three and one-half
years or longer. During periods of rising interest rates, the fund managers may
adopt a shorter portfolio maturity in order to reduce the effect of bond price
declines on the fund's value. When interest rates are falling and bond prices
are rising, they may adopt a longer portfolio maturity.
For more information about the funds' credit quality standards and about credit
risk, please see Basics of Fixed-Income Investing beginning on page 7.
Additional information about the funds' investments is available in their annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
funds' performance during the most recent fiscal period. You may get these
reports at no cost by calling us.
[sidebar]
A HIGH-QUALITY debt security is one that has been determined to be in the top
two credit quality categories. A QUALITY, or investment-grade, security is one
that has been determined to be in the top four credit quality categories. This
can be established in a number of ways. For example, independent rating agencies
may rate the security in their higher rating categories. The funds' advisor also
can analyze an unrated security to determine if its credit quality is high
enough for investment. Details of the funds' credit quality standards are
described in the Statement of Additional Information.
WEIGHTED AVERAGE MATURITY is described in more detail under "Basics of
Fixed-Income Investing."
[end of sidebar]
www.americancentury.com American Century Investments 5
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
PREMIUM GOVERNMENT RESERVE
PREMIUM CAPITAL RESERVE
Because very short-term U.S. government securities and other cash-equivalent
securities are among the safest securities available, the interest they pay is
among the lowest for income-paying securities. Accordingly, the yield on these
funds will likely be lower than funds that invest in longer-term or
lower-quality securities.
PREMIUM BOND
When interest rates change, Premium Bond's share value will be affected.
Generally, when interest rates rise, the fund's share value will decline. The
opposite is true when interest rates decline. This interest rate risk is higher
for Premium Bond than for funds that have shorter weighted average maturities,
such as money market and short-term bond funds.
Although most of the securities purchased by the fund are quality debt
securities at the time of purchase, the fund may invest part of its assets in
securities rated in the lowest investment-grade category (e.g., BBB) and up to
15% of its assets in securities rated in the fifth category (e.g., BB). As a
result, the fund has some credit risk. Although they are considered investment
grade, issuers of BBB-rated securities (and securities of similar quality) are
more likely to have problems making interest and principal payments than issuers
of higher-rated securities. Issuers of BB-rated securities (and securities of
similar quality) are considered even more vulnerable to adverse business,
financial or economic conditions that could lead to difficulties in making
timely payments of principal and interest.
The fund may invest in debt securities backed by mortgages or assets such as
credit card receivables. These underlying obligations may be prepaid, as when a
homeowner refinances a mortgage to take advantage of declining interest rates.
If so, the fund must reinvest prepayments at current rates, which may be less
than the rate of the prepaid mortgage. Because of this prepayment risk, the fund
may benefit less from declining interest rates than funds of similar maturity
that invest less heavily in mortgage- and asset-backed securities.
The fund's share value will fluctuate. As a result, it is possible to lose money
by investing in the fund. In general, the funds that have higher potential
income have higher potential loss.
6 American Century Investments 1-800-345-2021
BASICS OF FIXED-INCOME INVESTING
DEBT SECURITIES
When a fund buys a debt security, also called a fixed-income security, it is
essentially lending money to the security's issuer. Notes, bonds, commercial
paper and U.S. Treasury bills are examples of debt securities. After the debt
security is first sold by the issuer, it may be bought and sold by other
investors. The price of the security may rise or fall based on many factors,
including changes in interest rates, liquidity and credit quality.
The fund managers decide which debt securities to buy and sell by
* determining which securities help a fund meet its maturity requirements
* identifying securities that satisfy a fund's credit quality standards
* evaluating the current economic conditions and assessing the risk of
inflation
* evaluating special features of the securities that may make them more or less
attractive
WEIGHTED AVERAGE MATURITY
Like most loans, debt securities eventually must be repaid, or refinanced, at
some date. This date is called the maturity date. The number of days left to a
debt security's maturity date is called the remaining maturity. The longer a
debt security's remaining maturity, generally the more sensitive it is to
changes in interest rates.
Because a bond fund will own many debt securities, the fund managers calculate
the average of the remaining maturities of all the debt securities the fund owns
to evaluate the interest rate sensitivity of the entire portfolio. This average
is weighted according to the size of the fund's individual holdings and is
called WEIGHTED AVERAGE MATURITY. The following chart shows how fund managers
would calculate the weighted average maturity for a fund that owned only two
debt securities.
Amount of Percent of Remaining Weighted
Security Owned Portfolio Maturity Maturity
---------------------------------------------------------------------------------------------
Debt Security A $100,000 25% 1,000 days 250 days
---------------------------------------------------------------------------------------------
Debt Security B $300,000 75% 10,000 days 7,500 days
---------------------------------------------------------------------------------------------
WEIGHTED AVERAGE MATURITY 7,750 days
TYPES OF RISK
The basic types of risk the funds face are described below.
INTEREST RATE RISK
Generally, interest rates and the prices of debt securities move in opposite
directions. When interest rates fall, the prices of most debt securities rise;
when interest rates rise, prices fall. Because the funds invest primarily in
debt securities, changes in interest rates will affect the funds' performance.
This sensitivity to interest rate changes is called interest rate risk.
The degree to which interest rate changes affect a fund's performance varies and
is related to the weighted average maturity of a particular fund. For example,
when interest rates rise, you can expect the share value of a long-term bond
fund to fall more than that of a short-term bond fund. When rates fall, the
opposite is true.
[sidebar]
[graphic of hand pointing index finger]
The longer a fund's weighted average maturity, the more sensitive it is to
interest rate changes.
WEIGHTED AVERAGE MATURITY is a tool the fund managers use to approximate the
remaining term to maturity of a fund's investment portfolio.
[end of sidebar]
www.americancentury.com American Century Investments 7
When interest rates change, longer maturity bonds generally experience a greater
change in price. The following table shows the likely effect of a 1% increase in
interest rates on the price of 7% coupon bonds of differing maturities:
Remaining Maturity Current Price Price After 1% Increase Change in Price
----------------------------------------------------------------------------------------
1 year $100.00 $99.06 -0.94%
----------------------------------------------------------------------------------------
3 years $100.00 $97.38 -2.62%
----------------------------------------------------------------------------------------
10 years $100.00 $93.20 -6.80%
----------------------------------------------------------------------------------------
30 years $100.00 $88.69 -11.31%
CREDIT RISK
Credit risk is the risk that an obligation won't be paid and a loss will result.
A high credit rating indicates a high degree of confidence by the rating
organization that the issuer will be able to withstand adverse business,
financial or economic conditions, and be able to make interest and principal
payments on time. Generally, a lower credit rating indicates a greater risk of
non-payment. A lower rating also may indicate that the issuer has a more senior
series of debt securities, which means that if the issuer has difficulties
making its payments, the more senior series of debt is first in line for
payment.
The fund managers do not invest solely on the basis of a security's credit
rating; they also consider other factors, including potential returns. Higher
credit ratings usually mean lower interest rate payments, so investors often
purchase securities that aren't the highest rated to increase return. If a fund
purchases lower-rated securities, it assumes additional credit risk.
The following chart provides a general illustration of the authorized credit
quality ranges for the funds offered by this Prospectus. Although the chart only
reflects securities ratings provided by Moody's and Standard & Poor's, the
funds may also rely on comparable ratings provided by other nationally
recognized securities rating organizations.
[data for chart below]
---------------------------------
QUALITY
---------------------------------
HIGH QUALITY
--------------------
A-1 A-2
P-1 P-2
MIG-1 MIG-2
SP-1 SP-2
AAA AA A BBB BB B CCC CC C D
------------------------------------------------------------------------------------------
Premium Government
Reserve X
------------------------------------------------------------------------------------------
Premium Capital
Reserve X X
------------------------------------------------------------------------------------------
Premium Bond X X X X X
-------------------------------------------------- --------------------------------------
INVESTMENT GRADE NON-INVESTMENT GRADE
-------------------------------------------------- --------------------------------------
Securities rated in one of the highest two categories by a nationally recognized
securities rating organization are considered "high quality." Although
they are considered high quality, an investment in these securities still
involves some credit risk because a AAA rating is not a guarantee of payment.
For a complete description of the ratings system and an explanation of certain
exceptions to the guidelines reflected in the chart, see the Statement of
Additional Information. The funds' credit quality restrictions apply at the time
of purchase; the fund will not necessarily sell securities if they are
downgraded by a rating agency.
LIQUIDITY RISK
Debt securities can become difficult to sell, or less liquid, for a variety of
reasons, such as lack of an active trading market. The chance that a fund will
have liquidity issues is called liquidity risk.
[sidebar]
[graphic of hand pointing index finger]
Credit quality may be lower when the issuer has any of the following
* a high debt level
* a short operating history
* a senior level of debt
* a difficult, competitive environment
* a less stable cash flow
[graphic of hand pointing index finger]
The Statement of Additional Information provides a detailed description of these
securities' ratings.
[end of sidebar]
8 American Century Investments 1-800-345-2021
MANAGEMENT
WHO MANAGES THE FUNDS?
The Board of Directors, investment advisor and fund management team play key
roles in the management of the funds.
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Directors does not manage the funds, it has hired an investment advisor to do
so. More than two-thirds of the directors are independent of the funds' advisor;
that is, they are not employed by and have no financial interest in the advisor.
THE INVESTMENT ADVISOR
The funds' investment advisor is American Century Investment Management, Inc.
The advisor has been managing mutual funds since 1958 and is headquartered at
4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the funds
and directing the purchase and sale of their investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the funds to operate.
For the services it provided to the funds during the most recent fiscal year,
the advisor received a unified management fee based on a percentage of the
average net assets of the Investor Class shares of each fund. The amount of the
management fee for a fund is calculated on a class-by-class basis daily and paid
monthly.
Out of that fee, the advisor paid all expenses of managing and operating the
fund except brokerage expenses, taxes, interest, fees and expenses of the
independent directors (including legal counsel fees), and extraordinary
expenses. A portion of the management fee may be paid by the funds' advisor to
unaffiliated third parties that provide recordkeeping and administrative
services that would otherwise be performed by an affiliate of the advisor.
Management Fees Paid by the Fund to the Advisor as a Percentage of Average
Net Assets for the Most Recent Fiscal Year Ended March 31, 2000
--------------------------------------------------------------------------------
Premium Government Reserve 0.45%
--------------------------------------------------------------------------------
Premium Capital Reserve 0.45%
--------------------------------------------------------------------------------
Premium Bond 0.45%
www.americancentury.com American Century Investments 9
THE FUND MANAGEMENT TEAMS
The advisor uses teams of portfolio managers, assistant portfolio managers and
analysts to manage the funds. The teams meet regularly to review portfolio
holdings, and discuss purchase and sale activity. Team members buy and sell
securities for a fund as they see fit, guided by the fund's investment objective
and strategy.
The portfolio managers on the investment teams are identified below:
PREMIUM GOVERNMENT RESERVE
BETH BUNNELL HUNTER
Ms. Hunter, Portfolio Manager, has been a member of the team that manages
Premium Government Reserve since joining American Century in July 1999. Before
joining American Century, she worked for Calvert Asset Management Company as a
Portfolio Trading Analyst from 1994 to 1996 and as a Portfolio Manager from 1996
to June 1999. She has a bachelor of arts from the University of Washington.
PREMIUM CAPITAL RESERVE
JOHN F. WALSH
Mr. Walsh, Portfolio Manager, has been a member of the team that manages Premium
Capital Reserve since May 1997. He joined American Century in February 1996 as
an Investment Analyst. Prior to joining American Century, he served as an
Assistant Vice President and Analyst for First Interstate Bank, Los Angeles,
from July 1993 to January 1996. He has a bachelor's degree in marketing from
Loyola Marymount University and an MBA in finance from Creighton University.
PREMIUM BOND
JEFFREY L. HOUSTON
Mr. Houston, Vice President and Portfolio Manager, has been a member of the team
that manages Premium Bond since June 1995. He joined American Century as an
Investment Analyst in November 1990 and was promoted to Portfolio Manager in
1994. He has a bachelor of arts from the University of Delaware and an MPA from
Syracuse University. He is a Chartered Financial Analyst.
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the Statement of Additional
Information and the investment objectives of the funds may not be changed
without a shareholder vote. The Board of Directors may change any other policies
and investment strategies.
[sidebar]
[graphic of hand pointing index finger]
CODE OF ETHICS
American Century has a Code of Ethics designed to ensure that the interests of
fund shareholders come before the interests of the people who manage the funds.
Among other provisions, the Code of Ethics prohibits portfolio managers and
other investment personnel from buying securities in an initial public offering
or profiting from the purchase and sale of the same security within 60 calendar
days. In addition, the Code of Ethics requires portfolio managers and other
employees with access to information about the purchase or sale of securities by
the funds to obtain approval before executing permitted personal trades.
[end of sidebar]
10 American Century Investments 1-800-345-2021
INVESTING WITH AMERICAN CENTURY
SERVICES AUTOMATICALLY AVAILABLE TO YOU
You automatically will have access to the services listed below when you open
your account. If you do not want these services, see Conducting Business in
Writing.
CONDUCTING BUSINESS IN WRITING
If you prefer to conduct business in writing only, you can indicate this on the
account application. If you choose this option, you must provide written
instructions to invest, exchange and redeem. All account owners must sign
transaction instructions (with signatures guaranteed for redemptions in excess
of $100,000). If you want to add services later, you can complete an Investor
Service Options form.
WAYS TO MANAGE YOUR ACCOUNT
--------------------------------------------------------------------------------
BY TELEPHONE
Investor Relations
1-800-345-2021
Business, Not-For-Profit and
Employer-Sponsored
Retirement Plans
1-800-345-3533
Automated Information Line
1-800-345-8765
[graphic of telephone]
OPEN AN ACCOUNT
If you are a current investor, you can open an account by exchanging shares from
another American Century account.
EXCHANGE SHARES
Call or use our Automated Information Line if you have authorized us to accept
telephone instructions.
MAKE ADDITIONAL INVESTMENTS
Call or use our Automated Information Line if you have authorized us to invest
from your bank account.
SELL SHARES
Call a Service Representative.
--------------------------------------------------------------------------------
ONLINE
www.americancentury.com
[graphic of computer]
OPEN AN ACCOUNT
If you are a current investor, you can open an account by exchanging shares from
another American Century account.
EXCHANGE SHARES
Exchange shares from another American Century account.
MAKE ADDITIONAL INVESTMENTS
Make an additional investment into an established American Century account if
you have authorized us to invest from your bank account.
SELL SHARES
Not available.
--------------------------------------------------------------------------------
BY MAIL OR FAX
P.O. Box 419200
Kansas City, MO 64141-6200
Fax
816-340-7962
[graphic of envelope]
OPEN AN ACCOUNT
Send a signed, completed application and check or money order payable to
American Century Investments.
EXCHANGE SHARES
Send written instructions to exchange your shares from one American Century
account to another.
MAKE ADDITIONAL INVESTMENTS
Send your check or money order for at least $50 with an investment slip or $250
without an investment slip. If you don't have an investment slip, include your
name, address and account number on your check or money order.
SELL SHARES
Send written instructions or a redemption form to sell shares. Call a Service
Representative to request a form.
www.americancentury.com American Century Investments 11
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce expenses and demonstrate respect for our environment, we will deliver
a single copy of most financial reports and prospectuses to investors who share
an address, even if the accounts are registered under different names. If you
would like to receive separate mailings, please call us and we will begin
individual delivery within 30 days. If you'd like to reduce mailbox clutter even
more, visit www.americancentury.com and sign up to receive these documents by
email. In most cases, we also will deliver account statements for all the
investors in a household in a single envelope.
YOUR GUIDE TO SERVICES AND POLICIES
When you open an account, you will receive a services guide, which explains the
services available to you and the policies of the funds and the transfer agent.
--------------------------------------------------------------------------------
AUTOMATICALLY
[graphic of three arrows forming circle]
OPEN AN ACCOUNT
Not available.
EXCHANGE SHARES
Send written instructions to set up an automatic exchange of your shares from
one American Century account to another.
MAKE ADDITIONAL INVESTMENTS
With the automatic investment privilege, you can purchase shares on a regular
basis. You must invest at least $600 per year per account.
SELL SHARES
If you have at least $10,000 in your account, you may sell shares automatically
by establishing Check-A-Month or Automatic Redemption plans.
--------------------------------------------------------------------------------
BY WIRE
[graphic of hand pointing index finger]
Please remember, if you request redemptions by wire, $10 will be deducted from
the amount redeemed. Your bank also may charge a fee.
[graphic of fax machine]
OPEN AN ACCOUNT
Call to set up your account or mail a completed application to the address
provided in the "By mail" section. Give your bank the following
information to wire money.
* Our bank information
Commerce Bank N.A.
Routing No. 101000019
Account No. 2804918
* The fund name
* Your American Century account number*
* Your name
* The contribution year (for IRAs only)
*For additional investments only
MAKE ADDITIONAL INVESTMENTS
Follow the wire instructions.
SELL SHARES
You can receive redemption proceeds by wire or electronic transfer.
EXCHANGE SHARES
Not available.
--------------------------------------------------------------------------------
IN PERSON
If you prefer to handle your transactions in person, visit one of our Investor
Centers and a representative can help you open an account, make additional
investments, and sell or exchange shares.
4500 Main St. 4917 Town Center Drive
Kansas City, Missouri Leawood, Kansas
8 a.m. to 5:30 p.m., Monday - Friday 8 a.m. to 6 p.m., Monday - Friday
8 a.m. to noon, Saturday
1665 Charleston Road 9445 East County Line Road, Suite A
Mountain View, California Englewood, Colorado
8 a.m. to 5 p.m., Monday - Friday 8 a.m. to 6 p.m., Monday - Friday
8 a.m. to noon, Saturday
12 American Century Investments 1-800-345-2021
MINIMUM INITIAL INVESTMENT AMOUNTS
To open an account, the minimum investments are:
--------------------------------------------------------------------------------
Individual or Joint $100,000
--------------------------------------------------------------------------------
Traditional IRA $100,000
--------------------------------------------------------------------------------
Roth IRA $100,000
--------------------------------------------------------------------------------
UGMA/UTMA $100,000
--------------------------------------------------------------------------------
403(b) $100,000
--------------------------------------------------------------------------------
Qualified Retirement Plan $100,000
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
If your redemption activity causes your account balance to fall below the
minimum initial investment amount, we will notify you and give you 90 days to
meet the minimum. If you do not meet the deadline, American Century will redeem
the shares in the account and send the proceeds to your address of record.
MODIFYING OR CANCELING AN INVESTMENT
Investment instructions are irrevocable. That means that once you have mailed or
otherwise transmitted your investment instruction, you may not modify or cancel
it. Each fund reserves the right to suspend the offering of shares for a period
of time, and each fund reserves the right to reject any specific purchase order
(including purchases by exchange or conversion). Additionally, we may refuse a
purchase if, in our judgment, it is of a size that would disrupt the management
of a fund.
ABUSIVE TRADING PRACTICES
We do not permit market timing or other abusive trading practices in our funds.
Excessive, short-term (market timing) or other abusive trading practices may
disrupt portfolio management strategies and harm fund performance. To minimize
harm to the funds and their shareholders, we reserve the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading or whose trading, in our judgment, has been or may be
disruptive to a fund. In making this judgment, we may consider trading done in
multiple accounts under common ownership or control. We also reserve the right
to delay delivery of your redemption proceeds--up to seven days--or to honor
certain redemptions with securities, rather than cash, as described in the next
section.
www.americancentury.com American Century Investments 13
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the assets of the fund if that percentage is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of in cash. These
securities would be selected from the fund's portfolio by the fund managers. A
payment in securities can help the fund's remaining shareholders avoid tax
liabilities that they might otherwise have incurred had the fund sold securities
prematurely to pay the entire redemption amount in cash.
We will value these securities in the same manner as we do in computing the
fund's net asset value. We may provide these securities in lieu of cash without
prior notice. Also, if payment is made in securities, a shareholder may have to
pay brokerage or other transaction costs to convert the securities to cash.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on the fund and its remaining shareholders.
INVESTING THROUGH FINANCIAL INTERMEDIARIES
If you do business with us through a financial intermediary or a retirement
plan, your ability to purchase, exchange and redeem shares will depend on the
policies of that entity. Some policy differences may include
* minimum investment requirements
* exchange policies
* fund choices
* cutoff time for investments
Please contact your financial intermediary or plan sponsor for a complete
description of its policies. Copies of the funds' annual reports, semiannual
reports and Statement of Additional Information are available from your
intermediary or plan sponsor.
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, American Century will pay the
service provider a fee for performing those services.
Although fund share transactions may be made directly with American Century at
no charge, you also may purchase, redeem and exchange fund shares through
financial intermediaries that charge a transaction-based or other fee for their
services. Those charges are retained by the intermediary and are not shared with
American Century or the funds.
American Century has contracts with certain financial intermediaries requiring
them to track the time investment orders are received and to comply with
procedures relating to the transmission of orders. The funds have authorized
these intermediaries to accept orders on each fund's behalf up to the time at
which the net asset value is determined. If those orders are transmitted to
American Century and paid for in accordance with the contract, they will be
priced at the net asset value next determined after your request is received in
the form required by the intermediary on a fund's behalf.
[sidebar]
[graphic of hand pointing index finger]
Financial intermediaries include banks, broker-dealers, insurance companies and
investment advisors.
[end of sidebar]
14 American Century Investments 1-800-345-2021
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century determines the NET ASSET VALUE (NAV) of the funds as of the
close of regular trading on the New York Stock Exchange (usually 4 p.m. Eastern
time) each day the Exchange is open. On days when the Exchange is not open
(including certain U.S. holidays), we do not calculate the NAV. The NAV of a
fund share is the current value of the fund's assets, minus any liabilities,
divided by the number of fund shares outstanding.
The portfolio securities of the money market funds are valued at amortized cost.
This means that the securities are initially valued at their cost when
purchased. After the initial purchase, the difference between the purchase price
and the known value at maturity will be reduced at a constant rate until
maturity. This valuation will be used regardless of the impact of interest rates
on the market value of the security. The Board has adopted procedures to ensure
that this type of pricing is fair to the funds' shareholders.
If current market prices of securities owned by Premium Bond are not readily
available from an independent pricing service, the advisor may determine their
fair value in accordance with procedures adopted by the fund's Board of
Directors.
We will price your purchase, exchange or redemption at the NAV next determined
after we receive your transaction request in good order.
DISTRIBUTIONS
Federal tax laws require each fund to make distributions to its shareholders in
order to qualify as a regulated investment company. Qualification as a regulated
investment company means that the funds will not be subject to state or federal
income tax on amounts distributed. The distributions generally consist of
dividends and interest received by a fund, as well as CAPITAL GAINS realized on
the sale of investment securities. The funds declare distributions from net
income daily and pay these distributions monthly. Premium Government Reserve and
Premium Capital Reserve declare and pay distributions of net realized capital
gains, if any, in the same manner as income distributions. Premium Bond
generally pays distributions of capital gains, if any, once a year in December.
A fund may make more frequent distributions if necessary to comply with Internal
Revenue Code provisions.
You will participate in fund distributions, when they are declared, starting the
day after your purchase is effective. For example, if you purchase shares on a
day a distribution is declared, you will not receive that distribution. If you
redeem shares, you will receive any distribution declared on the day you redeem.
If you redeem all shares, we will include any distributions received with your
redemption proceeds.
Participants in employer-sponsored retirement or savings plans must reinvest all
distributions. For investors investing through taxable accounts, we will
reinvest distributions unless you elect to receive them in cash. Please consult
your services guide for further information about distributions and your options
for receiving them.
[side bar]
A fund's NET ASSET VALUE, or NAV, is the price of the fund's shares.
CAPITAL GAINS are increases in the values of capital assets, such as stock, from
the time the assets are purchased.
[end of sidebar]
www.americancentury.com American Century Investments 15
TAXES
The tax consequences of owning shares of the funds will vary depending on
whether you own them through a taxable or tax-deferred account. Tax consequences
result from distributions by the funds of dividend and interest income they have
received or capital gains they have generated through their investment
activities. Tax consequences also result from sales of fund shares by investors
after the net asset value has increased or decreased.
TAX-DEFERRED ACCOUNTS
If you purchase fund shares through a tax-deferred account, such as an IRA or a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions usually will not be subject to current taxation but will
accumulate in your account under the plan on a tax-deferred basis. Likewise,
moving from one fund to another fund within a plan or tax-deferred account
generally will not cause you to be taxed. For information about the tax
consequences of making purchases or withdrawals through a tax-deferred account,
please consult your plan administrator, your summary plan description or a tax
advisor.
TAXABLE ACCOUNTS
If you own fund shares through a taxable account, distributions by the fund and
your sales of fund shares may cause you to be taxed on your investment.
TAXABILITY OF DISTRIBUTIONS
Fund distributions may consist of income earned by the fund from sources such as
dividends and interest, or capital gains generated from the sale of fund
investments. Distributions of income are taxed as ordinary income. Distributions
of capital gains are classified either as short term or long term and are taxed
as follows:
Type of Distribution Tax Rate for 15% Bracket Tax Rate for 28% Bracket
or
Above
--------------------------------------------------------------------------------
Short-term capital gains Ordinary income rate Ordinary income rate
--------------------------------------------------------------------------------
Long-term capital gains 10% 20%
The tax status of any distributions of capital gains is determined by how long
the fund held the underlying security that was sold, not by how long you have
been invested in the fund, or whether you reinvest your distributions in
additional shares or take them in cash. For taxable accounts, American Century
will inform you of the tax status of fund distributions for each calendar year
in an annual tax mailing (Form 1099-DIV).
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, you may want to consult your tax professional about
federal, state and local tax consequences.
TAXES ON TRANSACTIONS
Your redemptions--including exchanges to other American Century funds--are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. However, you should note that loss realized upon the
sale or exchange of shares held for six months or less will be treated as a
long-term capital loss to the extent of any distribution of long-term capital
gain to you with respect to those shares. If a loss is realized on the
redemption of fund shares, the reinvestment in additional fund shares within 30
days before or after the redemption may be subject to the wash sale rules of the
Internal Revenue Code. This may result in a postponement of the recognition of
such loss for federal income tax purposes.
If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to 31%
withholding, we are required to withhold and pay 31% of dividends distributions,
capital gains distributions and redemptions to the IRS.
[sidebar]
[graphic of hand pointing index finger]
BUYING A DIVIDEND
Purchasing fund shares in a taxable account shortly before a distribution is
sometimes known as buying a dividend. In taxable accounts, you must pay income
taxes on the distribution whether you reinvest the distribution or take it in
cash. In addition, you will have to pay taxes on the distribution whether the
value of your investment decreased, increased or remained the same after you
bought the fund shares.
The risk in buying a dividend is that a fund's portfolio may build up taxable
gains throughout the period covered by a distribution, as securities are sold at
a profit. The funds distribute those gains to you, after subtracting any losses,
even if you did not own the shares when the gains occurred.
If you buy a dividend, you incur the full tax liability of the distribution
period, but you may not enjoy the full benefit of the gains realized in the
fund's portfolio.
[end of sidebar]
16 American Century Investments 1-800-345-2021
FINANCIAL HIGHLIGHTS
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The tables on the next few pages itemize what contributed to the changes in
share price during the most recently ended fiscal year. They also show the
changes in share price for this period in comparison to changes over the last
five fiscal years.
On a per-share basis, each table includes as appropriate
* share price at the beginning of the period
* investment income and capital gains or losses
* distributions of income and capital gains paid to investors
* share price at the end of the period
Each table also includes some key statistics for the period as appropriate
* TOTAL RETURN - the overall percentage of return of the fund, assuming the
reinvestment of all distributions
* EXPENSE RATIO - the operating expenses as a percentage of average net assets
* NET INCOME RATIO - the net investment income as a percentage of average net
assets
* PORTFOLIO TURNOVER - the percentage of the fund's buying and selling
activity
The Financial Highlights have been audited by Deloitte & Touche LLP,
independent auditors. Their Independent Auditors' Reports are included in the
funds' annual reports for the year ended March 31, 2000, which are incorporated
by reference into the Statement of Additional Information, and are available
upon request.
www.americancentury.com American Century Investments 17
PREMIUM GOVERNMENT RESERVE FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
PER-SHARE DATA
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period .................. $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------
Income From Investment Operations
Net Investment Income ............................... 0.05 0.05 0.05 0.05 0.05
------------------------------------------------------------
Distributions
From Net Investment Income .......................... (0.05) (0.05) (0.05) (0.05) (0.05)
------------------------------------------------------------
Net Asset Value, End of Period ........................ $1.00 $1.00 $1.00 $1.00 $1.00
============================================================
TOTAL RETURN(1) ..................................... 5.03% 4.98% 5.25% 5.07% 5.49%
RATIOS/SUPPLEMENTAL DATA
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ..... 0.45% 0.45% 0.45% 0.45% 0.44%
Ratio of Net Investment Income to Average Net Assets .. 4.89% 4.82% 5.13% 4.96% 5.30%
Net Assets, End of Period (in thousands) .............. $79,409 $121,294 $44,495 $38,838 $26,191
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
18 American Century Investments 1-800-345-2021
PREMIUM CAPITAL RESERVE FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
PER-SHARE DATA
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period .................. $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------
Income From Investment Operations
Net Investment Income ............................... 0.05 0.05 0.05 0.05 0.05
------------------------------------------------------------
Distributions
From Net Investment Income .......................... (0.05) (0.05) (0.05) (0.05) (0.05)
------------------------------------------------------------
Net Asset Value, End of Period ........................ $1.00 $1.00 $1.00 $1.00 $1.00
============================================================
TOTAL RETURN(1) ..................................... 5.18% 5.14% 5.38% 5.13% 5.58%
RATIOS/SUPPLEMENTAL DATA
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ..... 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of Net Investment Income to Average Net Assets .. 5.09% 4.99% 5.26% 5.01% 5.50%
Net Assets, End of Period (in thousands) .............. $378,719 $276,048 $182,487 $153,958 $133,417
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
www.americancentury.com American Century Investments 19
PREMIUM BOND FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
PER-SHARE DATA
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ...................... $10.10 $10.15 $9.76 $9.93 $9.46
------------------------------------------------------------
Income From Investment Operations
Net Investment Income ................................... 0.61 0.59 0.61 0.61 0.61
Net Realized and Unrealized Gain (Loss) on Investments .. (0.48) -- 0.45 (0.17) 0.47
------------------------------------------------------------
Total From Investment Operations ........................ 0.13 0.59 1.06 0.44 1.08
------------------------------------------------------------
Distributions
From Net Investment Income .............................. (0.61) (0.59) (0.61) (0.61) (0.61)
From Net Realized Gains ................................. -- (0.05) (0.06) -- --
In Excess of Net Realized Gains ......................... --(1) -- -- -- --
------------------------------------------------------------
Total Distributions ..................................... (0.61) (0.64) (0.67) (0.61) (0.61)
------------------------------------------------------------
Net Asset Value, End of Period ............................ $9.62 $10.10 $10.15 $9.76 $9.93
============================================================
TOTAL RETURN(2) ......................................... 1.30% 5.88% 11.14% 4.57% 11.53%
RATIOS/SUPPLEMENTAL DATA
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ......... 0.45% 0.45% 0.45% 0.45% 0.43%
Ratio of Net Investment Income to Average Net Assets ...... 6.15% 5.70% 6.06% 6.20% 6.08%
Portfolio Turnover ........................................ 64% 71% 138% 63% 92%
Net Assets, End of Period (in thousands) .................. $103,192 $105,284 $65,171 $21,750 $20,280
(1) Per-share amount was less than $0.005.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
20 American Century Investments 1-800-345-2021
NOTES
www.americancentury.com American Century Investments 21
[back cover]
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
ANNUAL AND SEMIANNUAL REPORTS
Annual and semiannual reports contain more information about the funds'
investments and the market conditions and investment strategies that
significantly affected the funds' performance during the most recent fiscal
period.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains a more detailed, legal description of the funds' operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this Prospectus. This means that it is legally part of this
Prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the funds or your accounts, by contacting American Century at
the address or telephone numbers listed below.
You also can get information about the funds (including the SAI) from the
Securities and Exchange Commission (SEC). The SEC charges a duplicating fee to
provide copies of this information.
In person SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for location and hours.
On the Internet * EDGAR database at www.sec.gov
* By email request at [email protected]
By mail SEC Public Reference Section
Washington, D.C. 20549-0102
Investment Company Act File No. 811-7446
[american century logo(reg.sm)]
American
Century
AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021 or 816-531-5575
0008
SH-PRS-20896
[front cover]
AMERICAN CENTURY
statement of
additional information
Premium Government Reserve Fund
Premium Capital Reserve Fund
Premium Bond Fund
[american century logo(reg.sm)]
American
Century
[sidebar]
August 1, 2000
American Century Premium Reserves, Inc.
THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE FUNDS'
PROSPECTUS, DATED AUGUST 1, 2000, BUT IS NOT A PROSPECTUS. THE STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FUNDS'
CURRENT PROSPECTUS. IF YOU WOULD LIKE A COPY OF THE PROSPECTUS, PLEASE CONTACT
US AT THE ADDRESS OR TELEPHONE NUMBERS LISTED ON THE BACK
COVER OR VISIT AMERICAN CENTURY'S WEB SITE AT
WWW.AMERICANCENTURY.COM.
THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE CERTAIN
INFORMATION THAT APPEARS IN THE FUNDS' ANNUAL AND SEMIANNUAL REPORTS, WHICH
ARE DELIVERED TO ALL SHAREHOLDERS. YOU MAY OBTAIN A FREE COPY OF THE FUNDS'
ANNUAL OR SEMIANNUAL REPORTS BY CALLING 1-800-345-2021.
Funds Distributor, Inc. and
American Century Investment
Services, Inc., Distributors
[end sidebar]
TABLE OF CONTENTS
The Funds' History ........................................................ 2
Fund Investment Guidelines ................................................ 2
Premium Government Reserve ........................................... 3
Premium Capital Reserve .............................................. 3
Premium Bond ......................................................... 4
Detailed Information About the Funds ...................................... 6
Investment Strategies and Risks ...................................... 6
Investment Policies .................................................. 16
Portfolio Turnover ................................................... 18
Temporary Defensive Measures ......................................... 19
Management ................................................................ 19
The Board of Directors ............................................... 19
Officers ............................................................. 22
The Funds' Principal Shareholders ......................................... 23
Code of Ethics ....................................................... 24
Service Providers ......................................................... 24
Investment Advisor ................................................... 24
Transfer Agent and Administrator ..................................... 25
Distributors ......................................................... 26
Other Service Providers ................................................... 26
Custodian Banks ...................................................... 26
Independent Auditors ................................................. 26
Brokerage Allocation ...................................................... 26
Information About Fund Shares ............................................. 26
Buying and Selling Fund Shares ....................................... 27
Valuation of a Fund's Securities ..................................... 27
Taxes ..................................................................... 29
Federal Income Tax ................................................... 29
State and Local Income Taxes ......................................... 30
How Fund Performance Information Is Calculated ............................ 30
Performance Comparisons .............................................. 32
Permissible Advertising Information .................................. 32
Financial Statements ...................................................... 32
Explanation of Fixed-Income Securities Ratings ............................ 33
www.americancentury.com American Century Investments 1
THE FUNDS' HISTORY
American Century Premium Reserves, Inc. is a registered open-end management
investment company that was organized as a Maryland corporation in January 1993.
Throughout this Statement of Additional Information we refer to American Century
Premium Reserves, Inc. as the corporation.
Each fund described in this Statement of Additional Information is a separate
series of the corporation and operates for many purposes as if it were an
independent company. Each fund has its own investment objective, strategy,
management team, assets, tax identification and stock registration numbers.
Fund Inception Date Ticker Symbol
--------------------------------------------------------------------------------
Premium Government Reserve 4/1/1993 TWPXX
--------------------------------------------------------------------------------
Premium Capital Reserve 4/1/1993 TCRXX
--------------------------------------------------------------------------------
Premium Bond 4/1/1993 ACBPX
--------------------------------------------------------------------------------
FUND INVESTMENT GUIDELINES
This section explains the extent to which the funds' advisor, American Century
Investment Management, Inc., can use various investment vehicles and strategies
in managing a fund's assets. Descriptions of the investment techniques and risks
associated with each appear in the section, Investment Strategies and Risks,
which begins on page 6. In the case of the funds' principal investment
strategies, these descriptions elaborate upon discussions contained in the
Prospectus.
Each fund is a diversified, open-end investment company as defined in the
Investment Company Act of 1940 (the Investment Company Act). Diversified means
that, with respect to 75% of its total assets, the fund will not invest more
than 5% of its total assets in the securities of a single issuer or own more
than 10% of the outstanding voting securities of a single issuer (other than the
U.S. government).
Premium Government Reserve and Premium Capital Reserve each operate pursuant to
Rule 2a-7 under the Investment Company Act. That rule provides regulatory
guidelines on quality and maturity for the funds' investments, which are
designed to help maintain a stable $1.00 share price. In particular, Premium
Government Reserve and Premium Capital Reserve: (1) buy only U.S.
dollar-denominated obligations with remaining maturities of 397 days or less
(and variable- and floating-rate obligations with demand features that
effectively shorten their maturities to 397 days or less); (2) maintain a
dollar-weighted average portfolio maturity of 90 days or less; and (3) restrict
their investments to high-quality obligations determined by the advisor to
present minimal credit risks, pursuant to guidelines established by the Board of
Directors.
To be considered high-quality, an obligation must be one of the following: (1) a
U.S. government obligation; (2) rated within the two highest rating categories
for short-term debt obligations by at least two nationally recognized
statistical rating organizations (or one if only one has rated the obligation);
or (3) issued by an issuer rated within the two highest rating categories with
respect to a class of short-term debt obligations; or (4) an unrated obligation
judged by the advisor, pursuant to guidelines established by the Board of
Directors, to be of comparable quality.
In addition, Rule 2a-7 permits the valuation of money market portfolio
securities on the basis of amortized cost. To rely on the rule, Premium
Government Reserve and Premium Capital Reserve must be diversified with regard
to 100% of their assets other than U.S. government securities. This operating
policy is more restrictive than the Investment Company Act, which requires a
diversified investment company to be diversified with regard to only 75% of its
assets.
2 American Century Investments 1-800-345-2021
To meet federal tax requirements for qualification as a regulated investment
company, each fund must limit its investments so that at the close of each
quarter of its taxable year, (1) no more than 25% of its total assets are
invested in the securities of a single issuer (other than the U.S. government or
a regulated investment company); and (2) with respect to at least 50% of its
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer.
In general, within the restrictions outlined here and in the funds' Prospectus,
the fund managers have broad powers to decide how to invest fund assets,
including the power to hold them uninvested.
Investments are varied according to what is judged advantageous under changing
economic conditions. It is the advisor's policy to retain maximum flexibility in
management without restrictive provisions as to the proportion of one or another
class of securities that may be held, subject to the investment restrictions
described below. Subject to the specific limitations applicable to a fund, the
funds' management teams may invest the assets of each fund in varying amounts in
other instruments, such as those reflected in Table 1 on page 6, when such a
course is deemed appropriate in order to attempt to attain a fund's investment
objective.
PREMIUM GOVERNMENT RESERVE
Premium Government Reserve will invest substantially all of its assets in a
portfolio of U.S. dollar-denominated securities issued or guaranteed by the U.S.
government and its agencies and instrumentalities. Specifically, it may invest
in (1) direct obligations of the United States, such as Treasury bills, notes
and bonds, which are supported by the full faith and credit of the United
States; and (2) obligations (including mortgage-related securities) issued or
guaranteed by agencies and instrumentalities of the U.S. government. These
agencies and instrumentalities may include, but are not limited to, the
Government National Mortgage Association, Federal National Mortgage Association,
Federal Home Loan Mortgage Corporation, Student Loan Marketing Association,
Federal Farm Credit Banks, Federal Home Loan Banks and Resolution Funding
Corporation. The securities of some of these agencies and instrumentalities,
such as the Government National Mortgage Association, are guaranteed as to
principal and interest by the U.S. Treasury, and other securities are supported
by the right of the issuer, such as the Federal Home Loan Banks, to borrow from
the Treasury. Other obligations, including those issued by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation, are
supported only by the credit of the instrumentality.
Premium Government Reserve will invest in mortgage-related securities only if
they have a stated final maturity of 397 days or less.
PREMIUM CAPITAL RESERVE
Premium Capital Reserve will invest substantially all of its assets in a
diversified portfolio of U.S. dollar-denominated money market instruments.
Specifically, it may invest in the following:
(1) Securities issued or guaranteed by the U.S. government and its agencies and
instrumentalities, as described under Premium Government Reserve, above.
(2) Commercial paper.
(3) Short-term corporate debt obligations (including fixed- and variable-rate
notes and bonds).
(4) Negotiable certificates of deposit, bankers' acceptances and time deposit
obligations of U.S. banks, foreign branches of U.S. banks (Eurodollars),
U.S. branches and agencies of foreign banks (Yankee dollars), and foreign
branches of foreign banks.
www.americancentury.com American Century Investments 3
With the exception of the obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks, which are limited to 25% of net assets, these classes
of securities may be held in any proportion, and such proportion may vary as
market conditions change.
All portfolio holdings are limited to those that at the time of purchase have
received a rating from two nationally recognized statistical ratings
organizations, or if rated by only one agency, from that one, in one of their
two highest short-term categories (including any subcategories or gradations
indicating relative standing), or if they have no short-term rating are of
comparable quality to such a rated security, as determined or ratified by the
fund's Board of Directors.
PREMIUM BOND
Premium Bond seeks a high level of income from investment in debt securities.
Under normal market conditions, at least 65% of Premium Bond's assets will be
invested in non-money market debt securities. The balance of the fund's assets
will be invested in shorter-term debt securities.
There are no maturity restrictions on the individual securities in which Premium
Bond may invest, but the weighted average maturity and the weighted average
adjusted duration of the fund's portfolio must be 3.5 years or greater. Adjusted
duration, which is an indication of the relative sensitivity of a security's
market value to changes in interest rates, is based upon the aggregate of the
present value of all principal and interest payments to be received, discounted
at the current market rate of interest, and expressed in years.
Adjusted duration is different from dollar-weighted average portfolio maturity
in that it attempts to measure the interest rate sensitivity of a security, as
opposed to its expected final maturity. Further, the adjusted duration of a
portfolio will change in response to a change in interest rates, whereas average
maturity may not. Duration is generally shorter than remaining time to final
maturity because it gives weight to periodic interest payments, as well as the
payment of principal at maturity. The longer the duration of a portfolio, the
more sensitive its market value is to interest rate fluctuation. However, due to
factors other than interest rate changes that affect the price of a specific
security, there generally is not an exact correlation between the price
volatility of a security indicated by adjusted duration and the actual price
volatility of a security.
Subject to the aggregate portfolio maturity and duration minimums, the manager
will actively manage the portfolio, adjusting the weighted average portfolio
maturity in response to expected changes in interest rates.
During periods of rising interest rates, a shorter weighted average maturity may
be adopted in order to reduce the effect of bond price declines on the fund's
net asset value. When interest rates are falling and bond prices rising, a
longer weighted average portfolio maturity may be adopted.
To achieve its objective, Premium Bond may invest in a diversified portfolio of
high- and medium-grade debt securities payable in both U.S. and foreign
currencies. The fund may invest in securities that at the time of purchase are
rated by a nationally recognized statistical rating organization, such as
Moody's Investor Services (Moody's) and Standard & Poor's Corporation
(S&P), as follows:
4 American Century Investments 1-800-345-2021
EXAMPLES OF MINIMUM RATINGS
--------------------------------------------------------------------------------
Type of Security General Credit Limit Moody's S&P
--------------------------------------------------------------------------------
Short-term notes two highest categories MIG-2 SP-2
--------------------------------------------------------------------------------
Corporate, sovereign
and municipal bonds five highest categories Ba BB
--------------------------------------------------------------------------------
Other types two highest categories P-2 A-2
--------------------------------------------------------------------------------
The fund also may invest in unrated securities if the manager determines that
they are of equivalent credit quality.
Corporate, sovereign and municipal bonds the fund may buy include securities
known as "medium-grade securities." Medium-grade securities are those
rated in the fifth- and sixth-highest ratings categories. Medium-grade
securities are somewhat speculative. Adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal by issuers of fourth-category-rated securities (Moody's Baa,
S&P's BBB) than more highly rated securities. This sensitivity and exposure
to adverse or changing economic conditions is heightened in fifth-category-rated
(Moody's Ba, S&P's BB) securities. The fund may not invest more than 15% of
its total assets in securities rated Ba or BB (or their equivalent).
Premium Bond may invest in U.S. government and government agency securities as
described under Premium Government Reserve, page 3.
Mortgage-related securities in which the funds may invest include collateralized
mortgage obligations (CMOs) issued by a U.S. agency or instrumentality. A CMO is
a debt security that is collateralized by a portfolio or pool of mortgages or
mortgage-backed securities. The issuer's obligation to make interest and
principal payments is secured by the underlying pool or portfolio of mortgages
or securities.
The market value of mortgage-related securities, even those in which the
underlying pool of mortgage loans is guaranteed as to the payment of principal
and interest by the U.S. government, is not insured. When interest rates rise,
the market value of those securities may decrease in the same manner as other
debt, but when interest rates decline, their market value may not increase as
much as other debt instruments because of the prepayment feature inherent in the
underlying mortgages. If such securities are purchased at a premium, the fund
will suffer a loss if the obligation is prepaid. Prepayments will be reinvested
at prevailing rates, which may be less than the rate paid by the prepaid
obligation.
For the purpose of determining the weighted average portfolio maturity of the
funds, the managers shall consider the maturity of a mortgage-related security
to be the remaining expected average life of the security. The average life of
such securities is likely to be substantially less than the original maturity as
a result of prepayments of principal on the underlying mortgages, especially in
a declining interest rate environment. In determining the remaining expected
average life, the managers make assumptions regarding repayments on underlying
mortgages. In a rising interest rate environment, those prepayments generally
decrease, and may decrease below the rate of prepayment assumed by the managers
when purchasing those securities. Such slowdown may cause the remaining maturity
of those securities to lengthen, which will increase the relative volatility of
those securities and, hence, the fund holding the securities. See Basics of
Fixed-Income Investing, in the funds' Prospectus.
The following table identifies some of the investments and techniques the funds'
managers may use. A percentage is listed for those investments and techniques
that have a limitation on the amount of a fund's assets that can be invested in
that way.
www.americancentury.com American Century Investments 5
TABLE 1
--------------------------------------------------------------------------------------------------------
Premium Premium
Government Reserve Capital Reserve Premium Bond
--------------------------------------------------------------------------------------------------------
Commercial Paper X X
--------------------------------------------------------------------------------------------------------
Bank Obligations X X
--------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X
--------------------------------------------------------------------------------------------------------
U.S. Dollar-Denominated
Foreign Securities X X
--------------------------------------------------------------------------------------------------------
Non-U.S. Dollar-Denominated
Foreign Securities X
--------------------------------------------------------------------------------------------------------
Variable- and Floating-Rate
Instruments X X X
--------------------------------------------------------------------------------------------------------
Loan Participations X X
--------------------------------------------------------------------------------------------------------
Short Sales X X X
--------------------------------------------------------------------------------------------------------
Portfolio Lending 33-1/3% 33-1/3% 33-1/3%
--------------------------------------------------------------------------------------------------------
Derivative Securities X X X
--------------------------------------------------------------------------------------------------------
Investments in Companies with
Limited Operating Histories 5% 5%
--------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X
--------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X
--------------------------------------------------------------------------------------------------------
When-Issued and Forward-
Commitment Agreements X X X
--------------------------------------------------------------------------------------------------------
Restricted and Illiquid Securities 10% 10% 15%
--------------------------------------------------------------------------------------------------------
Futures & Options X
--------------------------------------------------------------------------------------------------------
Forward Currency
Exchange Contracts X
--------------------------------------------------------------------------------------------------------
DETAILED INFORMATION ABOUT THE FUNDS
INVESTMENT STRATEGIES AND RISKS
This section describes various investment vehicles and techniques that the fund
managers can use in managing a fund's assets. It also details the risks
associated with each, because each technique contributes to a fund's overall
risk profile. To determine whether a fund may invest in a particular investment
vehicle, consult Table 1.
COMMERCIAL PAPER
Commercial paper (CP) is issued by utility, financial, and industrial companies
and supranational organizations. Nationally recognized statistical rating
organizations (rating agencies) assign ratings to CP issuers indicating the
agencies' assessment of credit risk. Investment-grade CP ratings assigned by
four rating agencies are provided in the following table.
Moody's Investor Standard Duff & Fitch Investor
Service, Inc. & Poor's Phelps, Inc. Services, Inc.
--------------------------------------------------------------------------------------
Highest Ratings Prime-1 A-1/A-1+ D-1/D-1+ F-1/F-1+
--------------------------------------------------------------------------------------
Prime-2 A-2 D-2 F-2
--------------------------------------------------------------------------------------
Prime-3 A-3 D-3 F-3
--------------------------------------------------------------------------------------
6 American Century Investments 1-800-345-2021
If an obligation has been assigned different ratings by multiple rating
agencies, at least two rating agencies must have assigned their highest rating
as indicated above in order for the advisor to determine that the obligation is
eligible for purchase by the fund or, if unrated, the obligation must be
determined to be of comparable quality by the advisor.
Some examples of CP and CP issuers are provided in the following paragraphs.
Domestic CP is issued by U.S. industrial and finance companies, utility
companies, thrifts and bank holding companies. Foreign CP is issued by non-U.S.
industrial and finance companies and financial institutions. Domestic and
foreign corporate issuers occasionally have the underlying support of a
well-known, highly rated commercial bank or insurance company. Bank support is
provided in the form of a letter of credit (an LOC) or irrevocable revolving
credit commitment (an IRC). Insurance support is provided in the form of a
surety bond.
Bank holding company CP is issued by the holding companies of many well-known
domestic banks, including Citicorp, J.P. Morgan & Company Incorporated and
First Union National Bank. Bank holding company CP may be issued by the parent
of a money center or regional bank.
Thrift CP is issued by major federal or state-chartered savings and loan
associations and savings banks.
Schedule B Bank CP is short-term, U.S. dollar-denominated CP issued by Canadian
subsidiaries of non-Canadian banks (Schedule B banks). Whether issued as
commercial paper, a certificate of deposit or a promissory note, each instrument
issued by a Schedule B bank ranks equally with any other deposit obligation.
Paper issued by Schedule B banks provides an investor with the comfort and
reduced risk of a direct and unconditional parental bank guarantee. Schedule B
instruments generally offer higher rates than the short-term instruments of the
parent bank or holding company.
BANK OBLIGATIONS
Negotiable certificates of deposit (CDs) evidence a bank's obligation to repay
money deposited with it for a specified period of time. The following table
identifies some of the types of CDs.
CD Type Issuer
--------------------------------------------------------------------------------
Domestic Domestic offices of U.S. banks
--------------------------------------------------------------------------------
Yankee U.S. branches of foreign banks
--------------------------------------------------------------------------------
Eurodollar Issued in London by U.S., Canadian, European and
Japanese banks
--------------------------------------------------------------------------------
Schedule B Canadian subsidiaries of non-Canadian banks
--------------------------------------------------------------------------------
Bankers' acceptances are used to finance foreign commercial trade. Issued by a
bank with an importer's name on them, these instruments allow the importer to
back up its own pledge to pay for imported goods with a bank's obligation to
cover the transaction if the importer fails to do so.
Bank notes are senior unsecured promissory notes issued in the United States by
domestic commercial banks.
Time deposits are non-negotiable bank deposits maintained for up to seven days
at a stated interest rate. These instruments may be withdrawn on demand,
although early withdrawals may be subject to penalties.
The bank obligations the fund managers may buy generally are not insured by the
FDIC or any other insurer.
www.americancentury.com American Century Investments 7
U.S. GOVERNMENT SECURITIES
U.S. Government Securities include bills, notes and bonds issued by the U.S.
Treasury, and securities issued or guaranteed by agencies or instrumentalities
of the U.S. government. Some U.S. government securities are supported by the
direct full faith and credit pledge of the U.S. government; others are supported
by the right of the issuer to borrow from the U.S. Treasury; others, such as
securities issued by the Federal National Mortgage Association (FNMA), are
supported by the discretionary authority of the U.S. government to purchase the
agencies' obligations; and others are supported only by the credit of the
issuing or guaranteeing instrumentality. There is no assurance that the U.S.
government will provide financial support to an instrumentality it sponsors when
it is not obligated by law to do so.
VARIABLE- AND FLOATING-RATE INSTRUMENTS
Variable- and floating-rate instruments are issued by corporations, financial
institutions, and government agencies and instrumentalities.
Floating-rate instruments have interest rates that change whenever there is a
change in a designated base rate, whereas variable-rate instruments provide for
specified periodic interest rate adjustments. The interest rate on variable- and
floating-rate instruments is ordinarily determined by reference to (or is a
percentage of) an objective standard, such as the Federal Funds effective rate,
the 90-day U.S. Treasury bill rate or LIBOR.
Although the money market funds typically limit their investments to securities
with remaining maturities of 397 days or less, they may invest in variable- and
floating-rate instruments that have nominal (or stated) maturities in excess of
397 days, provided that such instruments (1) have demand features consistent
with regulatory requirements for money market funds, or (2) are securities
issued by the U.S. government or a U.S. government agency that meet certain
regulatory requirements for money market funds.
LOAN PARTICIPATIONS
Loan participations represent interests in the cash flow generated by commercial
loans. Each loan participation requires three parties: a participant (or
investor), a lending bank and a borrower. The investor purchases a share in a
loan originated by a lending bank, and this participation entitles the investor
to a percentage of the principal and interest payments made by the borrower.
Loan participations are attractive because they typically offer higher yields
than other money market instruments. However, along with these higher yields
come certain risks, not the least of which is the risk that the borrower will be
unable to repay the loan. Generally, because the lending bank does not guarantee
payment, the investor is directly exposed to risk of default by the borrower. In
addition, the investor is not a direct creditor of the borrower. The
participation represents an interest in assets owned by the lending bank. If the
lending bank becomes insolvent, the investor could be considered an unsecured
creditor of the bank instead of the holder of a participating interest in a
loan. Because of these risks, the manager must carefully consider the
creditworthiness of both the borrower and the lender.
Another concern is liquidity. Because there is no established secondary market
for loan participations, the fund's ability to sell them for cash is limited.
Some participation agreements place limitations on the investor's right to
resell the loan participation, even when a buyer can be found.
8 American Century Investments 1-800-345-2021
FOREIGN SECURITIES
Securities of foreign issuers may trade in the U.S. or foreign securities
markets.
Investments in foreign securities may present certain risks, including:
CURRENCY RISK. The value of non-U.S. dollar-denominated foreign investments held
may be significantly affected by changes in currency exchange rates. The dollar
value of a foreign security generally decreases when the value of the dollar
rises against the foreign currency in which the security is denominated and
tends to increase when the value of the dollar falls against such currency. In
addition, the value of fund assets may be affected by losses and other expenses
incurred in converting between various currencies in order to purchase and sell
foreign securities, and by currency restrictions, exchange control regulation,
currency devaluations and political developments.
POLITICAL AND ECONOMIC RISK. The economies of many of the countries in which the
funds invest are not as developed as the economy of the United States and may be
subject to significantly different forces. Political or social instability,
expropriation, nationalization or confiscatory taxation, and limitations on the
removal of funds or other assets, could also adversely affect the value of
investments. Further, the funds may encounter difficulties or be unable to
enforce ownership rights, pursue legal remedies or obtain judgments in foreign
courts.
REGULATORY RISK. Foreign companies generally are not subject to the regulatory
controls imposed on U.S. issuers and, in general, there is less publicly
available information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by the funds may be reduced by a withholding tax at the source,
which would reduce dividend income payable to shareholders.
MARKET AND TRADING RISK. Brokerage commission rates in foreign countries, which
are generally fixed rather than subject to negotiation as in the United States,
are likely to be higher. The securities markets in many of the countries in
which the funds invest will have substantially less trading volume than the
principal U.S. markets. As a result, the securities of some companies in these
countries may be less liquid and more volatile than comparable U.S. securities.
Furthermore, one securities broker may represent all or a significant part of
the trading volume in a particular country, resulting in higher trading costs
and decreased liquidity due to a lack of alternative trading partners. There is
generally less government regulation and supervision of foreign stock exchanges,
brokers and issuers, which may make it difficult to enforce contractual
obligations.
CLEARANCE AND SETTLEMENT RISK. Foreign securities markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in clearance and settlement could result in temporary periods when assets
of the funds are uninvested and no return is earned thereon. The inability of
the funds to make intended security purchases due to clearance and settlement
problems could cause the funds to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to clearance and settlement
problems could result either in losses to the funds due to subsequent declines
in the value of the portfolio security or, if the fund has entered into a
contract to sell the security, liability to the purchaser.
OWNERSHIP RISK. Evidence of securities ownership may be uncertain in many
foreign countries. In many of these countries, the most notable of which is the
Russian Federation, the ultimate evidence of securities ownership is the share
register held by the issuing company or its registrar. While some companies may
issue share certificates or provide extracts of the company's share register,
these are not negotiable instruments and are not effective evidence of
securities ownership. In an ownership dispute, the company's
www.americancentury.com American Century Investments 9
share register is controlling. As a result, there is a risk that a fund's trade
details could be incorrectly or fraudulently entered on the issuer's share
register at the time of the transaction, or that a fund's ownership position
could thereafter be altered or deleted entirely, resulting in a loss to the
fund. While the funds intend to invest directly in Russian companies that
utilize an independent registrar, there can be no assurance that such
investments will not result in a loss to the funds.
SHORT SALES
A fund may engage in short sales if, at the time of the short sale, the fund
owns or has the right to acquire securities equivalent in kind and amount to the
securities being sold short.
In a short sale, the seller does not immediately deliver the securities sold and
is said to have a short position in those securities until delivery occurs. To
make delivery to the purchaser, the executing broker borrows the securities
being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If a fund engages in a short sale, the collateral account will be
maintained by the fund's custodian. While the short sale is open, the fund will
maintain in a segregated custodial account an amount of securities convertible
into, or exchangeable for, such equivalent securities at no additional cost.
These securities would constitute the fund's long position.
A fund may make a short sale, as described above, when it wants to sell the
security it owns at a current attractive price, but also wishes to defer
recognition of gain or loss for federal income tax purposes. There will be
certain additional transaction costs associated with short sales, but the fund
will endeavor to offset these costs with income from the investment of the cash
proceeds of short sales.
PORTFOLIO LENDING
The funds may lend their portfolio securities in order to realize additional
income. Such loans may not exceed one-third of the fund's total assets valued at
market except (i) through the purchase of debt securities in accordance with its
investment objective, policies and limitations; or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
DERIVATIVE SECURITIES
The funds may invest in securities that are commonly referred to as derivative
securities. Generally, a derivative is a financial arrangement, the value of
which is based on, or derived from, a traditional security, asset or market
index. Certain derivative securities are described more accurately as
index/structured securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts), currencies, interest rates, indices or other financial
indicators (reference indices).
Some derivatives, such as mortgage-related and other asset-backed securities,
are in many respects like any other investment, although they may be more
volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a fund from exposure to changing interest rates, securities
prices or currency exchange rates and for cash management purposes as a low-cost
method of gaining exposure to a particular securities market without investing
directly in those securities.
10 American Century Investments 1-800-345-2021
No fund may invest in a derivative security unless the reference index or the
instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the price of oil would
not be a permissible investment because the funds may not invest in oil and gas
leases or futures.
The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates.
There are a range of risks associated with derivative investments, including:
* the risk that the underlying security, interest rate, market index or other
financial asset will not move in the direction the fund managers anticipate;
* the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a position
when desired;
* the risk that adverse price movements in an instrument can result in a loss
substantially greater than a fund's initial investment; and
* the risk that the counterparty will fail to perform its obligations.
The Board of Directors has approved the advisor's policy regarding investments
in derivative securities. That policy specifies factors that must be considered
in connection with a purchase of derivative securities. The policy also
establishes a committee that must review certain proposed purchases before the
purchases can be made. The advisor will report on fund activity in derivative
securities to the Board of Directors as necessary.
INVESTMENT IN COMPANIES WITH LIMITED OPERATING HISTORIES
The funds may invest a portion of their assets in the securities of issuers with
limited operating histories. The fund managers consider an issuer to have a
limited operating history if that issuer has a record of less than three years
of continuous operation. The managers will consider periods of capital
formation, incubation, consolidations, and research and development in
determining whether a particular issuer has a record of three years of
continuous operation.
Investments in securities of issuers with limited operating histories may
involve greater risks than investments in securities of more mature issuers. By
their nature, such issuers present limited operating histories and financial
information upon which the managers may base their investment decision on behalf
of the funds. In addition, financial and other information regarding such
issuers, when available, may be incomplete or inaccurate.
REPURCHASE AGREEMENTS
The funds may invest in repurchase agreements when such transactions present an
attractive short-term return on cash that is not otherwise committed to the
purchase of securities pursuant to the investment policies of the funds.
A repurchase agreement occurs when, at the time the fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to purchase it on a specified
date in the future at an agreed-upon price. The repurchase price reflects an
agreed-upon interest rate during the time the fund's money is invested in the
security.
Because the security purchased constitutes security for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The fund's risk is the ability of the seller to pay the
agreed-upon repurchase price on the repurchase date. If the seller defaults, the
fund may incur costs in disposing of the collateral, which would reduce the
amount realized thereon. If the seller seeks relief under the bankruptcy laws,
the disposition of the collateral may be delayed or limited. To the extent the
value of the security decreases, the fund could experience a loss.
www.americancentury.com American Century Investments 11
The funds will limit repurchase agreement transactions to securities issued by
the U.S. government and its agencies and instrumentalities, and will enter into
such transactions with those banks and securities dealers who are deemed
creditworthy pursuant to criteria adopted by the funds' Board of Directors. No
fund will invest more than 15% of its assets in repurchase agreements maturing
in more than seven days.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, a fund transfers possession of (or sells)
securities to another party, such as a bank or broker-dealer, for cash and
agrees to later repay cash plus interest for the return (or repurchase) of the
same securities. To collateralize the transaction, the value of the securities
transferred is slightly greater than the amount of cash the fund receives in
exchange for the securities.
If the purchaser reneged on the agreement and failed to return the securities,
the fund might suffer a loss. The fund's loss could be even greater if the
market value of the securities transferred increased in the meantime. To protect
against these risks, the fund will enter into reverse repurchase agreements only
with parties whose creditworthiness is determined to be satisfactory by the
advisor. While a reverse repurchase agreement is outstanding, the fund will
segregate appropriate securities to cover its obligation under the agreement.
WHEN-ISSUED AND FORWARD-COMMITMENT AGREEMENTS
The funds may sometimes purchase new issues of securities on a when-issued or
forward-commitment basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date (typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, a fund
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. Market rates of interest on debt securities at the time of
delivery may be higher or lower than those contracted for on the when-issued
security. Accordingly, the value of such security may decline prior to delivery,
which could result in a loss to the fund. While the fund will make commitments
to purchase or sell securities with the intention of actually receiving or
delivering them, it may sell the securities before the settlement date if doing
so is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a fund
will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents or other appropriate liquid securities in
an amount sufficient to meet the purchase price. When the time comes to pay for
the when-issued securities, a fund will meet its obligations with available
cash, through the sale of securities or, although it would not normally expect
to do so, by selling the when-issued securities themselves (which may have a
market value greater or less than the fund's payment obligation). Selling
securities to meet when-issued or forward-commitment obligations may generate
taxable capital gains or losses.
RESTRICTED AND ILLIQUID SECURITIES
The funds may, from time to time, purchase restricted or illiquid securities,
including Rule 144A securities, when they present attractive investment
opportunities that otherwise meet the funds' criteria for selection. Rule 144A
securities are securities that are privately placed with and traded among
qualified institutional investors rather than the general public. Although Rule
144A securities are considered restricted securities, they are not necessarily
illiquid.
12 American Century Investments 1-800-345-2021
With respect to securities eligible for resale under Rule 144A, the staff of the
Securities and Exchange Commission (SEC) has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the Board of Directors to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the Board
of Directors is responsible for developing and establishing the guidelines and
procedures for determining the liquidity of Rule 144A securities. As allowed by
Rule 144A, the Board of Directors of the funds has delegated the day-to-day
function of determining the liquidity of Rule 144A securities to the fund
managers. The Board retains the responsibility to monitor the implementation of
the guidelines and procedures it has adopted.
Because the secondary market for such securities is limited to certain qualified
institutional investors, the liquidity of such securities may be limited
accordingly and a fund may, from time to time, hold a Rule 144A or other
security that is illiquid. In such an event, the fund managers will consider
appropriate remedies to minimize the effect on such fund's liquidity.
FUTURES AND OPTIONS
Premium Bond may enter into futures contracts, options or options on futures
contracts. The fund may not, however, enter into a futures transaction for
speculative purposes. Generally, futures transactions will be used to:
* protect against a decline in market value of the fund's securities (taking a
short futures position), or
* protect against the risk of an increase in market value for securities in
which the fund generally invests at a time when the fund is not fully
invested (taking a long futures position), or
* provide a temporary substitute for the purchase of an individual security
that may be purchased in an orderly fashion.
Some futures and options strategies, such as selling futures, buying puts and
writing calls, hedge a fund's investments against price fluctuations. Other
strategies, such as buying futures, writing puts and buying calls, tend to
increase market exposure.
Although other techniques may be used to control a fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
For example, the sale of a future by a fund means the fund becomes obligated to
deliver the security (or securities, in the case of an index future) at a
specified price on a specified date. The purchase of a future means the fund
becomes obligated to buy the security (or securities) at a specified price on a
specified date. Futures contracts provide for the sale by one party and purchase
by another party of a specific security at a specified future time and price.
The fund managers may engage in futures and options transactions based on
securities indices that are consistent with the fund's investment objective.
Examples of indices that may be used include the Bond Buyer Index of Municipal
Bonds for fixed-income funds, or the S&P 500 Index for equity funds. The
managers also may engage in futures and options transactions based on specific
securities, such as U.S. Treasury bonds or notes. Futures contracts are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC), a
U.S. government agency.
www.americancentury.com American Century Investments 13
Index futures contracts differ from traditional futures contracts in that when
delivery takes place, no stocks or bonds change hands. Instead, these contracts
settle in cash at the spot market value of the index. Although other types of
futures contracts by their terms call for actual delivery or acceptance of the
underlying securities, in most cases the contracts are closed out before the
settlement date. A futures position may be closed by taking an opposite position
in an identical contract (i.e., buying a contract that has previously been sold
or selling a contract that has previously been bought).
Unlike when the fund purchases or sells a bond, no price is paid or received by
the fund upon the purchase or sale of the future. Initially, the fund will be
required to deposit an amount of cash or securities equal to a varying specified
percentage of the contract amount. This amount is known as initial margin. The
margin deposit is intended to assure completion of the contract (delivery or
acceptance of the underlying security) if it is not terminated prior to the
specified delivery date. A margin deposit does not constitute margin
transactions for purposes of the fund's investment restrictions. Minimum initial
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish margin deposit requirements that are higher
than the exchange minimums. Cash held in the margin account generally is not
income-producing. Subsequent payments, called variation margin, to and from the
broker will be made on a daily basis as the price of the underlying debt
securities or index fluctuates, making the future more or less valuable, a
process known as marking the contract to market. Changes in variation margin are
recorded by the fund as unrealized gains or losses. At any time prior to
expiration of the future, the fund may elect to close the position by taking an
opposite position that will operate to terminate its position in the future. A
final determination of variation margin is then made; additional cash is
required to be paid by or released to the fund, and the fund realizes a loss or
gain.
RISKS RELATED TO FUTURES AND OPTIONS TRANSACTIONS
Futures and options prices can be volatile, and trading in these markets
involves certain risks. If the fund managers apply a hedge at an inappropriate
time or judge interest rate or equity market trends incorrectly, futures and
options strategies may lower a fund's return.
A fund could suffer losses if it is unable to close out its position because of
an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when the fund managers consider it appropriate or desirable to
do so. In the event of adverse price movements, a fund would be required to
continue making daily cash payments to maintain its required margin. If the fund
had insufficient cash, it might have to sell portfolio securities to meet daily
margin requirements at a time when the fund managers would not otherwise elect
to do so. In addition, a fund may be required to deliver or take delivery of
instruments underlying futures contracts it holds. The fund managers will seek
to minimize these risks by limiting the contracts entered into on behalf of the
funds to those traded on national futures exchanges and for which there appears
to be a liquid secondary market.
A fund could suffer losses if the prices of its futures and options positions
were poorly correlated with its other investments, or if securities underlying
futures contracts purchased by a fund had different maturities than those of the
portfolio securities being hedged. Such imperfect correlation may give rise to
circumstances in which a fund loses money on a futures contract at the same time
that it experiences a decline in the value of its hedged portfolio securities. A
fund also could lose margin payments it has deposited with a margin broker, if,
for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached
14 American Century Investments 1-800-345-2021
in a particular type of contract, no trades may be made on that day at a price
beyond the limit. However, the daily limit governs only price movement during a
particular trading day and, therefore, does not limit potential losses. In
addition, the daily limit may prevent liquidation of unfavorable positions.
Futures contract prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses.
OPTIONS ON FUTURES
By purchasing an option on a futures contract, a fund obtains the right, but not
the obligation, to sell the futures contract (a put option) or to buy the
contract (a call option) at a fixed strike price. A fund can terminate its
position in a put option by allowing it to expire or by exercising the option.
If the option is exercised, the fund completes the sale of the underlying
security at the strike price. Purchasing an option on a futures contract does
not require a fund to make margin payments unless the option is exercised.
Although they do not currently intend to do so, some funds may write (or sell)
call options that obligate them to sell (or deliver) the option's underlying
instrument upon exercise of the option. While the receipt of option premiums
would mitigate the effects of price declines, the funds would give up some
ability to participate in a price increase on the underlying security. If a fund
were to engage in options transactions, it would own the futures contract at the
time a call was written and would keep the contract open until the obligation to
deliver it pursuant to the call expired.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS
Under the Commodity Exchange Act, a fund may enter into futures and options
transactions (a) for hedging purposes without regard to the percentage of assets
committed to initial margin and option premiums; or (b) for purposes other than
hedging, provided that assets committed to initial margin and option premiums do
not exceed 5% of the fund's total assets. To the extent required by law, each
fund will segregate cash or securities on its records in an amount sufficient to
cover its obligations under the futures contracts and options.
FORWARD CURRENCY EXCHANGE CONTRACTS
Premium Bond may purchase and sell foreign currency on a spot (i.e., cash) basis
and may engage in forward currency contracts, currency options and futures
transactions for hedging or any other lawful purpose. See Derivative Securities,
page 10.
Forward contracts may be used under two circumstances:
(1) When the fund managers wish to lock in the U.S. dollar price of a security
when a fund is purchasing or selling a security denominated in a foreign
currency, the fund would be able to enter into a forward contract to do so.
(2) When the fund managers believe that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, a fund
would be able to enter into a forward contract to sell foreign currency for
a fixed U.S. dollar amount approximating the value of some or all of its
portfolio securities either denominated in, or whose value is tied to, such
foreign currency.
In the first circumstance, when a fund enters into a trade for the purchase or
sale of a security denominated in a foreign currency, it may be desirable to
establish (lock in) the U.S. dollar cost or proceeds. By entering into forward
contracts in U.S. dollars for the purchase or sale of a foreign currency
involved in an underlying security transaction, the fund will be able to protect
itself against a possible loss between trade and settlement dates resulting from
the adverse change in the relationship between the U.S. dollar and the subject
foreign currency.
www.americancentury.com American Century Investments 15
In the second circumstance, when the fund managers believe that the currency of
a particular country may suffer a substantial decline relative to the U.S.
dollar, a fund could enter into a foreign contract to sell for a fixed dollar
amount the amount in foreign currencies approximating the value of some or all
of its portfolio securities either denominated in, or whose value is tied to,
such foreign currency. The fund will segregate on its records cash or securities
in an amount sufficient to cover its obligations under the contract.
The precise matching of forward contracts in the amounts and values of
securities involved generally would not be possible because the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of short-term hedging strategy
is highly uncertain. The fund managers do not intend to enter into such
contracts on a regular basis. Normally, consideration of the prospect for
currency parities will be incorporated into the long-term investment decisions
made with respect to overall diversification strategies. However, the fund
managers believe that it is important to have flexibility to enter into such
forward contracts when they determine that a fund's best interests may be
served.
At the maturity of the forward contract, the fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate the obligation to deliver the foreign currency by
purchasing an offsetting forward contract with the same currency trader
obligating the fund to purchase, on the same maturity date, the same amount of
the foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the forward contract. Accordingly, it
may be necessary for a fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency the fund is obligated to deliver.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the restrictions apply at the time transactions are entered into.
Accordingly, any later increase or decrease beyond the specified limitation
resulting from a change in a fund's net assets will not be considered in
determining whether it has complied with its investment restrictions.
FUNDAMENTAL INVESTMENT POLICIES
The funds' investment restrictions are set forth below. These investment
restrictions are fundamental and may not be changed without approval of a
majority of the outstanding votes of shareholders of a fund, as determined in
accordance with the Investment Company Act.
For purposes of the investment restriction relating to concentration, a fund
shall not purchase any securities that would cause 25% or more of the value of
the fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions and
repurchase agreements secured by such instruments; (b) wholly owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; (c)
utilities will be divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will
16 American Century Investments 1-800-345-2021
each be considered a separate industry; and (d) personal credit and business
credit businesses will be considered separate industries.
Subject Policy
--------------------------------------------------------------------------------
Senior Securities A fund may not issue senior securities, except
as permitted under the Investment Company Act.
--------------------------------------------------------------------------------
Borrowing A fund may not borrow money, except for temporary or
emergency purposes (not for leveraging or investment) in
an amount not exceeding 33(1)U(3)% of the fund's total
assets.
--------------------------------------------------------------------------------
Lending A fund may not lend any security or make any other loan
if, as a result, more than 33(1)U(3)% of the fund's total
assets would be lent to other parties, except (i) through
the purchase of debt securities in accordance with its
investment objective, policies and limitations; or (ii) by
engaging in repurchase agreements with respect to
portfolio securities.
--------------------------------------------------------------------------------
Real Estate A fund may not purchase or sell real estate unless
acquired as a result of ownership of securities or other
instruments. This policy shall not prevent a fund from
investing in securities or other instruments backed by
real estate or securities of companies that deal in real
estate, or are engaged in the real estate business.
--------------------------------------------------------------------------------
Concentration A fund may not concentrate its investments in securities
of issuers in a particular industry (other than securities
issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities).
--------------------------------------------------------------------------------
Underwriting A fund may not act as an underwriter of securities issued
by others, except to the extent that the fund may be
considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted
securities.
--------------------------------------------------------------------------------
Commodities A fund may not purchase or sell physical commodities
unless acquired as a result of ownership of securities or
other instruments, provided that this limitation shall not
prohibit the fund from purchasing or selling options and
futures contracts, or from investing in securities or
other instruments backed by physical commodities.
--------------------------------------------------------------------------------
Control A fund may not invest for purposes of exercising control
over management.
--------------------------------------------------------------------------------
For purposes of the investment restrictions relating to lending and borrowing,
the funds have received an exemptive order from the SEC regarding interfund
lending. Under the terms of the exemptive order, the funds may borrow money from
or lend money to other funds, advised by ACIM, that permit such transactions.
All such transactions will be subject to the limits set above for borrowing and
lending. The funds will borrow money through the program only when the costs are
equal to or lower than the cost of short-term bank loans. Interfund loans and
borrowings normally extend only overnight but can have a maximum duration of
seven days. The funds will lend through the program only when the returns are
higher than those available from other short-term instruments (such as
repurchase agreements). The funds may have to borrow from a bank at a higher
interest rate if an interfund loan is called or not renewed. Any delay in
repayment to a lending fund could result in a lost investment opportunity or
additional borrowing costs.
www.americancentury.com American Century Investments 17
NONFUNDAMENTAL INVESTMENT POLICIES
In addition, the funds are subject to the following additional investment
restrictions that are not fundamental and may be changed by the Board of
Directors.
Subject Policy
--------------------------------------------------------------------------------
Leveraging The fund may not purchase additional investment securities
at any time during which outstanding borrowings exceed 5%
of the total assets of the fund.
--------------------------------------------------------------------------------
Liquidity A fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 15% (10%
for money market funds) of its net assets would be
invested in repurchase agreements not entitling the
holder to payment of principal and interest within seven
days, and in securities that are illiquid by virtue of
legal or contractual restrictions on resale or the
absence of a readily available market.
--------------------------------------------------------------------------------
Short Sales A fund may not sell securities short, unless it owns
or has the right to obtain securities equivalent in kind
and amount to the securities sold short, and provided that
transactions in futures contracts and options are not
deemed to constitute selling securities short.
--------------------------------------------------------------------------------
Margin A fund may not purchase securities on margin, except to
obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin
payments in connection with futures contracts and options
on futures contracts shall not constitute purchasing
securities on margin.
--------------------------------------------------------------------------------
Futures & Options A fund may enter into futures contracts and
write and buy put and call options relating to futures
contracts. A fund may not, however, enter into leveraged
futures transactions if it would be possible for the fund
(Premium Bond) to lose more money than it invested.
--------------------------------------------------------------------------------
Issuers with Limited A fund may invest up to 5% of its assets in the securities
Operating Histories of issuers with limited operating histories. An issuer is
considered to have a limited operating history if that
issuer has a record of less than three years of continuous
operation. Periods of capital formation, incubation,
(Premium Capital consolidations, and research and development may be
Reserve considered in determining whether a particular issuer has
and Premium Bond) a record of three years of continuous operation.
--------------------------------------------------------------------------------
The Investment Company Act imposes certain additional restrictions upon
acquisition by the funds of securities issued by insurance companies,
broker-dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership. Neither the SEC nor any other agency of the
federal or state government participates in or supervises the management of the
funds, or their investment practices or policies.
PORTFOLIO TURNOVER
The portfolio turnover rate of Premium Bond is shown in the Financial Highlights
table in the Prospectus. Because of the short-term nature of the money market
funds' investments, portfolio turnover rates generally are not used to evaluate
the trading activities of Premium Government Reserve and Premium Capital
Reserve.
18 American Century Investments 1-800-345-2021
TEMPORARY DEFENSIVE MEASURES
For temporary defensive purposes, the funds may invest in securities that may
not fit their investment objective or their stated market. During a temporary
defensive period, the funds may direct their assets to the following investment
vehicles:
* interest-bearing bank accounts or certificates of deposit
* U.S. government securities and repurchase agreements collateralized by U.S.
government securities
* other money market funds
MANAGEMENT
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Directors does not manage the funds, it has hired the advisor to do so.
Two-thirds of the directors are independent of the funds' advisor, that is, they
are not employed by and have no financial interest in the advisor.
The individuals listed in the following table whose names are marked by an
asterisk (*) are interested persons of the funds (as defined in the Investment
Company Act) by virtue of, among other considerations, their affiliation with
either the funds; their advisor, American Century Investment Management, Inc.
(ACIM); the funds' agent for transfer and administrative services, American
Century Services Corporation (ACSC); the parent corporation, American Century
Companies, Inc. (ACC)or ACC's subsidiaries (including ACIM and ACSC); the funds'
distribution agent and co-administrator, Funds Distributor, Inc. (FDI); the
funds' other distribution agent, American Century Investment Services, Inc.
(ACIS); or other funds advised by the advisor. Each director listed below
(except James E. Stowers III) serves as a director of five other registered
investment companies in the American Century family of funds, which are also
advised by the advisor. James E. Stowers III serves as a director of 12 other
registered investment companies in the American Century family of funds.
Name (Age) Position(s) Held with Principal Occupation(s)
Address the Funds During Past Five Years
-------------------------------------------------------------------------------------------------
James E. Stowers, Jr.(1)* (76) Director, Chairman; Director and controlling
4500 Main St. Chairman of the Board shareholder of ACC
Kansas City, MO 64111 Chairman, ACIM, ACSC, ACIS and
other ACC subsidiaries
Director, ACIM, ACSC, ACIS and
other ACC subsidiaries
-------------------------------------------------------------------------------------------------
James E. Stowers III(2)* (41) Director Chief Executive Officer and
4500 Main St. Director, ACC
Kansas City, MO 64111 Chief Executive Officer, ACIM,
ACSC, ACIS and other
ACC subsidiaries
Director, ACIM, ACSC,
ACIS and other ACC
subsidiaries
-------------------------------------------------------------------------------------------------
Thomas A. Brown (60) Director Area Vice President, Plains
States
4500 Main St. Development, Applied Industrial
Kansas City, MO 64111 Technologies, Inc., a corporation
engaged in the sale of bearings and
power transmission products
-------------------------------------------------------------------------------------------------
(1) Father of James E. Stowers III
(2) Son of James E. Stowers, Jr.
www.americancentury.com American Century Investments 19
Name (Age) Position(s) Held with Principal Occupation(s)
Address the Funds During Past Five Years
-------------------------------------------------------------------------------------------------
Robert W. Doering, M.D. (67) Director Retired, formerly a general
surgeon
4500 Main St.
Kansas City, MO 64111
-------------------------------------------------------------------------------------------------
Andrea C. Hall, Ph.D. (55) Director Senior Vice President and Director,
4500 Main St. Midwest Research Institute
Kansas City, MO 64111
-------------------------------------------------------------------------------------------------
D.D. (Del) Hock (65) Director Retired, formerly Chairman, Public
4500 Main St. Service Company of Colorado;
Kansas City, MO 64111 Director, RMI.NET, Inc., Hathaway
Corporation, and J.D. Edwards &Company
-------------------------------------------------------------------------------------------------
Donald H. Pratt (62) Director, Chairman and Director, Butler
4500 Main St. Vice Chairman Manufacturing Company
Kansas City, MO 64111 of the Board Director, Atlas-Copco North
America Inc.
-------------------------------------------------------------------------------------------------
M. Jeannine Strandjord (54) Director Senior Vice President, Long Distance
4500 Main St. Finance, Sprint Corporation;
Kansas City, MO 64111 Director, DST Systems, Inc.
-------------------------------------------------------------------------------------------------
COMMITTEES
The Board has four committees to oversee specific functions of the funds'
operations. Information about these committees appears in the table below. The
Director first named serves as chairman of the committee.
Committee Members Function of Committee
-------------------------------------------------------------------------------------------------
Executive James E. Stowers, Jr. The Executive Committee performs the functions of
James E. Stowers III the Board of Directors between Board meetings,
Donald H. Pratt subject to the limitations on its power set out in
the Maryland General Corporation
Law, and except for matters
required by the Investment Company
Act to be acted upon by the whole
Board.
-------------------------------------------------------------------------------------------------
Compliance and Thomas A. Brown The Compliance and Communications Committee
Communications Donald H. Pratt reviews the results of the funds' compliance testing
Andrea C. Hall, Ph.D. program, reviews quarterly reports from the advisor
to the Board regarding various compliance matters
and monitors the implementation of the funds'
Code of Ethics, including any violations.
-------------------------------------------------------------------------------------------------
Audit M. Jeannine Strandjord The Audit Committee recommends the engagement
Robert W. Doering, M.D. of the funds' independent auditors and oversees
D.D. (Del) Hock its activities. The Committee receives reports from
the advisor's Internal Audit Department, which is
accountable to the Committee. The Committee
also receives reporting about compliance matters
affecting the funds.
-------------------------------------------------------------------------------------------------
Nominating Donald H. Pratt The Nominating Committee primarily considers and
Andrea C. Hall, Ph.D. recommends individuals for nomination as directors.
D.D. (Del) Hock The names of potential director candidates are
drawn from a number of sources, including
recommendations from members of the Board,
management and shareholders. This committee also
reviews and makes recommendations to the Board
with respect to the composition of Board
committees and other Board-related matters,
including its organization, size, composition,
responsibilities, functions and compensation.
-------------------------------------------------------------------------------------------------
20 American Century Investments 1-800-345-2021
COMPENSATION OF DIRECTORS
The directors also serve as directors for five American Century investment
companies other than the corporation. Each director who is not an interested
person as defined in the Investment Company Act receives compensation for
service as a member of the board of all six such companies based on a schedule
that takes into account the number of meetings attended and the assets of the
funds for which the meetings are held. These fees and expenses are divided among
the six investment companies based, in part, upon their relative net assets.
Under the terms of the management agreement with the advisor, the funds are
responsible for paying such fees and expenses.
The following table shows the aggregate compensation paid by the corporation for
the periods indicated and by the six investment companies served by the board to
each director who is not an interested person as defined in the Investment
Company Act.
AGGREGATE DIRECTOR COMPENSATION FOR FISCAL YEAR ENDED MARCH 31, 2000
--------------------------------------------------------------------------------
Total Compensation from the
Total Compensation American Century Family of
Name of Director from the Funds(1) Funds(2)
--------------------------------------------------------------------------------
Thomas A. Brown $423 $58,750
Robert W. Doering, M.D. 402 55,750
Andrea C. Hall, Ph.D. 405 56,250
D.D. (Del) Hock 400 55,500
Donald H. Pratt 414 57,496
Lloyd T. Silver, Jr.(3) 403 56,000
M. Jeannine Strandjord 418 58,000
--------------------------------------------------------------------------------
(1) Includes compensation paid to the directors during the fiscal year ended
March 31, 2000, and also includes amounts deferred at the election of the
directors under the Amended and Restated American Century Mutual Funds
Deferred Compensation Plan for Non-Interested Directors. The total amount
of deferred compensation included in the preceding table is as follows:
Mr. Brown, $119; Dr. Hall, $210; Mr. Hock, $345; Mr. Pratt, $86;
Mr. Silver, $161, and Ms. Strandjord, $323.
(2) Includes compensation paid by the six investment company members of the
American Century family of funds served by this Board.
(3) Mr. Silver retired from the board on March 4, 2000.
The funds have adopted the Amended and Restated American Century Mutual Funds
Deferred Compensation Plan for Non-Interested Directors. Under the plan, the
independent directors may defer receipt of all or any part of the fees to be
paid to them for serving as directors of the funds.
All deferred fees are credited to an account established in the name of the
directors. The amounts credited to the account then increase or decrease, as the
case may be, in accordance with the performance of one or more of the American
Century funds that are selected by the director. The account balance continues
to fluctuate in accordance with the performance of the selected fund or funds
until final payment of all amounts is credited to the account. Directors are
allowed to change their designation of mutual funds from time to time.
No deferred fees are payable until such time as a director resigns, retires or
otherwise ceases to be a member of the Board of Directors. Directors may receive
deferred fee account balances either in a lump-sum payment or in substantially
equal installment payments to be made over a period not to exceed 10 years. Upon
the death of a director, all remaining deferred fee account balances are paid to
the director's beneficiary or, if none, to the director's estate.
The plan is an unfunded plan and, accordingly, the funds have no obligation to
segregate assets to secure or fund the deferred fees. To date, the funds have
voluntarily funded their obligations. The rights of directors to receive their
deferred fee account balances are the same as the rights of a general unsecured
creditor of the funds. The plan may be
www.americancentury.com American Century Investments 21
terminated at any time by the administrative committee of the plan. If
terminated, all deferred fee account balances will be paid in a lump sum.
No deferred fees were paid to any director under the plan during the fiscal year
ended March 31, 2000.
OFFICERS
Background information about the officers of the funds is provided in the
following table. All persons named as officers of the funds also serve in
similar capacities for the 12 other investment companies advised by ACIM. Not
all officers of the funds are listed; only those officers with policy-making
functions for the funds are listed. No officer is compensated for his or her
service as an officer of the funds. The individuals listed in the following
table are interested persons of the funds (as defined in the Investment Company
Act) because of their affiliation with either the funds, ACC, ACC's subsidiaries
(including ACIM, ACSC and ACIS), or the funds' distributors (ACIS and FDI).
Name (Age) Position(s) Held Principal Occupation(s)
Address with Funds During Past Five Years
------------------------------------------------------------------------------------------------------
George A. Rio (45) President Executive Vice President and Director of Client
60 State Street, Suite 1300 Services, FDI (March 1998 to present)
Boston, MA 02109 Senior Vice President and Senior Key Account
Manager, Putnam Mutual Funds (June 1995 to
March 1998)
------------------------------------------------------------------------------------------------------
Christopher J. Kelley (35) Vice President Vice President and Associate General Counsel, FDI
60 State Street, Suite 1300 (July 1996 to present)
Boston, MA 02109 Assistant Counsel, Forum Financial Group
(April 1994 to July 1996)
------------------------------------------------------------------------------------------------------
Mary A. Nelson (36) Vice President Vice President and Manager of Treasury Services
60 State Street, Suite 1300 and Administration, FDI (1994 to present)
Boston, MA 02109
------------------------------------------------------------------------------------------------------
Maryanne Roepke, CPA (44) Vice President Senior Vice President and Assistant Treasurer, ACSC
4500 Main Street and
Kansas City, MO 64111 Treasurer
------------------------------------------------------------------------------------------------------
David C. Tucker (42) Vice President Senior Vice President, ACIM, ACSC, ACI and
4500 Main Street three other ACC subsidiaries
Kansas City, MO 64111 (June 1998 to present)
General Counsel, ACC and nine ACC subsidiaries
(June 1998 to present)
Consultant to mutual fund industry (May 1997
to April 1998)
Vice President and General Counsel, Janus Companies
(1990 to 1997)
------------------------------------------------------------------------------------------------------
Paul Carrigan Jr. (50) Secretary Secretary, ACC (February 1998 to present)
4500 Main Street Director of Legal Operations
Kansas City, MO 64111 (February 1996 to present)
Board Communications Manager, The Benham Company
(April 1994 to January 1996)
------------------------------------------------------------------------------------------------------
C. Jean Wade (36) Controller Vice President and Controller--Fund Accounting,
4500 Main Street ACSC
Kansas City, MO 64111
------------------------------------------------------------------------------------------------------
Jon Zindel (33) Tax Officer Vice President and Director of Taxation, ACSC
4500 Main Street (1996 to present)
Kansas City, MO 64111 Vice President, ACIM and 15 other ACC subsidiaries
(April 1999 to present)
Treasurer, American Century Ventures, Inc.
(December 1999 to present)
Tax Manager, Price Waterhouse LLP (1989 to 1996)
------------------------------------------------------------------------------------------------------
22 American Century Investments 1-800-345-2021
THE FUNDS' PRINCIPAL SHAREHOLDERS
As of July 3, 2000, the following companies were the record owners of more than
5% of a fund's outstanding shares:
Percentage
of Shares
Fund Shareholder Outstanding
------------------------------------------------------------------------------------------
Premium Government Reserve Chase Management Bank NA, Trustee 25.1%
Lorillard Inc. Hourly Paid Employees
Profit Sharing Plan & Trust
770 Broadway, Fl 10
New York, NY 10003
Rancho San Antonio Retirement Services, Inc. 9.9%
23600 Via Esplendor
Cupertino, CA 95014
Cornelia M. Small 10.2%
60 E. End Avenue
Apt. 26B
New York, NY 10028
------------------------------------------------------------------------------------------
Premium Bond Trustees of Presbyterian Healthcare 12.2%
System 401-A Retirement Plan and Trust
P.O. Box 419692
Kansas City, MO 64141
UMB Bank NA Trustee 8.6%
Harris Methodist Health System 403 B
P.O. Box 419692
Kansas City, MO 64141
Trustees of Texas Health 11.4%
Retirement Program
600 Las Colinas Blvd E, Suite 1550
Irving, TX 75039
North Carolina Engineering Foundation, Inc. 6.8%
Campus Box 7207, Room 19
Raleigh, NC 27695
UMB Bank NA Custodian 5.4%
Presbyterian Healthcare System
Section 403-B Plan
P.O. Box 419692
Kansas City, MO 64141
------------------------------------------------------------------------------------------
The funds are unaware of any other shareholders, beneficial or of record, who
own more than 5% of a fund's outstanding shares. As of July 3, 2000, the
officers and directors of the funds, as a group, own less than 1% of any fund's
outstanding shares.
www.americancentury.com American Century Investments 23
CODE OF ETHICS
The funds, their investment advisor and principal underwriters have adopted
codes of ethics under Rule 17j-1 of the Investment Company Act, and these codes
of ethics permit access persons (personnel who have access to portfolio
transaction information) to invest in securities, including securities that may
be purchased or held by the funds, provided that they first obtain approval from
the appropriate compliance department before making such investments.
SERVICE PROVIDERS
The funds have no employees. To conduct the funds' day-to-day activities, the
funds have hired a number of service providers. Each service provider has a
specific function to fill on behalf of the funds and is described below.
ACIM, ACSC and ACIS are wholly owned by ACC. James E. Stowers, Jr., Chairman of
ACC, controls ACC by virtue of his ownership of a majority of its voting stock.
INVESTMENT ADVISOR
A description of the responsibilities of the advisor appears in the Prospectus
under the heading Management.
For the services provided to the funds, the advisor receives a monthly fee based
on a percentage of the average net assets of the fund.
On the first business day of each month, the funds pay a management fee to the
advisor for the previous month at the specified rate. The fee for the previous
month is calculated by multiplying the applicable fee for the fund by the
aggregate average daily closing value of a fund's net assets during the previous
month by a fraction, the numerator of which is the number of days in the
previous month and the denominator of which is 365 (366 in leap years).
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually by:
(1) the funds' Board of Directors, or by the vote of a majority of outstanding
votes (as defined in the Investment Company Act); and
(2) the vote of a majority of the directors of the funds who are not parties to
the agreement or interested persons of the advisor, cast in person at a
meeting called for the purpose of voting on such approval.
The management agreement provides that it may be terminated at any time without
payment of any penalty by the funds' Board of Directors, or by a vote of a
majority of outstanding votes, on 60 days' written notice to the advisor, and
that it shall be automatically terminated if it is assigned.
The management agreement states that the advisor shall not be liable to the
funds or their shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties.
The management agreement also provides that the advisor and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
24 American Century Investments 1-800-345-2021
Certain investments may be appropriate for the funds and also for other clients
advised by the advisor. Investment decisions for the funds and other clients are
made with a view to achieving their respective investment objectives after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investment generally. A particular security
may be bought or sold for only one client or fund, or in different amounts and
at different times for more than one but less than all clients or funds. In
addition, purchases or sales of the same security may be made for two or more
clients or funds on the same date. Such transactions will be allocated among
clients in a manner believed by the advisor to be equitable to each. In some
cases this procedure could have an adverse effect on the price or amount of the
securities purchased or sold by a fund.
The advisor may aggregate purchase and sale orders of the funds with purchase
and sale orders of its other clients when the advisor believes that such
aggregation provides the best execution for the funds. The corporation's Board
of Directors has approved the policy of the advisor with respect to the
aggregation of portfolio transactions. Where portfolio transactions have been
aggregated, the funds participate at the average share price for all
transactions in that security on a given day and share transaction costs on a
pro rata basis. The advisor will not aggregate portfolio transactions of the
funds unless it believes that such aggregation is consistent with its duty to
seek best execution on behalf of the funds and the terms of the management
agreement. The advisor receives no additional compensation or remuneration as a
result of such aggregation.
Unified management fees incurred by each fund by class for the fiscal periods
ended March 31, 2000, 1999 and 1998, are indicated in the following table.
UNIFIED MANAGEMENT FEES
-------------------------------------------------------------------------------
Fund 2000 1999 1998
-------------------------------------------------------------------------------
Premium Government Reserve $ 404,059 $315,756 $203,339
-------------------------------------------------------------------------------
Premium Capital Reserve 1,420,009 942,501 763,533
-------------------------------------------------------------------------------
Premium Bond 456,300 429,782 258,139
-------------------------------------------------------------------------------
TRANSFER AGENT AND ADMINISTRATOR
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri
64111, acts as transfer agent and dividend-paying agent for the funds. It
provides physical facilities, computer hardware and software, and personnel for
the day-to-day administration of the funds and of the advisor. The advisor pays
ACSC for such services.
From time to time, special services may be offered to shareholders who maintain
higher share balances in our family of funds. These services may include the
waiver of minimum investment requirements, expedited confirmation of shareholder
transactions, newsletters and a team of personal representatives. Any expenses
associated with these special services will be paid by the advisor.
Pursuant to a Sub-Administration Agreement with the advisor, Funds Distributor,
Inc. (FDI) serves as the co-administrator for the funds. FDI is responsible for
(i) providing certain officers of the funds; and (ii) reviewing and filing
marketing and sales literature on behalf of the funds. The fees and expenses of
FDI are paid by the advisor out of its unified fee.
www.americancentury.com American Century Investments 25
DISTRIBUTORS
The funds' shares are distributed by FDI and ACIS, both registered
broker-dealers. FDI is a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. and its principal business address is 60 State Street,
Suite 1300, Boston, Massachusetts 02109. ACIS is a wholly owned subsidiary of
ACC, and is located at 4500 Main Street, Kansas City, Missouri 64111.
The distributors are the principal underwriter of the funds' shares. The
distributors make a continuous, best-efforts underwriting of the funds' shares.
This means the distributors have no liability for unsold shares.
OTHER SERVICE PROVIDERS
CUSTODIAN BANKS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York 10003-9598,
and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105, each serve as
custodian of the assets of the funds. The custodians take no part in determining
the investment policies of the funds or deciding which securities are purchased
or sold by the funds. The funds, however, may invest in certain obligations of
the custodians and may purchase or sell certain securities from or to the
custodians.
INDEPENDENT AUDITORS
Deloitte & Touche LLP is the independent auditors of the funds. The address
of Deloitte & Touche LLP is 1010 Grand Boulevard, Kansas City, Missouri
64106. As the independent auditors of the funds, Deloitte & Touche LLP
provides services including (1) audit of the annual financial statements for
each fund, (2) assistance and consultation in connection with SEC filings and
(3) review of the annual federal income tax return filed for each fund.
BROKERAGE ALLOCATION
The funds generally purchase and sell debt securities through principal
transactions, meaning the funds normally purchase securities directly from the
issuer or a primary market-maker acting as principal for the securities on a net
basis. The funds do not pay brokerage commissions on these transactions,
although the purchase price for debt securities usually includes an undisclosed
compensation. Purchases from underwriters or securities typically include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market-makers typically include a dealer's mark-up
(i.e., a spread between the bid and asked prices). During the fiscal years ended
March 31, 2000, March 31, 1999, and March 31, 1998, the funds did not pay any
brokerage commissions.
INFORMATION ABOUT FUND SHARES
Each of the three funds named on the front of this Statement of Additional
Information is a series of shares issued by the corporation, and shares of each
fund have equal voting rights. In addition, each series (or fund) may be divided
into separate classes. Additional funds and classes may be added without a
shareholder vote.
26 American Century Investments 1-800-345-2021
Each fund votes separately on matters affecting that fund exclusively. Voting
rights are not cumulative, so that investors holding more than 50% of the
corporation's (i.e., all funds') outstanding shares may be able to elect a Board
of Directors. The corporation undertakes dollar-based voting, meaning that the
number of votes a shareholder is entitled to is based upon the dollar amount of
the shareholder's investment. The election of directors is determined by the
votes received from all the corporation's shareholders without regard to whether
a majority of shares of any one fund voted in favor of a particular nominee or
all nominees as a group.
The assets belonging to each series or class of shares are held separately by
the custodian, and the shares of each series or class represent a beneficial
interest in the principal, earnings and profit (or losses) of investments and
other assets held for each series or class. Your rights as a shareholder are the
same for all series or class of securities unless otherwise stated. Within their
respective series or class, all shares have equal redemption rights. Each share,
when issued, is fully paid and non-assessable.
In the event of complete liquidation or dissolution of the funds, shareholders
of each series or class of shares shall be entitled to receive, pro rata, all of
the assets less the liabilities of that series or class.
Each shareholder has rights to dividends and distributions declared by the fund
he or she owns and to the net assets of such fund upon its liquidation or
dissolution proportionate to his or her share ownership interest in the fund.
BUYING AND SELLING FUND SHARES
Information about buying, selling and exchanging fund shares is contained in
Your Guide to American Century Services. The guide is available to investors
without charge and may be obtained by calling us.
VALUATION OF A FUND'S SECURITIES
Each fund's net asset value per share (NAV) is calculated as of the close of
business of the New York Stock Exchange (the Exchange), usually at 4 p.m.
Eastern time on each day the Exchange is open for business. The Exchange
typically observes the following holidays: New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Although the funds expect the same
holidays to be observed in the future, the Exchange may modify its holiday
schedule at any time.
The advisor typically completes its trading on behalf of each fund in various
markets before the Exchange closes for the day. Each fund's NAV is calculated by
adding the value of all portfolio securities and other assets, deducting
liabilities and dividing the result by the number of shares outstanding.
Expenses and interest earned on portfolio securities are accrued daily.
The portfolio securities of the fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
prices is used. Depending on local convention or regulation, securities traded
over the counter are priced at the mean of the latest bid and asked prices, or
at the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the Board of Directors.
www.americancentury.com American Century Investments 27
Debt securities not traded on a principal securities exchange are valued through
valuations obtained from a commercial pricing service or at the most recent mean
of the bid and asked prices provided by investment dealers in accordance with
procedures established by the Board of Directors.
Because there are hundreds of thousands of municipal issues outstanding, and the
majority of them do not trade daily, the prices provided by pricing services for
these types of securities are generally determined without regard to bid or last
sale prices. In valuing securities, the pricing services generally take into
account institutional trading activity, trading in similar groups of securities,
and any developments related to specific securities. The methods used by the
pricing service and the valuations so established are reviewed by the advisor
under the general supervision of the Board of Directors. There are a number of
pricing services available, and the advisor, on the basis of ongoing evaluation
of these services, may use other pricing services or discontinue the use of any
pricing service in whole or in part.
Securities maturing within 60 days of the valuation date may be valued at cost,
plus or minus any amortized discount or premium, unless the directors determine
that this would not result in fair valuation of a given security. Other assets
and securities for which quotations are not readily available are valued in good
faith at their fair value using methods approved by the Board of Directors.
The value of an exchange-traded foreign security is determined in its national
currency as of the close of trading on the foreign exchange on which it is
traded or as of the close of business on the New York Stock Exchange, if that is
earlier. That value is then translated to dollars at the prevailing foreign
exchange rate. Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed at various times
before the close of business on each day the New York Stock Exchange is open.
If an event were to occur after the value of a security was established, but
before the net asset value per share was determined, that was likely to
materially change the net asset value, then that security would be valued at
fair value as determined in accordance with procedures adopted by the Board of
Directors.
Trading of these securities in foreign markets may not take place on every
exchange business day. In addition, trading may take place in various foreign
markets on Saturdays or on other days when the exchange is not open and on which
the funds' net asset value is not calculated. Therefore, such calculations do
not take place contemporaneously with the determination of the prices of many of
the portfolio securities used in such calculation and the value of the funds'
portfolios may be affected on days when shares of the funds may not be purchased
or redeemed.
Each of the money market funds operates pursuant to Investment Company Act Rule
2a-7, which permits valuation of portfolio securities on the basis of amortized
cost. When a security is valued at amortized cost, it is valued at its cost when
purchased and thereafter by assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the investment.
As required by the Rule, the Board of Directors has adopted procedures designed
to stabilize, to the extent reasonably possible, each fund's price per share as
computed for the purpose of sales and redemptions at $1.00. While the day-to-day
operation of each fund has been delegated to the manager, the quality
requirements established by the procedures limit investments to certain U.S.
dollar-denominated instruments that the Board of Directors has determined
present minimal credit risks and that have been rated in one of the two highest
rating categories as determined by a nationally recognized statistical rating
organization or, in the case of an unrated security, of comparable quality. The
procedures require review of each fund's portfolio holdings at such intervals as
are reasonable in light of current market conditions to determine whether the
fund's net asset
28 American Century Investments 1-800-345-2021
value, calculated by using available market quotations, deviates from the
per-share value based on amortized cost. The procedures also prescribe the
action to be taken if such deviation should occur.
TAXES
FEDERAL INCOME TAX
Each fund intends to qualify annually as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By so
qualifying, a fund will be exempt from federal income taxes to the extent that
it distributes substantially all of its net investment income and net realized
capital gains (if any) to shareholders. If a fund fails to qualify as a
regulated investment company, it will be liable for taxes, significantly
reducing its distributions to shareholders and eliminating shareholders' ability
to treat distributions of the funds in the manner in which they were realized by
the funds.
If fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income. The dividends from net income may qualify for the 70% dividends
received deduction for corporations to the extent that the fund held shares
receiving the dividend for more than 45 days.
Distributions from gains on assets held longer than 12 months are taxable as
long-term gains regardless of the length of time you have held the shares.
However, you should note that any loss realized upon the sale or redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any distributions of long-term capital gain to you with respect
to such shares.
Dividends and interest received by a fund on foreign securities may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Foreign countries generally do not impose taxes on capital gains in
respect to investments by non-resident investors. The foreign taxes paid by the
fund will reduce its dividends.
If more than 50% of the value of a fund's total assets at the end of its fiscal
year consists of securities of foreign corporations, the fund may qualify for
and make an election with the Internal Revenue Service with respect to such
fiscal year so that you may be able to claim a foreign tax credit in lieu of a
deduction for foreign income taxes paid by the fund. If such an election is
made, the foreign taxes paid by the fund will be treated as income received by
you. In order for you to utilize the foreign tax credit, you must have held your
shares for 16 days or more during the 30-day period, beginning 15 days prior to
the ex-dividend date for the shares. The fund must meet a similar holding period
requirement with respect to foreign securities to which a dividend is
attributable. Any portion of the foreign tax credit that is eligible will be
separately disclosed.
If you have not complied with certain provisions of the Internal Revenue Code
and Regulations, either American Century or your financial intermediary is
required by federal law to withhold and remit to the IRS 31% of reportable
payments (which may include dividends, capital gains distributions and
redemptions). Those regulations require you to certify that the Social Security
number or tax identification number you provide is correct and that you are not
subject to 31% withholding for previous under-reporting to the IRS. You will be
asked to make the appropriate certification on your application. Payments
reported by us that omit your Social Security number or tax identification
number will subject us to a penalty of $50, which will be charged against your
account if you fail to provide the certification by the time the report is
filed, and is not refundable.
www.americancentury.com American Century Investments 29
Redemption of shares of a fund (including redemption made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize gain or loss in an amount equal to the
difference between the basis of the shares and the amount received. If a loss is
realized on the redemption of fund shares, the reinvestment in additional fund
shares within 30 days before or after the redemption may be subject to the
"wash sale" rules of the Code, resulting in a postponement of the
recognition of such loss for federal income tax purposes.
Premium Bond may adjust its dividends to take currency fluctuations into
account, which may cause the dividends to vary. If the fund's dividends exceed
its taxable income in any year, which is sometimes the result of
currency-related losses, all or a portion of the fund's dividends may be treated
as a return of capital to shareholders for tax purposes. Any return of capital
will reduce the cost basis of your shares, which will result in a higher
reported capital gain or a lower reported capital loss when you sell your
shares. The Form 1099-DIV you receive in January will specify if any
distributions included a return of capital.
STATE AND LOCAL INCOME TAXES
Distributions also may be subject to state and local taxes, even if all or a
substantial part of such distributions are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. However, most but not all states allow this tax exemption
to pass through to fund shareholders when a fund pays distributions to its
shareholders. You should consult your tax advisor about the tax status of such
distributions in your own state.
HOW FUND PERFORMANCE INFORMATION IS CALCULATED
The funds may quote performance in various ways. Historical performance
information will be used in advertising and sales literature.
For the money market funds, yield quotations are based on the change in the
value of a hypothetical investment (excluding realized gains and losses from the
sale of securities and unrealized appreciation and depreciation of securities)
over a seven-day period (base period) and stated as a percentage of the
investment at the start of the base period (base-period return). The base-period
return is then annualized by multiplying by 365/7, with the resulting yield
figure carried to at least the nearest hundredth of one percent.
Calculations of effective yield begin with the same base-period return used to
calculate yield, but the return is then annualized to reflect weekly compounding
according to the following formula:
Effective Yield = [(Base-Period Return + 1)(365/7)] - 1
The SEC 30-day yield calculation for non-money market funds is as follows:
a - b
YIELD = 2[(----- + 1)(6) - 1]
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
30 American Century Investments 1-800-345-2021
MONEY MARKET FUND YIELDS
(SEVEN-DAY PERIOD ENDED MARCH 31, 2000)
--------------------------------------------------------------------------------
Fund 7-Day Yield Effective Yield
--------------------------------------------------------------------------------
Premium Government Reserve 5.33% 5.47%
--------------------------------------------------------------------------------
Premium Capital Reserve 5.63% 5.79%
--------------------------------------------------------------------------------
NON-MONEY MARKET FUND YIELDS
(30-DAY PERIOD ENDED MARCH 31, 2000)
--------------------------------------------------------------------------------
Fund 30-Day Yield
--------------------------------------------------------------------------------
Premium Bond 6.93%
--------------------------------------------------------------------------------
The following table sets forth the average annual total return for the Investor
Class of the funds for the periods indicated as of March 31, 2000.
AVERAGE ANNUAL TOTAL RETURNS -- INVESTOR CLASS
(FISCAL YEAR ENDED MARCH 31, 2000)
--------------------------------------------------------------------------------
Fund 1 year 5 years Life of Fund(1)
--------------------------------------------------------------------------------
Premium Government Reserve 5.03% 5.16% 4.74%
--------------------------------------------------------------------------------
Premium Capital Reserve 5.18% 5.28% 4.84%
--------------------------------------------------------------------------------
Premium Bond 1.30% 6.81% 5.61%
--------------------------------------------------------------------------------
(1) The inception date for the funds is April 1, 1993.
Total returns quoted in advertising and sales literature reflect all aspects of
a fund's return, including the effect of reinvesting dividends and capital gain
distributions (if any), and any change in the fund's NAV during the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in a fund during a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual return of 7.18%, which is the
steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the funds' performance is
not constant over time, but changes from year-to-year, and that average annual
total returns represent averaged figures as opposed to actual year to year
performance.
In addition to average annual total returns, each fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as percentages or as dollar amounts and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) to illustrate the
relationship of these factors and their contributions to total return.
www.americancentury.com American Century Investments 31
PERFORMANCE COMPARISONS
The funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indices of market
performance. This may include comparisons with funds that, unlike the American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons may include, but are not
limited to, U.S. Treasury bill, note and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated, tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper, Inc. or Morningstar, Inc.; mutual fund
rankings published in major, nationally distributed periodicals; data provided
by the Investment Company Institute; Ibbotson Associates, Stocks, Bonds, Bills,
and Inflation; major indices of stock market performance; and indices and
historical data supplied by major securities brokerage or investment advisory
firms. The funds also may utilize reprints from newspapers and magazines
furnished by third parties to illustrate historical performance or to provide
general information about the funds.
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment products (including the funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons who have invested in one or more of the
funds. The funds also may include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any of the funds.
FINANCIAL STATEMENTS
The financial statements of the funds are included in the Annual Reports to
shareholders for the fiscal year ended March 31, 2000. Each Annual Report is
incorporated herein by reference. You may receive copies of the reports without
charge upon request to American Century at the address and telephone number
shown on the back cover of this Statement of Additional Information.
www.americancentury.com American Century Investments 32
EXPLANATION OF FIXED-INCOME SECURITIES RATINGS
As described in the Prospectus, the funds may invest in fixed-income securities.
Those investments, however, are subject to certain credit quality restrictions,
as noted in the Prospectus. The following is a summary of the rating categories
referenced in the Prospectus disclosure.
COMMERCIAL PAPER RATINGS
--------------------------------------------------------------------------------
S&P Moody's Description
--------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety regarding timely
(P-1) payment is strong. Standard & Poor's rates those issues
determined to possess extremely strong safety
characteristics as A-1+.
--------------------------------------------------------------------------------
A-2 Prime-2 Capacity for timely payment on commercial paper is
(P-2) satisfactory, but the relative degree of safety is not as
high as for issues designated A-1. Earnings trends and
coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriated, may be more affected by external conditions.
Ample alternate liquidity is maintained.
--------------------------------------------------------------------------------
A-3 Prime-3 Satisfactory capacity for timely repayment. Issues that
(P-3) carry this rating are somewhat more vulnerable to the
adverse changes in circumstances than obligations carrying
the higher designations.
--------------------------------------------------------------------------------
NOTE RATINGS
--------------------------------------------------------------------------------
S&P Moody's Description
--------------------------------------------------------------------------------
SP-1 MIG-1; Notes are of the highest quality, enjoying strong protection
VMIG-1 from established cash flows of funds for their servicing or
from established and broad-based access to the market for
refinancing, or both.
--------------------------------------------------------------------------------
SP-2 MIG-2; Notes are of high quality, with margins of protection ample,
VMIG-2 although not so large as in the preceding group.
--------------------------------------------------------------------------------
SP-3 MIG-3; Notes are of favorable quality, with all security elements
VMIG-3 accounted for, but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in
particular, is likely to be less well-established.
--------------------------------------------------------------------------------
SP-4 MIG-4; Notes are of adequate quality, carrying specific risk but
VMIG-4 having protection and not distinctly or predominantly
speculative.
--------------------------------------------------------------------------------
33 American Century Investments 1-800-345-2021
BOND RATINGS
--------------------------------------------------------------------------------
S&P Moody's Description
--------------------------------------------------------------------------------
AAA Aaa These are the highest ratings assigned by S&P and
Moody's to a debt obligation. These ratings indicate an
extremely strong capacity to pay interest and repay
principal.
--------------------------------------------------------------------------------
AA Aa Debt rated in this category is considered to have a very
strong capacity to pay interest and repay principal. It
differs from AAA/Aaa issues only in a small degree.
--------------------------------------------------------------------------------
A A Debt rated A has a strong capacity to pay interest and
repay principal, although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
--------------------------------------------------------------------------------
BBB Baa Debt rated BBB/Baa is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in
higher-rated categories.
--------------------------------------------------------------------------------
BB Ba Debt rated BB/Ba has less near-term vulnerability to default
than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial or economic conditions that could lead to
inadequate capacity to meet timely interest and principal
payments. The BB/Ba rating category also is used for debt
subordinated to senior debt that is assigned an actual or
implied BBB- rating.
--------------------------------------------------------------------------------
B B Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or
economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B
rating category also is used for debt subordinated to
senior debt that is assigned an actual or implied BB/Ba or
BB-/Ba3 rating.
--------------------------------------------------------------------------------
CCC Caa Debt rated CCC/Caa has a currently identifiable
vulnerability to default and is dependent upon favorable
business, financial and economic conditions to meet timely
payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and
repay principal. The CCC/Caa rating category also is used
for debt subordinated to senior debt that is assigned an
actual or implied B or B-/B3 rating.
--------------------------------------------------------------------------------
CC Ca The rating CC/Ca typically is applied to debt
subordinated to senior debt that is assigned an actual or
implied CCC/Caa rating.
--------------------------------------------------------------------------------
C C The rating C typically is applied to debt subordinated to
senior debt, which is assigned an actual or implied
CCC-/Caa3 debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but
debt service payments are continued.
--------------------------------------------------------------------------------
CI -- The rating CI is reserved for income bonds on which no
interest is being paid.
--------------------------------------------------------------------------------
D D Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not
made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will
be made during such grace period. The D rating also is used
upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
--------------------------------------------------------------------------------
34 American Century Investments 1-800-345-2021
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
ANNUAL AND SEMIANNUAL REPORTS
Annual and semiannual reports contain more information about the funds'
investments and the market conditions and investment strategies that
significantly affected the funds' performance during the most recent fiscal
period. The annual and semiannual reports are incorporated by reference into
this SAI. This means that these are legally part of this SAI.
You can receive a free copy of the annual and semiannual reports, and ask any
questions about the funds, by contacting American Century at the address or
telephone numbers listed below.
If you own or are considering purchasing fund shares through
* an employer-sponsored retirement plan
* a bank
* a broker-dealer
* an insurance company
* another financial intermediary
you can receive the annual and semiannual reports directly from them.
You also can get information about the funds from the Securities and Exchange
Commission (SEC). The SEC charges a duplicating fee to provide copies of this
information.
In person SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for
location and hours.
On the Internet * EDGAR database at www.sec.gov
* By email request at [email protected]
By mail SEC Public Reference Section
Washington, D.C. 20549-0102
Investment Company Act File No. 811-7446
--------------------------------------------------------------------------------
[american century logo(reg.sm)]
American
Century
AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri 64141-6200
INVESTOR RELATIONS
1-800-345-2021 or 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
WWW.AMERICANCENTURY.COM
FAX
816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 or 816-444-3485
BUSINESS, NOT-FOR-PROFIT AND
EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
SH-SAI-21902 0008
