-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E1G4mFGfs5O16wU6fU5adOv+xt/Gy8d6ZH9+Z06y9fEIy/U4xaqVDPmVnOwlMghO ArWf9WAPQVD9rzbMRHWniQ== 0000100334-97-000005.txt : 19970303 0000100334-97-000005.hdr.sgml : 19970303 ACCESSION NUMBER: 0000100334-97-000005 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 29 FILED AS OF DATE: 19970228 EFFECTIVENESS DATE: 19970228 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CENTURY MUTUAL FUNDS INC CENTRAL INDEX KEY: 0000100334 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 446006315 STATE OF INCORPORATION: MO FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-14213 FILM NUMBER: 97548227 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00816 FILM NUMBER: 97548228 BUSINESS ADDRESS: STREET 1: 4500 MAIN ST STREET 2: P O BOX 419200 CITY: KANSAS CITY STATE: MO ZIP: 64141 BUSINESS PHONE: 8165315575 MAIL ADDRESS: STREET 1: TWENTIETH CENTURY INVESTORS INC STREET 2: 4500 MAIN STREET CITY: KANSAS CITY STATE: MO ZIP: 64141-6200 FORMER COMPANY: FORMER CONFORMED NAME: TWENTIETH CENTURY INVESTORS INC DATE OF NAME CHANGE: 19920703 485BPOS 1 POST-EFFECTIVE AMENDMENT As filed with the Securities and Exchange Commission on February 28, 1997 1933 Act File No. 2-14213; 1940 Act File No. 811-0816 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X__ Pre-Effective Amendment No.____ ____ Post-Effective Amendment No._76_ _X__ and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _X__ Amendment No._76_ (check appropriate box or boxes.) AMERICAN CENTURY MUTUAL FUNDS, INC. --------------------------------------------------- (Exact Name of Registrant as Specified in Charter) American Century Tower, 4500 Main Street, Kansas City, MO 64111 ---------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: 816-531-5575 James E. Stowers III Twentieth Century Tower, 4500 Main Street, Kansas City, MO 64111 ---------------------------------------------------------------- (Name and address of Agent for service) Approximate Date of Proposed Public Offering: March 1, 1997 It is proposed that this filing will become effective (check appropriate box) _X__ immediately upon filing pursuant to paragraph (b) of Rule 485 ____ on (date) pursuant to paragraph (b) of Rule 485 ____ 60 days after filing pursuant to paragraph (a) of Rule 485 ____ on (date) pursuant to paragraph (a)(1) of Rule 485 ____ 75 days after filing pursuant to paragraph (a)(2) of Rule 485 ____ on (date) pursuant to paragraph (a)(2) of Rule 485 The Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2. The Rule 24f-2 notice for the fiscal year ending October 31, 1996, was filed on December 24, 1996. ================================================================================ CROSS REFERENCE SHEET - -------------------------------------------------------------------------------- N-1A Item No. Location ------------- -------- PART A Item 1. Cover Page Cover Page Item 2. Synopsis Transaction and Operating Expense Table Item 3. Condensed Financial Financial Highlights Information Item 4. General Description Investment Policies of Registrant the Funds; Other Investment Practices, Their Characteristics and Risks; Performance Advertising; Distribution of Fund Shares; Further Information About Twentieth Century Item 5. Management of the Management Fund Item 6. Capital Stock and Further Information About Other Securities Twentieth Century Item 7. Purchase of Securities How to Open An Account; Being Offered How to Exchange From One Account to Another; Share Price; Distribution Item 8. Redemption How to Redeem Shares; Signature Guarantee Item 9. Pending Legal N/A Proceedings - -------------------------------------------------------------------------------- PART B - -------------------------------------------------------------------------------- Item 10. Cover Page Cover Page Item 11. Table of Contents Table of Contents Item 12. General Information N/A Item 13. Investment Objectives Investment Objectives of and Policies the Funds; Fundamental Policies of the Funds; Additional Investment Restrictions; Forward Currency Exchange Contracts; An Explanation of Fixed Income; Securities Ratings Short Sales; Portfolio Turnover; Interest Rate Futures Contracts and Related Options; Municipal Leases Item 14. Management of the Officers and Directors; Registrant Management; Custodians Item 15. Control Persons Capital Stock and Principal Holders of Securities Item 16. Investment Advisory Management; and Other Services Custodians Item 17. Brokerage Allocation Brokerage; Performance Advertising Item 18. Capital Stock and Capital Stock; Other Securities Multiple Class Structure Item 19. Purchase, Redemption N/A and Pricing of Securities Being Offered Item 20. Tax Status N/A Item 21. Underwriters N/A Item 22. Calculation of Yield Performance Advertising Quotations of Money Market Funds Item 23. Financial Statements Financial Statements PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 TWENTIETH CENTURY(R) GROUP Select Heritage Growth Ultra Vista INVESTOR CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. AMERICAN CENTURY INVESTMENTS BENHAM GROUP(R) AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Select o Heritage o Growth Ultra o Vista PROSPECTUS MARCH 1, 1997 Select o Heritage o Growth Ultra o Vista INVESTOR CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load mutual funds covering a variety of investment opportunities. Five of the funds from our Twentieth Century Group that invest primarily in equity securities are described in this Prospectus. Their investment objectives are listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. Through its Investor Class of shares, American Century offers investors a full line of no-load funds, investments that have no sales charges or commissions. This Prospectus gives you information about the funds that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: AMERICAN CENTURY INVESTMENTS 4500 Main Street o P.O. Box 419200 Kansas City, Missouri 64141-6200 o 1-800-345-2021 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-634-4113 o In Missouri: 816-753-1865 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVES OF THE FUNDS AMERICAN CENTURY - TWENTIETH CENTURY SELECT FUND AMERICAN CENTURY - TWENTIETH CENTURY HERITAGE FUND The Select and Heritage funds seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks of companies that are considered by management to have better-than-average prospects for appreciation. As a matter of fundamental policy, 80% of the assets of Select and Heritage must be invested in securities of companies that have a record of paying dividends or have committed themselves to the payment of regular dividends, or otherwise produce income. AMERICAN CENTURY - TWENTIETH CENTURY GROWTH FUND AMERICAN CENTURY - TWENTIETH CENTURY ULTRA FUND AMERICAN CENTURY - TWENTIETH CENTURY VISTA FUND The Growth, Ultra and Vista funds seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. There is no assurance that the funds will achieve their respective investment objectives. NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objectives American Century Investments TABLE OF CONTENTS Investment Objectives of the Funds ...................................2 Transaction and Operating Expense Table ..............................4 Financial Highlights .................................................5 INFORMATION REGARDING THE FUNDS Investment Policies of the Funds ....................................10 Growth Equity Funds ..............................................10 Select and Heritage ..............................................10 Growth, Ultra and Vista ..........................................10 Other Investment Practices, Their Characteristics and Risks ........................................................11 Foreign Securities ...............................................11 Forward Currency Exchange Contracts ..............................11 Portfolio Turnover ...............................................12 Repurchase Agreements ............................................12 Derivative Securities ............................................13 Portfolio Lending ................................................13 When-Issued Securities ...........................................14 Rule 144A Securities .............................................14 Short Sales ......................................................14 Performance Advertising .............................................14 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS American Century Investments ........................................16 Investing in American Century .......................................16 How to Open an Account ..............................................16 By Mail ........................................................16 By Wire ........................................................16 By Exchange ....................................................17 In Person ......................................................17 Subsequent Investments ...........................................17 By Mail ........................................................17 By Telephone ...................................................17 By Online Access ...............................................17 By Wire ........................................................17 In Person ......................................................17 Automatic Investment Plan ........................................17 How to Exchange from One Account to Another .........................17 By Mail ........................................................18 By Telephone ...................................................18 By Online Access ...............................................18 How to Redeem Shares ................................................18 By Mail ........................................................18 By Telephone ...................................................18 By Check-A-Month ...............................................18 Other Automatic Redemptions ....................................18 Redemption Proceeds ..............................................18 By Check .......................................................18 By Wire and ACH ................................................19 Special Requirements for Large Redemptions .......................19 Redemption of Shares in Low-Balance Accounts .....................19 Signature Guarantee .................................................19 Special Shareholder Services ........................................20 Automated Information Line .....................................20 Online Account Access ..........................................20 Open Order Service .............................................20 Tax-Qualified Retirement Plans .................................20 Important Policies Regarding Your Investments .......................20 Reports to Shareholders .............................................21 Employer-Sponsored Retirement Plans and Institutional Accounts ...........................................22 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price .........................................................23 When Share Price Is Determined ...................................23 How Share Price Is Determined ....................................23 Where to Find Information About Share Price ......................24 Distributions .......................................................24 Taxes ...............................................................24 Tax-Deferred Accounts ............................................24 Taxable Accounts .................................................25 Management ..........................................................26 Investment Management ............................................26 Code of Ethics ...................................................27 Transfer and Administrative Services .............................27 Distribution of Fund Shares .........................................28 Further Information About American Century ..........................28 Prospectus Table of Contents 3
TRANSACTION AND OPERATING EXPENSE TABLE Select, Heritage, Growth, Ultra, Vista SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases ........................... none Maximum Sales Load Imposed on Reinvested Dividends ................ none Deferred Sales Load ............................................... none Redemption Fee(1) ................................................. none Exchange Fee ...................................................... none ANNUAL FUND OPERATING EXPENSES: (as a percentage of net assets) Management Fees ................................................... 1.00% 12b-1 Fees ........................................................ none Other Expenses(2) ................................................. 0.00% Total Fund Operating Expenses ..................................... 1.00% EXAMPLE You would pay the following expenses on a 1 year $ 10 $1,000 investment, assuming a 5% annual return and 3 years 32 redemption at the end of each time period: 5 years 55 10 years 122 (1) Redemption proceeds sent by wire are subject to a $10 processing fee. (2) Other expenses, which includes the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year.
The purpose of this table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of the funds offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Investor Class shares and have no up-front or deferred sales charges, commissions, or 12b-1 fees. The funds offer three other classes of shares, primarily to institutional investors, that have different fee structures than the Investor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for the other classes. For additional information about the various classes, see "Further Information About American Century," page 28. 4 Transaction and Operating Expense Table American Century Investments
FINANCIAL HIGHLIGHTS SELECT The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ........................ $39.52 $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income ................. .20(1) .33(1) .40 .46 .53 .63 .62 1.10 .64 .33 Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... 6.73 4.68 (3.59) 7.94 .34 8.17 (1.29) 7.74 1.37 .80 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total From Investment Operations ................. 6.93 5.01 (3.19) 8.40 .87 8.80 (.67) 8.84 2.01 1.13 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............ (.27) (.281) (.432) (.495) (.653) (.652) (1.116) (.707) (.481) (.380) From Net Realized Gains on Investment Transactions ............... (4.66) (2.750) (4.466) (1.313) (1.823) (1.551) -- -- (6.367) (3.462) In Excess of Net Realized Gains ....... -- (.125) -- (.016) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ................... (4.93) (3.156) (4.898) (1.824) (2.476) (2.203) (1.116) (.707) (6.848) (3.842) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ............. $41.52 $39.52 $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 ======= ====== ====== ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ....................... 19.76% 15.02% (7.37)% 22.20% 1.76% 27.05% (2.03)% 32.59% 7.31% 3.47% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income to Average Net Assets ................. .5% .9% 1.0% 1.1% 1.4% 1.7% 1.8% 3.4% 2.2% 1.1% Portfolio Turnover Rate ............... 105% 106% 126% 82% 95% 84% 83% 93% 140% 123% Average Commission Paid per Investment Security Traded ............ $.041 $.046 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) ................. $4,039 $4,008 $4,278 $5,160 $4,534 $4,163 $2,953 $2,721 $2,367 $2,417 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 5
FINANCIAL HIGHLIGHTS HERITAGE The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 1993 1992 1991 1990 1989 1988(1) PER-SHARE DATA Net Asset Value, Beginning of Period ....................... $11.75 $10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 $5.00 ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income .................. --(2) .05(2) .07 .07 .10 .11 .10 .08 .06 Net Realized and Unrealized Gain (Loss) on Investment Transactions ...... 1.15 1.96 (.21) 2.43 .72 2.04 (.94) 1.93 1.16 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ....... 1.15 2.01 (.14) 2.50 .82 2.15 (.84) 2.01 1.22 ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............. (.05) (.033) (.068) (.093) (.113) (.110) (.065) (.066) (.013) From Net Realized Gains on Investment Transactions ................ (.61) (.514) (.500) (.679) -- -- (.691) -- -- In Excess of Net Realized Gains ........ -- (.030) (.006) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions .................... (.66) (.577) (.574) (.772) (.113) (.110) (.756) (.066) (.013) ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period ............ $12.24 $11.75 $10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(3) ........................ 10.44% 21.04% (1.13)% 28.64% 9.65% 33.25% (11.62)% 32.65% 25.75% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets .................. .99% .99% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(4) Ratio of Net Investment Income to Average Net Assets .................. -- .5% .7% .7% 1.1% 1.5% 1.6% 1.3% 1.4%(4) Portfolio Turnover Rate ................ 122% 121% 136% 116% 119% 146% 127% 159% 130%(4) Average Commission Paid per Investment Security Traded ............. $.042 $.042 --(5) --(5) --(5) --(5) --(5) --(5) --(5) Net Assets, End of Period (in millions) ................ $1,083 $1,008 $897 $702 $369 $269 $199 $117 $55 (1) November 10, 1987 (inception) through October 31, 1988 (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total return for periods less than one year are not annualized. (4) Annualized. (5) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
6 Financial Highlights American Century Investments
FINANCIAL HIGHLIGHTS GROWTH The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ........................ $23.88 $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income (Loss) .......... (.01)(1) .08(1) .06 .06 (.02) .04 .09 .08 .30 .01 Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... 1.47 4.08 .48 1.94 1.35 8.47 (2.05) 5.14 .13 1.30 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ...... 1.46 4.16 .54 2.00 1.33 8.51 (1.96) 5.22 .43 1.31 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............ (.07) (.051) (.056) -- (.013) (.111) (.079) (.320) (.046) (.086) From Net Realized Gains on Investment Transactions ............ (2.98) (3.183) (2.764) (.353) -- (.891) (.592) -- (3.460) (5.076) In Excess of Net Realized Gains ....... (.08) (.040) (.002) (.013) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ................... (3.13) (3.274) (2.822) (.366) (.013) (1.002) (.671) (.320) (3.506) (5.162) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ............. $22.21 $23.88 $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ....................... 8.18% 22.31% 2.66% 8.48% 5.96% 60.64% (11.72)% 42.74% 3.18% 9.32% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets .......... (.1)% .4% .3% .2% (.1)% .2% .6% .5% 2.4% .2% Portfolio Turnover Rate ............... 122% 141% 100% 94% 53% 69% 118% 98% 143% 114% Average Commission Paid per Investment Security Traded ............ $.0360 $.040 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) ................. $4,765 $5,130 $4,363 $4,641 $4,472 $3,193 $1,697 $1,597 $1,229 $1,188 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 7
FINANCIAL HIGHLIGHTS ULTRA The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ........................ $28.03 $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income (Loss) ......... (.05)(1) (.07)(1) (.03) (.09) (.05) (.03) (.03) .19 (.02) (.07) Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... 2.84 7.58 (.42) 6.24 (.02) 7.86 (.73) 2.58 1.38 (.22) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ...... 2.79 7.51 (.45) 6.15 (.07) 7.83 (.76) 2.77 1.36 (.29) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............ -- -- -- -- -- -- (.196) -- -- (.007) From Net Realized Gains on Investment Transactions ............... (1.19) (.645) -- -- -- (.028) (.947) -- (3.258) -- In Excess of Net Realized Gains ....... (.11) -- -- -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ................... (1.30) (.645) -- -- -- (.028) (1.143) -- (3.258) (.007) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ............. $29.52 $28.03 $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ....................... 10.79% 36.89% (2.08)% 39.78% (.45)% 101.51% (9.02)% 40.37% 19.52% (3.23)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets .......... (.2)% (.3)% (.1)% (.6)% (.4)% (.5)% (.3)% 2.2% (.3)% (.5)% Portfolio Turnover Rate ............... 87% 87% 78% 53% 59% 42% 141% 132% 140% 137% Average Commission Paid per Investment Security Traded ............ $.0350 $.033 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) ................. $18,266 $14,376 $10,344 $8,037 $4,275 $2,148 $330 $347 $258 $236 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
8 Financial Highlights American Century Investments
FINANCIAL HIGHLIGHTS VISTA The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ........................ $15.73 $10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income (Loss) .......... (.11)(1) (.08)(1) (.08) (.07) (.04) (.02) (.01) (.03) .01 (.05) Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... 1.09 4.90 .45 1.95 .52 4.27 (1.76) 2.87 .63 (.45) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ...... .98 4.82 .37 1.88 .48 4.25 (1.77) 2.84 .64 (.50) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............ -- -- -- -- -- -- -- (.012) -- -- From Net Realized Gains on Investment Transactions ............ (1.02) (.030) (1.663) (.641) -- -- (.693) -- (.462) (.651) In Excess of Net Realized Gains ....... (.01) -- (.012) (.006) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ................... (1.03) (.030) (1.675) (.647) -- -- (.693) (.012) (.462) (.651) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ............. $15.68 $15.73 $10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ....................... 6.96% 44.20% 4.16% 17.71% 4.55% 67.67% (22.17)% 48.19% 11.41% (7.70)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. .99% .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets .......... (.7)% (.6)% (.8)% (.6)% (.4)% (.3)% (.1)% (.4)% .2% (.7)% Portfolio Turnover Rate ............... 91% 89% 111% 133% 87% 92% 103% 125% 145% 123% Average Commission Paid per Investment Security Traded ............ $.028 $.033 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) ................. $2,276 $1,676 $792 $847 $830 $622 $341 $264 $206 $187 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 9 INFORMATION REGARDING THE FUNDS INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. GROWTH EQUITY FUNDS All of the funds offered by this Prospectus seek capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the funds' manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the funds fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the funds' actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of their assets committed to equity and equity equivalent investments. The funds may purchase securities only of companies that have a record of at least three years of continuous operation. SELECT AND HERITAGE Securities of companies chosen for the Select and Heritage funds are chosen primarily for their growth potential. Additionally, as a matter of fundamental policy, 80% of the assets of Select and Heritage must be invested in securities of companies that have a record of paying dividends, or have committed themselves to the payment of regular dividends, or otherwise produce income. The remaining 20% of fund assets may be invested in any otherwise permissible securities that the manager believes will contribute to the funds' stated investment objectives. The income payments of equity securities are only a secondary consideration; therefore, the income return that Select and Heritage provide may not be significant. Otherwise, Select and Heritage follow the same investment techniques described below for Growth, Ultra and Vista. Since Select is one of our larger funds and Heritage is substantially smaller, Select will invest in shares of larger companies with larger share trading volume, and Heritage will tend to invest in smaller companies with smaller share trading volume. However, the two funds are not mutually exclusive, and a given security may be owned by both funds. For the reasons stated in the next section, it should be expected that Heritage will be more volatile and subject to greater short-term risk and long-term opportunity than Select. Because of its size, and because it invests primarily in securities that pay dividends or are committed to the payment of dividends, Select may be expected to be the least volatile of the funds described in this Prospectus. GROWTH, ULTRA AND VISTA Management selects for the portfolios of the Growth, Ultra and Vista funds, securities of companies whose earnings and revenue trends meet management's standards of selection. Growth generally invests in large, established companies. Ultra generally invests in medium to large size companies, while Vista invests in medium-sized and smaller companies. As of February 1, 1997, the size of the companies (as reflected by their capitalizations) held by the funds was as follows: 10 Information Regarding the Funds American Century Investments Median Capitalization of Companies Held - ------------------------------------------------------------------------ Growth $11,638,755,000 Ultra $10,795,469,000 Vista $1,069,608,000 - ------------------------------------------------------------------------ The median capitalization of the companies in a given fund may change over time. In addition, the criteria outlined previously are not mutually exclusive, and a given security may be owned by more than one of the funds. The size of companies in which a fund invests tends to give each fund its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure, which could readily be absorbed by a large company, can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that funds investing in smaller companies would be more volatile than funds investing in larger companies. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES Each of the funds may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The funds may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. Subject to their individual investment objectives and policies, the funds may invest in common stocks, convertible securities, preferred stocks, bonds, notes and other debt securities of foreign issuers, and debt securities of foreign governments and their agencies. The funds will limit their purchase of debt securities to investment grade obligations. Investments in foreign securities may present certain risks, including those resulting from fluctuations in currency exchange rates, future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the funds may be denominated in foreign currencies. Other securities, such as DRs, may be denominated in U.S. dollars, but have a value that is dependent on the performance of a foreign security, as valued in the currency of its home country. As a result, the value of a fund's portfolio may be affected by changes in the exchange rates between foreign currencies and the U.S. dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the U.S. dollar may be a factor in the overall performance of a fund. To protect against adverse movements in exchange rates between currencies, the funds may, for hedging purposes only, enter into forward currency exchange contracts. A forward currency exchange contract obligates the fund to purchase or sell a specific currency at a future date at a specific price. A fund may elect to enter into a forward currency exchange contract with respect to a specific purchase or sale of a security, or with respect to the fund's portfolio positions generally. By entering into a forward currency exchange contract with respect to the specific purchase or sale of a security denominated in a foreign currency, a fund can "lock in" an exchange rate between the trade and settlement dates for that purchase or sale. This practice is sometimes referred to as "transaction Prospectus Information Regarding the Funds 11 hedging." Each fund may enter into transaction hedging contracts with respect to all or a substantial portion of its foreign securities trades. When the manager believes that a particular currency may decline in value compared to the U.S. dollar, a fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." A fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. Each fund will make use of portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that a fund will enter into portfolio hedges much less frequently than transaction hedges. If a fund enters into a forward currency exchange contract, the fund, when required, will instruct its custodian bank to segregate cash or liquid high-grade securities in a separate account in an amount sufficient to cover its obligation under the contract. Those assets will be valued at market daily, and if the value of the segregated securities declines, additional cash or securities will be added so that the value of the account is not less than the amount of the fund's commitment. At any given time, no more than 10% of a fund's assets will be committed to a segregated account in connection with portfolio hedging transactions. Predicting the relative future values of currencies is very difficult, and there is no assurance that any attempt to protect a fund against adverse currency movements through the use of forward currency exchange contracts will be successful. In addition, the use of forward currency exchange contracts tends to limit the potential gains that might result from a positive change in the relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights tables on pages 5-9 of this Prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to a fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the funds pay directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund 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 that fund. 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 repurchase 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. Since 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. The funds will limit repurchase agreement transactions to securities issued by the U.S. government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities 12 Information Regarding the Funds American Century Investments 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. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, each of 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 more accurately described 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. 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, each fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described Prospectus Information Regarding the Funds 13 in this paragraph is a fundamental policy that may be changed only by a vote of a majority of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time the commitment to purchase is made. Delivery of and payment for these securities typically occur 15 to 45 days after the commitment to purchase. 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. A separate account for each fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The funds may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the funds' criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since 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 security that is illiquid. In such an event, the funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No fund may invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). SHORT SALES Each fund may engage in short sales if, at the time of the short sale, the fund owns or has the right to acquire an equal amount of the security being sold short at no additional cost. These transactions allow a fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. A fund may make a short sale 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 and for purposes of satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code and Regulations. PERFORMANCE ADVERTISING From time to time, the funds may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, and yield. Performance data may be quoted separately for the Investor Class and for the other classes. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual 14 Information Regarding the Funds American Century Investments compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period of time expressed as a percentage of the fund's share price. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, a fund's yield may not equal the income paid on its shares or the income reported in the fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. Prospectus Information Regarding the Funds 15 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS The funds offered by this Prospectus are a part of the American Century Investments family of mutual funds. Our family provides a full range of investment opportunities, from the aggressive equity growth funds in our Twentieth Century Group, to the fixed income funds in our Benham Group, to the moderate risk and specialty funds in our American Century Group. Please call 1-800-345-2021 for a brochure or prospectuses for the other funds in the American Century Investments family. INVESTING IN AMERICAN CENTURY The following section explains how to invest in American Century funds, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Investor Services Guide that you will receive when you open an account. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan or through a bank, broker-dealer or other financial intermediary, the following sections, as well as the information contained in our Investor Services Guide, may not apply to you. Please read "Employer-Sponsored Retirement Plans and Institutional Accounts," page 22. HOW TO OPEN AN ACCOUNT To open an account, you must complete and sign an application, furnishing your taxpayer identification number. (You must also certify whether you are subject to withholding for failing to report income to the IRS.) Investments received without a certified taxpayer identification number will be returned. The minimum investment is $2,500 [$1,000 for IRA and Uniform Gifts/Transfers to Minors Acts ("UGMA/UTMA") accounts]. These minimums will be waived if you establish an automatic investment plan to your account that is the equivalent of at least $50 per month. See "Automatic Investment Plan," page 17. The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services Representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to American Century Investments. BY WIRE You may make your initial investment by wiring funds. To do so, call us or mail a completed application and provide your bank with the following information: o RECEIVING BANK AND ROUTING NUMBER: Commerce Bank, N.A. (101000019) o BENEFICIARY (BNF): American Century Services Corporation 4500 Main St., Kansas City, Missouri 64111 o BENEFICIARY ACCOUNT NUMBER (BNF ACCT): 2804918 o REFERENCE FOR BENEFICIARY (RFB): American Century account number into which you are investing. If more than one, leave blank and see Bank to Bank Information below. o ORIGINATOR TO BENEFICIARY (OBI): Name and address of owner of account into which you are investing. 16 How to Invest with American Century Investments American Century Investments o BANK TO BANK INFORMATION (BBI OR FREE FORM TEXT): o Taxpayer identification or Social Security number o If more than one account, account numbers and amount to be invested in each account. o Current tax year, previous tax year or rollover designation if an IRA. Specify whether IRA, SEP-IRA or SARSEP-IRA. BY EXCHANGE Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another American Century account. See this page for more information on exchanges. IN PERSON If you prefer to work with a representative in person, please visit one of our Investors Centers, located at: 4500 Main Street Kansas City, Missouri 64111 1665 Charleston Road Mountain View, California 94043 2000 S. Colorado Blvd. Denver, Colorado 80222 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see "Automatic Investment Plan," this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the investment slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without an investment slip.) BY TELEPHONE Once your account is open, you may make investments by telephone if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. You may call an Investor Services Representative or use our Automated Information Line. BY ONLINE ACCESS Once your account is open, you may make investments online if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. BY WIRE You may make subsequent investments by wire. Follow the wire transfer instructions on page 16 and indicate your account number. IN PERSON You may make subsequent investments in person at one of our Investors Centers. The locations of our three Investors Centers are listed on this page. AUTOMATIC INVESTMENT PLAN You may elect on your application to make investments automatically by authorizing us to draw on your bank account regularly. Such investments must be at least the equivalent of $50 per month. You also may choose an automatic payroll or government direct deposit. If you are establishing a new account, check the appropriate box under "Automatic Investments" on your application to receive more information. If you would like to add a direct deposit to an existing account, please call one of our Investor Services Representatives. HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER As long as you meet any minimum investment requirements, you may exchange your fund shares to our other funds up to six times per year per account. An exchange request will be processed as of the same day it is received, if it is received before the funds' net asset values are calculated, which is one hour prior to the close of the New York Stock Exchange for funds issued by the American Century Target Maturities Trust, and at the close of the Exchange for all of our other funds. See "When Share Price is Determined," page 23. Prospectus How to Invest with American Century Investments 17 For any single exchange, the shares of each fund being acquired must have a value of at least $100. However, we will allow investors to set up an Automatic Exchange Plan between any two funds in the amount of at least $50 per month. See our Investor Services Guide for further information about exchanges. If, in any 90-day period, the total of your exchanges and your redemptions from any one account exceeds the lesser of $250,000 or 1% of the fund's assets, further exchanges will be subject to special requirements to comply with our policy on large redemptions. See "Special Requirements for Large Redemptions," page 19. BY MAIL You may direct us in writing to exchange your shares from one American Century account to another. For additional information, please see our Investor Services Guide. BY TELEPHONE You can make exchanges over the telephone (either with an Investor Services Representative or using our Automated Information Line--see page 20) if you have authorized us to accept telephone instructions. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to get the appropriate form. BY ONLINE ACCESS You can make exchanges online if you have authorized us to accept instructions over the Internet. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to get the appropriate form. HOW TO REDEEM SHARES We will redeem or "buy back" your shares at any time. Redemptions will be made at the next net asset value determined after a complete redemption request is received. For large redemptions, please read "Special Requirements for Large Redemptions," on page 19. Please note that a request to redeem shares in an IRA or 403(b) plan must be accompanied by an executed IRS Form W4-P and a reason for withdrawal as specified by the IRS. BY MAIL Your written instructions to redeem shares may be made either by a redemption form, which we will send you upon request, or by a letter to us. Certain redemptions may require a signature guarantee. Please see "Signature Guarantee," page 19. BY TELEPHONE If you have authorized us to accept telephone instructions, you may redeem your shares by calling an Investor Services Representative. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check in an amount you choose (minimum $50). To set up a Check-A-Month plan, please call and request our Check-A-Month brochure. OTHER AUTOMATIC REDEMPTIONS If you have at least a $10,000 balance in your account, you may elect to make redemptions automatically by authorizing us to send funds to you or to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Investor Services Guide. 18 How to Invest with American Century Investments American Century Investments BY WIRE AND ACH You may authorize us to transmit redemption proceeds by wire or ACH. These services will be effective 15 days after we receive the authorization. Your bank will usually receive wired funds within 48 hours of transmission. Funds transferred by ACH may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS We have elected to be governed by Rule 18f-1 under the Investment Company Act, which obligates each fund make certain redemptions in cash. This requirement to pay redemptions in cash applies to situations where one shareholder redeems, during any 90-day period, up to the lesser of $250,000 or 1% of the assets of the fund. Although redemptions in excess of this limitation will also normally be paid in cash, we reserve the right under unusual circumstances to honor these redemptions by making payment in whole or in part in readily marketable securities (a "redemption-in-kind"). If payment is made in securities, the securities will be selected by the fund, will be valued in the same manner as they are in computing the fund's net asset value and will be provided without prior notice. If your redemption would exceed this limit and you would like to avoid being paid in securities, please provide us with an unconditional instruction to redeem at least 15 days prior to the date on which the redemption transaction is to occur. The instruction must specify the dollar amount or number of shares to be redeemed and the date of the transaction. This minimizes the effect of the redemption on the fund and its remaining shareholders. Despite the funds' right to redeem fund shares through a redemption-in-kind, we do not expect to exercise this option unless a fund has an unusually low level of cash to meet redemptions and/or is experiencing unusually strong demands for its cash. Such a demand might be caused, for example, by extreme market conditions that result in an abnormally high level of redemption requests concentrated in a short period of time. Absent these or similar circumstances, we expect redemptions in excess of $250,000 to be paid in cash in any fund with assets of more than $50 million if total redemptions from any one account in any 90-day period do not exceed one-half of 1% of the total assets of the fund. REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you to either bring the value of the shares held in the account up to the minimum or to establish an automatic investment that is the equivalent of at least $50 per month. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and the proceeds from the redemption will be sent by check to your address of record. We reserve the right to increase the investment minimums. SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee is required when: o redeeming more than $25,000; or o establishing or increasing a Check-A-Month or automatic transfer on an existing account. You can obtain a signature guarantee from a bank or trust company, credit union, broker-dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Investor Services Guide. We reserve the right to require a signature guarantee on any transaction, or to change this policy at any time. Prospectus How to Invest with American Century Investments 19 SPECIAL SHAREHOLDER SERVICES We offer several service options to make your account easier to manage. These are listed on the account application. Please make note of these options and elect the ones that are appropriate for you. Be aware that the "Full Services" option offers you the most flexibility. You will find more information about each of these service options in our Investor Services Guide. Our special shareholder services include: AUTOMATED INFORMATION LINE We offer an Automated Information Line, 24 hours a day, seven days a week, at 1-800-345-8765. By calling the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated Information Line to make investments into your accounts (if we have your bank information on file) and obtain your share balance, value and most recent transactions. If you have authorized us to accept telephone instructions, you also may exchange shares from one fund to another via the Automated Information Line. Redemption instructions cannot be given via the Automated Information Line. ONLINE ACCOUNT ACCESS You may contact us 24 hours a day, seven days a week, at www.americancentury.com to access your fund's daily share price, receive updates on major market indices and view historical performance of your fund. If you select "Full Services" on your application, you can use your personal access code and Social Security number to view your account balance and account activity, make subsequent investments from your bank account or exchange shares from one fund to another. OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central time are effective the same day, and orders or cancellations received after 2 p.m. Central time are effective the next business day. TAX-QUALIFIED RETIREMENT PLANS Each fund is available for your tax-deferred retirement plan. Call or write us and request the appropriate forms for: o Individual Retirement Accounts (IRAs); o 403(b)plans for employees of public school systems and non-profit organizations; or o Profit sharing plans and pension plans for corporations and other employers. If your IRA and 403(b) accounts do not total $10,000, each account is subject to an annual $10 fee, up to a total of $30 per year. You can also transfer your tax-deferred plan to us from another company or custodian. Call or write us for a Request to Transfer form. IMPORTANT POLICIES REGARDING YOUR INVESTMENTS Every account is subject to policies that could affect your investment. Please refer to the Investor Services Guide for further information about the policies discussed below, as well as further detail about the services we offer. (1) We reserve the right for any reason to suspend the offering of shares for a period of time, or to reject any specific purchase order (including 20 How to Invest with American Century Investments erican Century Investments purchases by exchange). Additionally, purchases may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. (2) We reserve the right to make changes to any stated investment requirements, including those that relate to purchases, transfers and redemptions. In addition, we may also alter, add to or terminate any investor services and privileges. Any changes may affect all shareholders or only certain series or classes of shareholders. (3) Shares being acquired must be qualified for sale in your state of residence. (4) Transactions requesting a specific price and date, other than open orders, will be refused. Once you have mailed or otherwise transmitted your transaction instructions to us, they may not be modified or canceled. (5) If a transaction request is made by a corporation, partnership, trust, fiduciary, agent or unincorporated association, we will require evidence satisfactory to us of the authority of the individual making the request. (6) We have established procedures designed to assure the authenticity of instructions received by telephone. These procedures include requesting personal identification from callers, recording telephone calls, and providing written confirmations of telephone transactions. These procedures are designed to protect shareholders from unauthorized or fraudulent instructions. If we do not employ reasonable procedures to confirm the genuineness of instructions, then we may be liable for losses due to unauthorized or fraudulent instructions. The company, its transfer agent and investment advisor will not be responsible for any loss due to instructions they reasonably believe are genuine. (7) All signatures should be exactly as the name appears in the registration. If the owner's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. (8) Unusual stock market conditions have in the past resulted in an increase in the number of shareholder telephone calls. If you experience difficulty in reaching us during such periods, you may send your transaction instructions by mail, express mail or courier service, or you may visit one of our Investors Centers. You may also use our Automated Information Line if you have requested and received an access code and are not attempting to redeem shares. (9) If you fail to provide us with the correct certified taxpayer identification number, we may reduce any redemption proceeds by $50 to cover the penalty the IRS will impose on us for failure to report your correct taxpayer identification number on information reports. (10) We will perform special inquiries on shareholder accounts. A research fee of $15 per hour may be applied. REPORTS TO SHAREHOLDERS At the end of each calendar quarter, we will send you a consolidated statement that summarizes all of your American Century holdings, as well as an individual statement for each fund you own that reflects all year-to-date activity in your account. You may request a statement of your account activity at any time. With the exception of most automatic transactions, each time you invest, redeem, transfer or exchange shares, we will send you a confirmation of the transaction. See the Investor Services Guide for more detail. Carefully review all the information relating to transactions on your statements and confirmations to ensure that your instructions were acted on properly. Please notify us immediately in writing if there is an error. If you fail to provide notification of an error with reasonable promptness, i.e., within 30 days of non-automatic transactions or within 30 days of the date of your consolidated quarterly statement, in the case of automatic transactions, we will deem you to have ratified the transaction. No later than January 31 of each year, we will send you reports that you may use in completing your U.S. income tax return. See the Investor Services Guide for more information. Prospectus How to Invest with American Century Investments 21 Each year, we will send you an annual and a semiannual report relating to your fund, each of which is incorporated herein by reference. The annual report includes audited financial statements and a list of portfolio securities as of the fiscal year end. The semiannual report includes unaudited financial statements for the first six months of the fiscal year, as well as a list of portfolio securities at the end of the period. You also will receive an updated prospectus at least once each year. Please read these materials carefully, as they will help you understand your fund. EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS Information contained in our Investor Services Guide pertains to shareholders who invest directly with American Century rather than through an employer-sponsored retirement plan or through a financial intermediary. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan, your ability to purchase shares of the funds, exchange them for shares of other American Century funds, and redeem them will depend on the terms of your plan. If you own or are considering purchasing fund shares through a bank, broker-dealer, insurance company or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Service Representatives by calling 1-800-345-3533 to request information about our funds and services, to obtain a current prospectus or to get answers to any questions about our funds that you are unable to obtain through your plan administrator or financial intermediary. 22 How to Invest with American Century Investments American Century Investments ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of a fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined as of the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or one of our agents before the time as of which the net asset value of the fund is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined as of, the close of the Exchange on the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which the net asset value of the fund is determined. Investments by telephone pursuant to your prior authorization to us to draw on your bank account are considered received at the time of your telephone call. Investment and transaction instructions received by us on any business day by mail prior to the time as of which the net asset value of the fund is determined, will receive that day's price. Investments and instructions received after that time will receive the price determined on the next business day. If you invest in fund shares through an employer-sponsored retirement plan or other financial intermediary, it is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements with the funds or the funds' distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of each fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. 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 exchanged to dollars at the prevailing foreign exchange rate. Prospectus Additional Information You Should Know 23 Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed at various times before the close of business on each day that the New York Stock Exchange is open. If an event were to occur after the value of a security was established but before the net asset value per share was determined that was likely to materially change the net asset value, then that security would be valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Trading of these securities in foreign markets may not take place on every New York Stock Exchange business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the New York Stock Exchange is not open and on which a fund's net asset value is not calculated. Therefore, such calculation does not take place contemporaneously with the determination of the prices of many of the portfolio securities used in such calculation and the value of a fund's portfolio may be affected on days when shares of the fund may not be purchased or redeemed. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the Investor Class of the funds are published in leading newspapers daily. The net asset value may also be obtained by calling us or by accessing our Web site (www.americancentury.com). DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains, if any, are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions from investment income and from net profits realized on the sale of securities, if any, will be declared annually on or before December 31. THE OBJECTIVE OF THESE FUNDS IS CAPITAL APPRECIATION AND NOT THE PRODUCTION OF DISTRIBUTIONS. YOU SHOULD MEASURE THE SUCCESS OF YOUR INVESTMENT BY THE VALUE OF YOUR INVESTMENT AT ANY GIVEN TIME AND NOT BY THE DISTRIBUTIONS YOU RECEIVE. Participants in employer-sponsored retirement or savings plan must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our Investor Services Guide for further information regarding your distribution options. A distribution on shares of a fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are included in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. See "Taxes," this page. TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income tax. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, 24 Additional Information You Should Know American Century Investments or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS 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. Distributions from net long-term capital gains are taxable as long-term capital gains regardless of the length of time you have held the shares on which such distributions are paid. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital 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 of investments by non-resident investors. The foreign taxes paid by a fund will reduce its dividends. If more than 50% of the value of a fund's total assets at the end of each quarter 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 fund shareholders 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. If a fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code and Regulations, we are 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. Prospectus Additional Information You Should Know 25 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of the Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the funds. Acting pursuant to an investment management agreement entered into with the funds, American Century Investment Management, Inc. serves as the investment manager of the funds. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolios of each fund and directs the purchase and sale of its investment securities. It utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios as they deem appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this Prospectus and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined American Century in 1981. He is a member of the teams that manage Growth and Ultra. CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined American Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined American Century's equity investment efforts. He is a member of the team that manages Select. GLENN A. FOGLE, Vice President and Portfolio Manager, joined American Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. He is a member of the team that manages Vista. NANCY B. PRIAL, Vice President and Portfolio Manager, joined American Century in February 1994 as a Portfolio Manager. For more than four years prior to joining American Century, Ms. Prial served as Senior Vice President and Portfolio Manager at Frontier Capital Management Company, Boston, Massachusetts. She is a member of the team that manages Heritage. KEVIN M. LEWIS, Portfolio Manager, joined American Century in October 1995. Prior to that he served as a Portfolio Manager for Virtus Capital Management, Richmond, Virginia, from January 1995 to October 1995. Prior to that, he was a Portfolio Manager for Signet Trust Company, Richmond, Virginia. Mr. Lewis is a member of the team that manages Heritage. 26 Additional Information You Should Know American Century Investments JOHN D. SEITZER, Portfolio Manager, joined American Century in June 1993 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Seitzer attended Indiana University from August 1991 to June 1993, where he obtained his MBA degree. Mr. Seitzer is a member of the team that manages Vista. BRUCE A. WIMBERLY, Portfolio Manager, joined American Century in September 1994 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Wimberly attended Kellogg Graduate School of Management, Northwestern University from August 1992 to August 1994, where he obtained his MBA degree. Prior to that he served as a Research Analyst for Frontier Capital Management Company, Boston, Massachusetts. Mr. Wimberly is a member of the team that manages Ultra. JEAN LEDFORD, Vice President and Portfolio Manager, joined American Century in January 1997 as a Portfolio Manager. Prior to joining American Century, Ms. Ledford worked for the State of Wisconsin Investment Board as an Investment Director from 1994 to 1996 and as an Assistant Investment Director from 1983 to 1994. Ms. Ledford is a member of the team that manages Select. The activities of the manager are subject only to directions of the funds' Board of Directors. The manager pays all the expenses of the funds except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the Investor Class of the funds, the manager receives an annual fee of 1% of the average net assets. On the first business day of each month, each series of shares pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product 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). CODE OF ETHICS The funds and the manager have adopted a Code of Ethics that restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the funds' portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds, and is paid for such services by the manager. Certain recordkeeping and administrative services that would otherwise be performed by the transfer agent may be performed by an insurance company or other entity providing similar services for various retirement plans using shares of the funds as a funding medium, by broker-dealers and financial advisors for their customers investing in shares of American Century or by sponsors of multi mutual fund no- or low-transaction fee programs. The manager or an affiliate may enter into contracts to pay them for such recordkeeping and administrative services out of its unified management fee. Although there is no sales charge levied by the funds, transactions in shares of the funds may be executed by brokers or investment advisors who charge a transaction-based fee or other fee for their services. Such charges may vary among broker-dealers and financial advisors, but in all cases will be retained by the broker-dealer or financial advisor and not remitted to the funds or the manager. You should be aware of the fact that these transactions may be made directly with American Century without incurring such fees. Prospectus Additional Information You Should Know 27 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the funds' Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by American Century Investment Services, Inc. (the "Distributor"), a registered broker-dealer and an affiliate of the funds' investment manager. The manager pays all expenses for promoting and distributing the Investor Class of fund shares offered by this Prospectus. The Investor Class of shares does not pay any commissions or other fees to the Distributor or to any other broker-dealers or financial intermediaries in connection with the distribution of fund shares. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the funds, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is American Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may be made by mail to that address, or by telephone to 1-800-345-2021 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers four classes of each of the funds offered by this Prospectus: an Investor Class, an Institutional Class, a Service Class, and an Advisor Class. The shares offered by this Prospectus are Investor Class shares and have no up-front charges, commissions, or 12b-1 fees. The other classes of shares are primarily offered to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Investor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the other classes of shares not offered by this Prospectus, call us at 1-800-345-3533 or contact a sales representative or financial intermediary who offers those classes of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class, (d) each class may have different exchange privileges, and (e) the Institutional Class may provide for automatic conversion from that class into shares of another class of the same fund. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except for those matters which must be voted on separately by the series or class of shares affected. Matters affecting 28 Additional Information You Should Know American Century Investments only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the funds to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the funds' by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the funds to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. Prospectus Additional Information You Should Know 29 P.O. Box 419200 Kansas City, Missouri 64141-6200 Person-to-person assistance: 1-800-345-2021 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-340-7962 Internet: www.americancentury.com [americn century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7804 Recycled PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 TWENTIETH CENTURY(R) GROUP Giftrust [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. AMERICAN CENTURY INVESTMENTS BENHAM GROUP(R) AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Giftrust PROSPECTUS MARCH 1, 1997 Giftrust AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load mutual funds covering a variety of investment opportunities. One of the funds from our Twentieth Century Group that invests primarily in equity securities is described in this Prospectus. Its investment objective is listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. Giftrust is a unique way to give a gift to a child, grandchild or other individual. You may not invest in the fund. Rather, your gift, which is irrevocable, will be invested in the fund by the Giftrust Trustee in accordance with a trust established under a "Giftrust Agreement." The minimum initial gift requirement for Giftrust is $500. This Prospectus gives you information about Giftrust that you should know before making an investment decision. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: American Century Investments 4500 Main Street o P.O. Box 419200 Kansas City, Missouri 64141-6200 o 1-800-345-2021 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-634-4113 o In Missouri: 816-753-1865 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVE OF THE FUND AMERICAN CENTURY - TWENTIETH CENTURY GIFTRUST Giftrust seeks capital growth. It pursues its investment objective by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. There is no assurance that the fund will achieve its investment objective. NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objective American Century Investments TABLE OF CONTENTS Investment Objective of the Fund .....................................2 Transaction and Operating Expense Table ..............................4 Financial Highlights .................................................5 INFORMATION REGARDING THE FUND A Unique Gift ........................................................6 Investment Policies of the Fund ......................................6 Investment Approach ...............................................6 Other Investment Practices, Their Characteristics and Risks ..........7 Foreign Securities ................................................7 Forward Currency Exchange Contracts ...............................7 Portfolio Turnover ................................................8 Repurchase Agreements .............................................8 Derivative Securities .............................................8 Portfolio Lending .................................................9 When-Issued Securities ............................................9 Rule 144A Securities ..............................................9 Short Sales ......................................................10 Performance Advertising .............................................10 HOW TO ESTABLISH A GIFTRUST ACCOUNT American Century Investments ........................................11 Purchase of Fund Shares .............................................11 By Mail ........................................................11 By Telephone ...................................................11 By Wire ........................................................11 Automatic Investments ..........................................11 Additional Information About Gifts .............................12 Special Shareholder Services ........................................12 Online Account Access ..........................................12 Exchange of Fund Shares .............................................12 How to Redeem Shares ................................................12 By Mail ........................................................12 By Telephone ...................................................13 By Check-A-Month ...............................................13 Signature Guarantee ..............................................13 Redemption Proceeds .................................................13 By Mail ........................................................13 By Wire and ACH ................................................13 Additional Information About Redemptions .........................14 Telephone Services ..................................................14 Investors Line ...................................................14 Automated Information Line .......................................14 How to Change the Address of Record .................................14 Reports to Shareholders .............................................14 Form 1099-DIV ..................................................15 Form 1099-B ....................................................15 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price .........................................................16 When Share Price Is Determined ...................................16 How Share Price Is Determined ....................................16 Where to Find Information About Share Price ......................17 Distributions .......................................................17 Taxes ...............................................................17 Management ..........................................................18 Investment Management ............................................18 Code of Ethics ...................................................19 Transfer and Administrative Services .............................19 Distribution of Fund Shares ......................................19 Further Information About American Century ..........................19 Prospectus Table of Contents 3
TRANSACTION AND OPERATING EXPENSE TABLE Giftrust SHAREHOLDER TRANSACTION EXPENSES(1): Maximum Sales Load Imposed on Purchases ........................................................ none Maximum Sales Load Imposed on Reinvested Dividends ............................................. none Deferred Sales Load ............................................................................ none Redemption Fee(2) .............................................................................. none Exchange Fee ................................................................................... none ANNUAL FUND OPERATING EXPENSES: (as a percentage of net assets) Management Fees ................................................................................ 1.00% 12b-1 Fees ..................................................................................... none Other Expenses(3) .............................................................................. 0.00% Total Fund Operating Expenses .................................................................. 1.00% EXAMPLE A $1,000 investment in Giftrust would bear the expenses set forth to the 1 year $ 10 right, assuming a 5% annual return and redemption at the end of each time period. 3 years 32 It should be noted that, in most instances, a gift made in the fund must be made in 5 years 55 trust for a minimum term of ten years: 10 years 122 (1) A $100 administrative fee will be charged against each Giftrust account established after March 31, 1996 to help cover the costs incurred as a result of the Giftrust reaching maturity. See "Investment Policies of the Fund," page 6. (2) Redemption proceeds sent by wire are subject to a $10 processing fee. (3) Other expenses, which include the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year. Also, a $10 fee will be charged against each Giftrust account for which an annual tax return is filed. See "Taxes," page 17.
The purpose of the table is to help you understand the various costs and expenses that an investment in the fund will bear directly or indirectly. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 4 Transaction and Operating Expense Table American Century Investments
FINANCIAL HIGHLIGHTS GIFTRUST The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The semiannual and annual reports contain additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year $25.63 $20.50 $19.23 $13.57 $12.94 $7.25 $9.94 $6.84 $6.67 $8.19 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment (Loss) (.20)(1)(.16)(1) (.10) (.09) (.08) (.06) (.05) (.04) (.01) (.04) Net Realized and Unrealized Gain (Loss) on Investment Transactions 2.46 6.37 3.28 7.18 1.41 5.77 (1.72) 3.35 1.04 (.23) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations 2.26 6.21 3.18 7.09 1.33 5.71 (1.77) 3.31 1.03 (.27) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Realized Gains on Investment Transactions (2.10) (1.085) (1.911) (1.425) (.697) (.025) (.924) (.206) (.856) (1.250) In Excess of Net Realized Gains -- -- -- (.007) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions (2.10) (1.085) (1.911) (1.432) (.697) (.025) (.924) (.206) (.856) (1.250) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year $25.79 $25.63 $20.50 $19.23 $13.57 $12.94 $7.25 $9.94 $6.84 $6.67 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Total Return(2) 9.72% 32.52% 18.75% 55.84% 10.32% 79.04% (19.77%) 49.81% 16.28% (4.00%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets .98% .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment (Loss) to Average Net Assets (.8%) (.7%) (.7%) (.7%) (.7%) (.6%) (.6%) (.5%) (.1%) (.5%) Portfolio Turnover Rate 121% 105% 115% 143% 134% 143% 137% 160% 157% 130% Average Commission Paid per Investment Security Traded $.023 $.026 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) $866 $561 $266 $154 $78 $55 $25 $23 $13 $10 (1) Computed using average shares outstanding for the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 5 INFORMATION REGARDING THE FUND A UNIQUE GIFT A Giftrust is a unique way to give a gift to a child or any individual. You cannot establish or make investments in a Giftrust for yourself or your spouse, nor can a Giftrust be established that designates anyone other than an individual (such as a corporation, partnership or other profit or nonprofit organization) as a beneficiary. The minimum initial gift in Giftrust is $500. The shares in a Giftrust are held in trust by an independent trustee until the maturity date you specify. The duration of the trust may be as long as you wish, but must be at least 10 years from the time you make the first gift in the Giftrust or until the recipient reaches the age of majority, whichever is later. The recipient will then receive the shares in the account. The Giftrust is irrevocable. Before the maturity date you specify, neither you nor the beneficiary may amend the terms of the trust in any way. After the maturity of the Giftrust, the beneficiary may continue to own the Giftrust shares but, except for reinvestment of distributions, may not make additional Giftrust investments. Each Giftrust account for which a tax return is filed will be charged a $10 fee to help off-set a portion of the cost of preparing such return. See "Taxes," page 17. Additionally, each maturing Giftrust account established after March 31, 1996 will be charged a $100 administrative fee to help cover the costs incurred by the Trustee as a result of the Giftrust reaching maturity. The tax laws applicable to trusts in general are quite complex. You should consider consulting your tax advisor or attorney before opening a Giftrust account. For information on Giftrusts and taxes, see "Taxes," page 17. INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH Giftrust seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the fund's manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the fund intends to stay fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the fund's actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of its assets committed to equity and equity equivalent investments. The fund may purchase securities only of companies that have a record of at least three years continuous operation. The size of companies in which a fund invests tends to give a fund its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that Giftrust will be relatively more volatile than most of our other growth funds since it tends to invest in smaller companies. 6 Information Regarding the Fund American Century Investments OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The fund may invest in common stocks, convertible securities, preferred stocks, bonds, notes and other debt securities of foreign issuers, and debt securities of foreign governments and their agencies. The fund will limit its purchase of debt securities to investment grade obligations. Investments in foreign securities may present certain risks, including those resulting from fluctuations in currency exchange rates, future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund may be denominated in foreign currencies. Other securities, such as DRs, may be denominated in U.S. dollars, but have a value that is dependent on the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolio may be affected by changes in the exchange rates between foreign currencies and the U.S. dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the U.S. dollar may be a factor in the overall performance of the fund. To protect against adverse movements in exchange rates between currencies, the fund may, for hedging purposes only, enter into forward currency exchange contracts. A forward currency exchange contract obligates the fund to purchase or sell a specific currency at a future date at a specific price. The fund may elect to enter into a forward currency exchange contract with respect to a specific purchase or sale of a security, or with respect to the fund's portfolio positions generally. By entering into a forward currency exchange contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the fund can "lock in" an exchange rate between the trade and settlement dates for that purchase or sale. This practice is sometimes referred to as "transaction hedging." The fund may enter into transaction hedging contracts with respect to all or a substantial portion of its foreign securities trades. When the manager believes that a particular currency may decline in value compared to the U.S. dollar, the fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward currency exchange contract, the fund, when required, will instruct its custodian bank to segregate cash or liquid high-grade securities in a separate account in an amount sufficient to cover its obligation under the contract. Those assets will be valued at market daily, and if the value of the segregated securities declines, additional cash or securities will be added so that the value of the account is not less than the amount of the Prospectus Information Regarding the Fund 7 fund's commitment. At any given time, no more than 10% of the fund's assets will be committed to a segregated account in connection with portfolio hedging transactions. Predicting the relative future values of currencies is very difficult, and there is no assurance that any attempt to protect the fund against adverse currency movements through the use of forward currency exchange contracts will be successful. In addition, the use of forward currency exchange contracts tends to limit the potential gains that might result from a positive change in the relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The portfolio turnover rate of the fund is shown in the Financial Highlights table on page 5 of this Prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS The fund 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 fund. 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 repurchase 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. Since 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. The fund will limit repurchase agreement transactions to securities issued by the United States government, 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 fund's Board of Directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES The fund 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 more accurately described 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. 8 Information Regarding the Fund American Century Investments The fund may not 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 since the fund 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the Board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, the fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occur 15 to 45 days after the commitment to purchase. 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. A separate account for the fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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 Prospectus Information Regarding the Fund 9 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. The staff also acknowledges that, while the board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since the secondary market for such securities is limited to certain qualified institutional investors, the liquidity of such securities may be limited accordingly and the fund may, from time to time, hold a Rule 144A security that is illiquid. In such an event, the fund's manager will consider appropriate remedies to minimize the effect on the fund's liquidity. The fund may not invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). SHORT SALES The fund may engage in short sales if, at the time of the short sale, the fund owns or has the right to acquire an equal amount of the security being sold short at no additional cost. These transactions allow the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The fund may make a short sale 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 and for purposes of satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our family, and that combined or blended performance may be compared to the same indices to which the fund may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. 10 Information Regarding the Fund American Century Investments HOW TO ESTABLISH A GIFTRUST ACCOUNT AMERICAN CENTURY INVESTMENTS Giftrust is a part of the American Century Investments family of mutual funds. Our family provides a full range of investment opportunities, from the aggressive equity growth funds in our Twentieth Century Group, to the fixed income funds in our Benham Group, to the moderate risk and specialty funds in our American Century Group. Please call 1-800-345-2021 for a brochure or prospectuses for the other funds in the American Century Investments family. PURCHASE OF FUND SHARES The minimum initial gift to a Giftrust account is $500. Subsequent gifts to purchase additional shares must be in an amount of $250 or more. Once a Giftrust has matured, no future investments (other than reinvestments of distributions) may be made. You may make gifts in the following ways: BY MAIL Send your completed Giftrust application and check or money order payable in U.S. dollars to American Century Investments. ADDITIONAL GIFTS. When making additional gifts by mail, please enclose your check with the return remittance portion of the confirmation of your previous gift, if available. If the investment slip is not available, indicate on your check or a separate piece of paper your name, address and the beneficiary's name and account number. Orders to purchase shares are effective on the day we receive the purchase check or money order. See "When Share Price is Determined," page 16. BY TELEPHONE Once the Giftrust account is open, additional gifts may be made by telephone. Please call American Century for further details. BY WIRE You may make your initial investment by wiring funds. To do so, call us or mail a completed application and provide your bank with the following information: o RECEIVING BANK AND ROUTING NUMBER: Commerce Bank, N.A. (101000019) o BENEFICIARY (BNF): American Century Services Corporation 4500 Main St., Kansas City, Missouri 64111 o BENEFICIARY ACCOUNT NUMBER (BNF ACCT): 2804918 o REFERENCE FOR BENEFICIARY (RFB): American Century account number into which you are investing. If more than one, leave blank and see Bank to Bank Information below. o ORIGINATOR TO BENEFICIARY (OBI): Name and address of owner of account into which you are investing. o BANK TO BANK INFORMATION (BBI OR FREE FORM TEXT): o Taxpayer identification or Social Security number o If more than one account, account numbers and amount to be invested in each account. Wired funds are considered received on the day they are deposited in our account if they are deposited before the close of business on the New York Stock Exchange, usually 3 p.m. Central time. See "When Share Price Is Determined," page 16. AUTOMATIC INVESTMENTS Once a Giftrust account is open, you may make additional gifts to the Giftrust account automatically by authorizing us to draw on your bank account. You may change the date or amount of your automatic gift anytime by letter or telephone call to us at least five business days before the change is to become effective. Prospectus How To Establish A Giftrust Account 11 ADDITIONAL INFORMATION ABOUT GIFTS WE CANNOT ACCEPT GIFTS TO A GIFTRUST ACCOUNT SPECIFYING A CERTAIN PRICE, DATE OR NUMBER OF SHARES AND WILL RETURN THESE REQUESTS. Once you have mailed or otherwise transmitted your gift instruction to us, it may not be modified or cancelled. The fund reserves the right to suspend the offering of shares for a period of time, and the fund reserves the right to reject any specific gift instruction. Additionally, gift instructions and requests may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. SPECIAL SHAREHOLDER SERVICES As the grantor of a Giftrust, you may establish one or more special services designed to provide an easy way to do business with us. By electing these services on your application or by completing the appropriate forms, you may authorize: o Investments by phone o Automatic investments Once a Giftrust matures, the beneficiary may authorize: o Exchanges or redemptions by phone o Redemptions in writing without a signature guarantee With regard to the service which enables the beneficiary of a matured Giftrust to exchange and redeem by phone or in writing, and with respect to redemptions, without a signature guarantee, the fund, its transfer agent and investment advisor will not be responsible for any loss for instructions that they reasonably believe are genuine. We intend to employ reasonable procedures to confirm that instructions received by us, in fact, are genuine. Such procedures will include requiring personal information to verify the identity of callers, providing written confirmations of telephone transactions, and recording telephone calls. If we do not employ reasonable procedures to confirm the genuineness of instructions, then we may be liable for losses due to unauthorized or fraudulent instructions. ONLINE ACCOUNT ACCESS You may contact us 24 hours a day, seven days a week, at www.americancentury.com to access daily share prices, receive updates on major market indexes and view historical performance. If you select "Full Services" on your application, the grantor and beneficiary can use a personal access code and account number to view account balances and account activity. EXCHANGE OF FUND SHARES The beneficiary of a matured Giftrust may exchange his/her shares for shares of any of the other funds in our family of funds, subject to any applicable minimum investment requirements of the funds into which the beneficiary wishes to exchange. Please call 1-800-345-2021 for a prospectus and additional information about the other funds in our family of funds. Exchanges from a matured Giftrust account are limited to six times in any one calendar year. In addition, the shares being exchanged and the shares of each fund being acquired must have a current value of at least $100 and otherwise meet the minimum investment requirement, if any, of the fund being acquired. No exchanges out of a Giftrust account may be made prior to the maturity of the Giftrust account. Exchanges may be requested by telephone or online access (if such services have been authorized) or by mail. Once an exchange request is mailed or otherwise transmitted to us, it is irrevocable and may not be modified or cancelled. HOW TO REDEEM SHARES The fund will buy back ("redeem") shares of a matured Giftrust at any time at the net asset value next determined after receipt of a redemption request from the beneficiary in good order. Prior to the maturity of a Giftrust, redemptions are allowed only by the Trustee of the Giftrust, who is authorized by the Giftrust Agreement to make redemptions for the purpose of paying applicable fees, expenses and taxes of the Giftrust account. BY MAIL The written instructions of a matured Giftrust beneficiary to redeem shares may be in any one of the following forms: o A redemption form, available from us o A letter to us 12 How To Establish A Giftrust Account American Century Investments Once mailed to us, the redemption request is irrevocable and may not be modified or cancelled. If the beneficiary has authorized redemptions without signature guarantees, no signature guarantee is required. If this special service has not been elected, signatures must be guaranteed. See "Signature Guarantee," this page. The signature should be exactly as the name appears in the registration. If the matured Giftrust's beneficiary's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. Before writing, see "Additional Information About Redemptions," page 14. BY TELEPHONE The beneficiary of a matured Giftrust may redeem shares by telephone if that service has been authorized by the beneficiary. Once made, a telephone request may not be modified or cancelled. All calls received before the close of the New York Stock Exchange, usually 3 p.m. Central time, will receive that day's closing price. Before calling, read "Additional Information About Redemptions," page 14. BY CHECK-A-MONTH Our Check-A-Month plan automatically redeems enough shares each month to provide the beneficiary of a matured Giftrust having an account value of $10,000 or more with a check in an amount the beneficiary chooses (minimum $50). Interested beneficiaries should call us for our Check-A-Month brochure. SIGNATURE GUARANTEE When a signature guarantee is required, the signature must be guaranteed by a domestic bank or trust company, credit union, broker, dealer, national securities exchange, registered securities association, clearing agency or savings association as defined by federal law. The institution providing the guarantee must use a signature guarantee ink stamp or medallion which states "Signature(s) Guaranteed" and be signed in the name of the guarantor by an authorized person with that person's title and the date. We may reject a signature guarantee if the guarantor is not a member of or participant in a signature guarantee program. Shareholders living abroad may acknowledge their signatures before a U.S. consular officer. Military personnel in foreign countries may acknowledge their signatures before officers authorized to take acknowledgements (e.g., legal officers and adjutants). We may waive the signature guarantee on a redemption of $25,000 or less if we are able to verify the signature of the beneficiary of a matured Giftrust from account records. We reserve the right to amend or discontinue this waiver policy at any time and, with regard to a particular redemption transaction, to require a signature guarantee at our discretion. REDEMPTION PROCEEDS Redemption proceeds may be sent to the beneficiary of a matured Giftrust: BY MAIL If a redemption check is mailed, it is usually mailed on the second business day after receipt of a redemption request, but not later than seven days afterwards. Except as noted below, all checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. In certain instances a redemption check can be made payable to someone other than the registered owner of the shares and/or mailed to an address other than the address of record. Please call us for information about this special service. See "Telephone Services," page 14. BY WIRE AND ACH The beneficiary of a matured Giftrust may authorize us to transmit redemption proceeds by wire or by the automated bank clearinghouse (ACH). These services will be effective 15 days after we receive the authorization. Proceeds from the redemption of shares will normally be transmitted on the first business day, but not later than the seventh day, following the date of redemption. The destination bank usually will receive wired funds the day they are transmitted or the next day. Funds transferred by ACH will ordinarily be received within one to seven days after transmission. Once the Prospectus How To Establish A Giftrust Account 13 funds are transmitted, the time of receipt and the availability of the funds are not within our control. Wired funds are subject to a charge of $10 to cover bank wire charges, which is deducted from redemption proceeds. ADDITIONAL INFORMATION ABOUT REDEMPTIONS If the beneficiary of a matured Giftrust experiences difficulty in making a telephone redemption during periods of drastic economic or market changes, the redemption request may be made by regular or express mail. It will be implemented at the net asset value next determined after the request has been received, in good order, by us. We reserve the right to revise or terminate the telephone redemption privilege at any time. REDEMPTIONS SPECIFYING A CERTAIN DATE OR PRICE CANNOT BE ACCEPTED AND WILL BE RETURNED. Until a Giftrust matures, only the Trustee, as the legal owner of the shares, may redeem them. The ability of the beneficiary to compel the Trustee to redeem the shares is subject to the terms of the Giftrust. TELEPHONE SERVICES INVESTORS LINE The grantor of a Giftrust or the beneficiary of the Giftrust, if of legal age (or if not of legal age, the beneficiary's parents) may reach an Investor Services Representative by calling us at 1-800-345-2021 from 7 a.m. to 7 p.m. Central time Monday through Friday. You may request information about our funds and a current prospectus, speak with an Investor Services Representative about his/her account, or get answers to any questions about the funds and the services we offer. UNUSUAL STOCK MARKET CONDITIONS HAVE IN THE PAST RESULTED IN AN INCREASE IN THE NUMBER OF SHAREHOLDER TELEPHONE CALLS. THOSE WHO EXPERIENCE DIFFICULTY IN REACHING US DURING SUCH PERIODS, SHOULD CONSIDER SENDING TRANSACTION INSTRUCTIONS BY MAIL, EXPRESS MAIL OR COURIER SERVICE, OR USING OUR AUTOMATED INFORMATION LINE, IF THE CALLER HAS REQUESTED AND RECEIVED AN ACCESS CODE AND IS NOT ATTEMPTING TO REDEEM SHARES. AUTOMATED INFORMATION LINE American Century's 24-hour Automated Information Line allows you to access hourly market quotes, fund prices and total returns by calling 1-800-345-8765. The beneficiary of a matured Giftrust may also obtain an access code that will allow him/her to use the Automated Information Line to make exchange transactions and obtain information about share balance, account value and the most recent transaction. REDEMPTION TRANSACTIONS CANNOT BE MADE ON THE AUTOMATED INFORMATION LINE. Please call us at 1-800-345-2021 for more information on how to obtain an access code for our Automated Information Line. HOW TO CHANGE THE ADDRESS OF RECORD The grantor of a Giftrust or the beneficiary of the Giftrust, if of legal age (or if not of legal age, the beneficiary's parents) may notify us of changes in the address of record for the Giftrust account either by writing us or calling our Investors Line. Because the address of record impacts every piece of information we send to you, you are urged to notify us promptly of any change of address. REPORTS TO SHAREHOLDERS At the end of each quarter, we will send to the address of record for the Giftrust account a statement with the complete year-to-date information on activity in the account. The grantor, or the beneficiary, if of legal age (or if not of legal age, the beneficiary's parents) may at any time also request a statement of account activity to be sent to them. With the exception of the automatic transactions noted below, each time an investment, redemption or exchange of shares is made, we will send to the address of record for the Giftrust account a confirmation of the transaction. Automatic investment purchases and exchanges made in an automatic exchange plan will be confirmed on the next quarterly statement. Please carefully review all information in the confirmation or consolidated statement relating to transactions to ensure that instructions have been acted on properly. Please notify us in writing if there is an error. If you fail to provide notification of an 14 How To Establish A Giftrust Account American Century Investments error with reasonable promptness (i.e., within 30 days of non-automatic transactions or within 30 days of the date of the quarterly statement, in the case of the automatic transactions noted above) we will deem the transaction to be ratified. No later than January 31 of each year, we will send to the address of record for the Giftrust account, when applicable, the following reports, which may be used in completing U.S. income tax returns: FORM 1099-DIV Reports taxable distributions during the preceding year. (If the beneficiary does not receive taxable distributions in the previous year, he or she will not receive a 1099-DIV.) FORM 1099-B Reports proceeds paid on redemptions during the preceding year. In December of each year, we will send to the address of record for the Giftrust account an annual report that includes audited financial statements for the fiscal year ending the preceding October 31 and a list of securities in the Giftrust portfolio on that date. In June of each year, we will send a semiannual report that includes unaudited financial statements for the six months ending the preceding April 30, as well as a list of securities in its portfolio on that date. Both the annual and semiannual reports are incorporated herein by reference. We usually prepare and mail to the address of record a new prospectus dated March 1 of each year. Prospectus How To Establish A Giftrust Account 15 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of Giftrust shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined as of the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. Net asset value for Target Maturities is determined one hour prior to the close of the Exchange. Gifts and requests to redeem or exchange shares will receive the share price next determined after receipt by us of the gift, redemption or exchange request. For example, gifts and requests to redeem or exchange shares received by us or our agent before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Gifts, redemption and exchange requests received thereafter are effective on, and receive the price determined as of, the close of the Exchange on, the next day the Exchange is open. Investments are considered received from the Trustee only when the payment representing gifts by a grantor are received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which the net asset value of the fund is determined. Gifts by telephone pursuant to an authorization for us to draw on a bank account are considered received at the time of the telephone call. Gifts and transaction instructions received by us on any business day by mail prior to the time as of which the net asset value of the fund is determined, will receive that day's price. Gifts and instructions received after that time will receive the price determined on the next business day. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of the fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. 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 converted to dollars at the prevailing foreign exchange rate. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed at various times before the close of business on each day that the New York Stock Exchange is open. If an event were to occur after the value of a security was established but before the net asset value per share was determined that was likely to materially change the net asset value, then that security would be valued at fair value as determined in accordance with procedures adopted by the Board of Directors. 16 Additional Information You Should Know American Century Investments Trading of these securities in foreign markets may not take place on every New York Stock Exchange business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the New York Stock Exchange is not open and on which a fund's net asset value is not calculated. Therefore, such calculation does 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 fund's portfolio may be affected on days when shares of the fund may not be purchased or redeemed. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of our funds are published in leading newspapers daily. Net asset values may also be obtained by calling us or by accessing our Web site at www.americancentury.com. DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains, if any, are declared and paid annually on or before December 31, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions on shares of Giftrust accounts will not be paid in cash and will be reinvested. A distribution on shares of the fund does not increase the value of shares or total return. At any given time the value of shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are included in the value of shares, when they are distributed the value of shares is reduced by the amount of the distribution. If shares are bought just before the distribution, the full price will be paid for the shares, and then a portion of the purchase price will be distributed as a taxable distribution. See "Taxes," this page. TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. Distributions of net investment income and net short-term capital gains are taxable as ordinary income. Distributions from net long-term capital gains are taxable as long-term capital gains. Dividends and interest received by the 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 of investments by non-resident investors. The foreign taxes paid by the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter 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 fund shareholders 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 shareholders. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. Distributions are taxable, even if the value of the shares is below their cost. If shares are purchased shortly before a distribution, income taxes must be paid on the distribution, even though the value of the investment (plus cash received, if any) will not have increased. In addition, the share price at the time shares are purchased may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid as a distribution of Prospectus Additional Information You Should Know 17 capital gains and will be taxable as short-term or long-term capital gains. In January of the year following the distribution, we will send, when applicable, a Form 1099-DIV notifying the beneficiary of a matured Giftrust of the status of distributions for federal income tax purposes. Distributions may also 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 received 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. If the beneficiary of a matured Giftrust has not complied with certain provisions of the Internal Revenue Code and Regulations, we are 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 the beneficiary of a matured Giftrust to certify that the Social Security number or tax identification number provided is correct and that he/she is not subject to 31% withholding for previous under-reporting to the IRS. The beneficiary of a matured Giftrust will be asked to make the appropriate certification upon maturity of the Giftrust. Redemption of Giftrust shares (including redemptions 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. Because it is a gift of a future interest, an investment in a Giftrust does not qualify for the annual gift tax exclusion of $10,000. If you give a Giftrust, you must file a United States Gift Tax Return. If you make additional investments in subsequent years, a Gift Tax Return must be filed for each year's gift. No gift tax is payable until your cumulative lifetime gifts exceed the exemption equivalent of $600,000. Each gift is applied against the exemption equivalent that would otherwise be available in the future. The income of a Giftrust account is exempt from federal income tax until it exceeds $100. The Trustee of the Giftrust files federal income tax returns and pays the income tax out of the assets of the trust. A $10 fee will be charged against a Giftrust account in each year that the Trustee files a tax return on behalf of such account. The distribution to the beneficiary at the maturity of the Giftrust may be subject to the throwback rules under the Internal Revenue Code. The throwback rules may create additional tax liability for a beneficiary who is age 21 or older at the time the Giftrust matures. More than one trust for the same beneficiary may be subject to the provisions of the Internal Revenue Code with respect to multiple trusts. The tax laws applicable to trusts in general are quite complex. You should consider consulting your tax advisor or attorney before opening a Giftrust account. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the fund. Acting pursuant to an investment management agreement entered into with the fund, American Century Investment Management, Inc. serves as the investment manager of the fund. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. The manager supervises and manages the fund's investment portfolios and directs the purchase and sale of its investment securities. It utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the fund's portfolios as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing Giftrust and their work experience for the last five years are as follows: 18 Additional Information You Should Know American Century Investments GLENN A. FOGLE, Vice President and Portfolio Manager, joined American Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. JOHN D. SEITZER, Portfolio Manager, joined American Century in June 1993 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Seitzer attended Indiana University from August 1991 to June 1993, where he obtained his MBA degree. The activities of the manager are subject only to directions of the fund's Board of Directors. The manager pays all the expenses of the fund except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the fund, the manager receives an annual fee of 1% of the average net assets of the fund. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product 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). CODE OF ETHICS The fund and the manager have adopted a Code of Ethics that restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the fund's portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund, and is paid for such services by the manager. The manager and the transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the fund's Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by American Century Investment Services, Inc., a registered broker-dealer and an affiliate of the fund's investment manager. The manager pays all expenses for promoting and distributing the fund shares offered by this Prospectus. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the fund, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is American Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may be made by mail to that address, or by phone to 1-800-345-2021 (international calls: 816-531-5575). Prospectus Additional Information You Should Know 19 American Century Mutual Funds issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except for those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the fund to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. 20 Additional Information You Should Know American Century Investments NOTES Notes 21 P.O. Box 419200 Kansas City, Missouri 64141-6200 Person-to-person assistance: 1-800-345-2021 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-340-7962 Internet: www.americancentury.com [american century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7819 Recycled PROSPECTUS [american century company logo] American Century (sm) MARCH 1, 1997 AMERICAN CENTURY GROUP BALANCED INVESTOR CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. AMERICAN CENTURY INVESTMENTS Benham Group(R) American Century Group Twentieth Century(R) Group MONEY MARKET FUNDS ASSET ALLOCATION & GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Balanced PROSPECTUS MARCH 1, 1997 BALANCED INVESTOR CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load mutual funds covering a variety of investment opportunities. One of the funds that seeks capital growth and current income is described in this Prospectus. Its investment objective is listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. Through its Investor Class of shares, American Century offers investors a full line of no-load funds, investments that have no sales charges or commissions. This Prospectus gives you information about the fund that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: American Century Investments 4500 Main Street o P.O. Box 419200 Kansas City, Missouri 64141-6200 o 1-800-345-2021 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-634-4113 o In Missouri: 816-753-1865 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVE OF THE FUND AMERICAN CENTURY BALANCED FUND The Balanced fund seeks capital growth and current income. It is management's intention to maintain approximately 60% of the fund's assets in common stocks that are considered by management to have better-than-average prospects for appreciation and the remainder in bonds and other fixed income securities. There is no assurance that the fund will achieve its investment objective. NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objective American Century Investments TABLE OF CONTENTS Investment Objective of the Fund....................2 Transaction and Operating Expense Table.............4 Financial Highlights................................5 INFORMATION REGARDING THE FUND Investment Policies of the Fund.....................6 Investment Approach..............................6 Equity Investments...............................6 Fixed Income Investments.........................6 Other Investment Practices, Their Characteristics and Risks........................................7 Foreign Securities...............................7 Forward Currency Exchange Contracts..............7 Portfolio Turnover...............................8 Repurchase Agreements............................8 Derivative Securities............................9 Portfolio Lending................................9 When-Issued Securities..........................10 Rule 144A Securities............................10 Short Sales.....................................10 Performance Advertising............................10 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS American Century Investments.......................12 Investing in American Century......................12 How to Open an Account.............................12 By Mail.........................................12 By Wire.........................................12 By Exchange.....................................13 In Person.......................................13 Subsequent Investments..........................13 By Mail.........................................13 By Telephone..................................13 By Online Access..............................13 By Wire.......................................13 In Person.....................................13 Automatic Investment Plan.......................13 How to Exchange from One Account to Another........13 By Mail ......................................14 By Telephone..................................14 By Online Access..............................14 How to Redeem Shares...............................14 By Mail ......................................14 By Telephone..................................14 By Check-A-Month..............................14 Other Automatic Redemptions...................14 Redemption Proceeds.............................14 By Check......................................14 By Wire and ACH...............................14 Special Requirements for Large Redemptions......15 Redemption of Shares in Low-Balance Accounts....15 Signature Guarantee................................15 Special Shareholder Services.......................15 Automated Information Line....................15 Online Account Access.........................16 Open Order Service............................16 Tax-Qualified Retirement Plans................16 Important Policies Regarding Your Investments......16 Reports to Shareholders............................17 Employer-Sponsored Retirement Plans and Institutional Accounts..........................18 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price........................................19 When Share Price Is Determined..................19 How Share Price Is Determined...................19 Where to Find Information About Share Price.....20 Distributions......................................20 Taxes..............................................20 Tax-Deferred Accounts...........................20 Taxable Accounts................................20 Management.........................................22 Investment Management...........................22 Code of Ethics..................................22 Transfer and Administrative Services............23 Distribution of Fund Shares........................23 Further Information About American Century.........23 NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. Prospectus Table of Contents 3 TRANSACTION AND OPERATING EXPENSE TABLE Balanced SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases....................... none Maximum Sales Load Imposed on Reinvested Dividends............ none Deferred Sales Load........................................... none Redemption Fee(1)............................................. none Exchange Fee.................................................. none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees............................................... 1.00% 12b-1 Fees.................................................... none Other Expenses(2)............................................. 0.00% Total Fund Operating Expenses................................. 1.00% EXAMPLE: You would pay the following expenses on a 1 year $ 10 $1,000 investment, assuming a 5% annual return and 3 years 32 redemption at the end of each time period: 5 years 55 10 years 122 (1) Redemption proceeds sent by wire are subject to a $10 processing fee. (2) Other expenses, which include the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year. The purpose of this table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of Balanced offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Investor Class shares and have no up-front or deferred sales charges, commissions, or 12b-1 fees. The fund offers three other classes of shares, primarily to institutional investors, that have different fee structures than the Investor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for the other classes. For additional information about the various classes, see "Further Information About American Century," page 23. 4 Transaction and Operating Expense Table American Century Investments
FINANCIAL HIGHLIGHTS BALANCED The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 1993 1992 1991 1990 1989 1988(1) PER-SHARE DATA Net Asset Value, Beginning of Period.....$17.70 $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 $10.22 ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income..................44(2) .48(2) .42 .38 .33 .38 .41 .37 .01 Net Realized and Unrealized Gain (Loss) on Investment Transactions............. 1.88 2.03 (.58) 1.62 (.23) 4.22 (.62) 1.71 (.10) ------- ------- ------- ------- ------- ------- ------- ------- ------- Total From Investment Operations...... 2.32 2.51 (.16) 2.00 .10 4.60 (.21) 2.08 (.09) ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income............ (.46) (.475) (.416) (.375) (.322) (.384) (.417) (.372) -- From Net Realized Gains on Investment Transactions.........(1.01) (.274) -- -- -- -- (.320) -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions...................(1.47) (.749) (.416) (.375) (.322) (.384) (.737) (.372) -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period...........$18.55 $17.70 $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 ======= ======= ====== ======= ======= ======= ======= ======= ======= TOTAL RETURN(3).......................14.04% 16.36% (.93%) 13.64% .63% 42.92% (2.10%) 20.94% (.88%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets................. .99% .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(4) Ratio of Net Investment Income to Average Net Assets....... 2.5% 2.9% 2.7% 2.4% 2.4% 3.1% 3.8% 4.2% 4.4%(4) Portfolio Turnover Rate............... 130% 85% 94% 95% 100% 116% 104% 171% 99%(4) Average Commission Paid per Investment Security Traded......... $.040 $.039 --(5) --(5) --(5) --(5) --(5) --(5) --(5) Net Assets, End of Period (in millions) $879 $816 $704 $706 $654 $255 $66 $30 $3 (1) October 20, 1988 (Inception) through October 31, 1988. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Annualized. (5) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 5 INFORMATION REGARDING THE FUND INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH The manager intends to invest approximately 60% of the fund's assets in equity securities, while the remainder will be invested in bonds and other fixed income securities. A description of the investment style for each class of investment follows. EQUITY INVESTMENTS With the equity portion of the Balanced portfolio, the manager seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenue acceleration) and have, in the opinion of the manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the equity portion of Balanced fully invested in these securities regardless of the movement of stock prices generally. The fund may purchase securities only of companies that have a record of at least three years continuous operation. The manager selects, for the equity portion of the portfolio, securities of companies whose earnings and revenue trends meet management's standards of selection. The size of the companies in which a fund invests tends to give it its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that the volatility of the fund will be impacted by the size of companies in which it invests. FIXED INCOME INVESTMENTS The manager intends to maintain approximately 40% of the fund's assets in fixed income securities with a minimum of 25% of that amount in fixed income senior securities. The fixed income securities in the fund will be chosen based on their level of income production and price stability. The fund may invest in a diversified portfolio of debt and other fixed-rate securities payable in United States currency. These may include obligations of the United States government, its agencies and instrumentalities; corporate securities (bonds, notes, preferreds and convertible issues), and sovereign government, municipal, mortgage-backed and other asset-backed securities. There are no maturity restrictions on the fixed income securities in which the fund invests. Under normal market conditions the weighted average portfolio maturity for the fixed income portfolio will be in the three- to 10-year range. 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. It is the manager's intention to invest the fund's fixed income holdings in high-grade securities. At least 80% of fixed income assets will be invested in securities which at the time of purchase are rated 6 Information Regarding the Fund American Century Investments within the three highest categories by a nationally recognized statistical rating organization [at least A by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corp. (S&P)]. The remaining portion of the fixed income assets may be invested in issues in the fourth highest category (Baa by Moody's or BBB by S&P), or, if not rated, are of equivalent investment quality as determined by the manager and which, in the opinion of the manager, can contribute meaningfully to the fund's results without compromising its objectives. Such issues might include a lower-rated issue where research suggests the likelihood of a rating increase; or a convertible issue of a company deemed attractive by the equity management team. According to Moody's, bonds rated Baa are medium-grade and possess some speculative characteristics. A BBB rating by S&P indicates S&P's belief that a security exhibits a satisfactory degree of safety and capacity for repayment, but is more vulnerable to adverse economic conditions or changing circumstances. See "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The fund may invest in common stocks, convertible securities, preferred stocks, bonds, notes and other debt securities of foreign issuers, and debt securities of foreign governments and their agencies. The fund will limit its purchase of debt securities to investment-grade obligations. Investments in foreign securities may present certain risks, including those resulting from fluctuations in currency exchange rates, future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund may be denominated in foreign currencies. Other securities, such as DRs, may be denominated in U.S. dollars, but have a value that is dependent on the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolio may be affected by changes in the exchange rates between foreign currencies and the U.S. dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the U.S. dollar may be a factor in the overall performance of the fund. To protect against adverse movements in exchange rates between currencies, the fund may, for hedging purposes only, enter into forward currency exchange contracts. A forward currency exchange contract obligates the fund to purchase or sell a specific currency at a future date at a specific price. The fund may elect to enter into a forward currency exchange contract with respect to a specific purchase or sale of a security, or with respect to the fund's portfolio positions generally. By entering into a forward currency exchange contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the fund can "lock in" an exchange rate between the trade and settlement dates for that purchase or sale. This practice is sometimes referred to as "transaction hedging." The fund may enter into transaction hedging contracts with respect to all or a substantial portion of its foreign securities trades. Prospectus Information Regarding the Fund 7 When the manager believes that a particular currency may decline in value compared to the U.S. dollar, the fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward currency exchange contract, the fund, when required, will instruct its custodian bank to segregate cash or liquid high-grade securities in a separate account in an amount sufficient to cover its obligation under the contract. Those assets will be valued at market daily, and if the value of the segregated securities declines, additional cash or securities will be added so that the value of the account is not less than the amount of the fund's commitment. At any given time, no more than 10% of the fund's assets will be committed to a segregated account in connection with portfolio hedging transactions. Predicting the relative future values of currencies is very difficult, and there is no assurance that any attempt to protect the fund against adverse currency movements through the use of forward currency exchange contracts will be successful. In addition, the use of forward currency exchange contracts tends to limit the potential gains that might result from a positive change in the relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The portfolio turnover rate of the fund is shown in the Financial Highlights table on page 5 of this Prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by the fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS The fund 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 fund. 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 repurchase 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. Since 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. The fund will limit repurchase agreement transactions to securities issued by the U.S. government, 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 fund's Board of Directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. 8 Information Regarding the Fund American Century Investments DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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 more accurately described 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. The fund may not 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 since 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, the fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of the fund's shareholders. Prospectus Information Regarding the Fund 9 WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occur 15 to 45 days after the commitment to purchase. 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. A separate account for the fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the Board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the Board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated day-to-day function of determining the liquidity of Rule 144A securities to the manager. The Board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since the secondary market for such securities is limited to certain qualified institutional investors, the liquidity of such securities may be limited accordingly and the fund may, from time to time, hold a Rule 144A security that is illiquid. In such an event, the fund's manager will consider appropriate remedies to minimize the effect on the fund's liquidity. The fund may not invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). SHORT SALES The fund may engage in short sales if, at the time of the short sale, the fund owns or has the right to acquire an equal amount of the security being sold short at no additional cost. These transactions allow the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The fund may make a short sale 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 and for purposes of satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code and Regulations. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return, average annual total return and yield. Performance data may be quoted separately for the Investor Class and the other classes. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period of time expressed as a percentage of the fund's share price. 10 Information Regarding the Fund American Century Investments Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. Prospectus Information Regarding the Fund 11 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS The Balanced Fund is a part of the American Century Investments family of mutual funds. Our family provides a full range of investment opportunities, from the aggressive equity growth funds in our Twentieth Century Group, to the fixed income funds in our Benham Group, to the moderate risk and specialty funds in our American Century Group. Please call 1-800-345-2021 for a brochure or prospectuses for the other funds in the American Century Investments family. INVESTING IN AMERICAN CENTURY The following section explains how to invest in American Century funds, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Investor Services Guide that you will receive when you open an account. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan or through a bank, broker-dealer or other financial intermediary, the following sections, as well as the information contained in our Investor Services Guide, may not apply to you. Please read "Employer-Sponsored Retirement Plans and Institutional Accounts," page 18. HOW TO OPEN AN ACCOUNT To open an account, you must complete and sign an application, furnishing your taxpayer identification number. (You must also certify whether you are subject to withholding for failing to report income to the IRS.) Investments received without a certified taxpayer identification number will be returned. The minimum investment is $2,500 [$1,000 for IRA and Uniform Gifts/Transfers to Minors Acts ("UGMA/UTMA") accounts]. These minimums will be waived if you establish an automatic investment plan to your account that is the equivalent of at least $50 per month. See "Automatic Investment Plan," page 13. The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services Representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to American Century Investments. BY WIRE You may make your initial investment by wiring funds. To do so, call us or mail a completed application and provide your bank with the following information: o RECEIVING BANK AND ROUTING NUMBER: Commerce Bank, N.A. (101000019) o BENEFICIARY (BNF): American Century Services Corporation 4500 Main St., Kansas City, Missouri 64111 o BENEFICIARY ACCOUNT NUMBER (BNF ACCT): 2804918 o REFERENCE FOR BENEFICIARY (RFB): American Century account number into which you are investing. If more than one, leave blank and see Bank to Bank Information below. o ORIGINATOR TO BENEFICIARY (OBI): Name and address of owner of account into which you are investing. o BANK TO BANK INFORMATION (BBI OR FREE FORM TEXT): o Taxpayer identification or Social Security number. 12 How to Invest with American Century InvestmentsAmerican Century Investments o If more than one account, account numbers and amount to be invested in each account. o Current tax year, previous tax year or rollover designation if an IRA. Specify whether IRA, SEP-IRA or SARSEP-IRA. BY EXCHANGE Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another American Century account. See this page for more information on exchanges. IN PERSON If you prefer to work with a representative in person, please visit one of our Investors Centers, located at: 4500 Main Street Kansas City, Missouri 64111 1665 Charleston Road Mountain View, California 94043 2000 S. Colorado Blvd. Denver, Colorado 80222 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see "Automatic Investment Plan," this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the investment slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without an investment slip.) BY TELEPHONE Once your account is open, you may make investments by telephone if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. You may call an Investor Services Representative or use our Automated Information Line. BY ONLINE ACCESS Once your account is open, you may make investments online if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. BY WIRE You may make subsequent investments by wire. Follow the wire transfer instructions on page 12 and indicate your account number. IN PERSON You may make subsequent investments in person at one of our Investors Centers. The locations of our three Investors Centers are listed on this page. AUTOMATIC INVESTMENT PLAN You may elect on your application to make investments automatically by authorizing us to draw on your bank account regularly. Such investments must be at least the equivalent of $50 per month. You also may choose an automatic payroll or government direct deposit. If you are establishing a new account, check the appropriate box under "Automatic Investments" on your application to receive more information. If you would like to add a direct deposit to an existing account, please call one of our Investor Services Representatives. HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER As long as you meet any minimum investment requirements, you may exchange your fund shares to our other funds up to six times per year per account. An exchange request will be processed as of the same day it is received, if it is received before the funds' net asset values are calculated, which is one hour prior to the close of the New York Stock Exchange for funds issued by the American Century Target Maturities Trust, and at the close of the Exchange for all of our other funds. See "When SHare Price is Determined," page 19. For any single exchange, the shares of each fund being acquired must have a value of at least $100. However, we will allow investors to set up an Automatic Exchange Plan between any two funds in the amount of at least $50 per month. See our Investor Services Guide for further information about exchanges. Prospectus How to Invest with American Century Investments 13 If, in any 90-day period, the total of your exchanges and your redemptions from any one account exceeds the lesser of $250,000 or 1% of the fund's assets, further exchanges will be subject to special requirements to comply with our policy on large redemptions. See "Special Requirements for Large Redemptions," page 15. BY MAIL You may direct us in writing to exchange your shares from one American Century account to another. For additional information, please see our Investor Services Guide. BY TELEPHONE You can make exchanges over the telephone (either with an Investor Services Representative or using our Automated Information Line -- see page 15) if you have authorized us to accept telephone instructions. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to get the appropriate form. BY ONLINE ACCESS You can make exchanges online if you have authorized us to accept instructions over the Internet. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to get the appropriate form. HOW TO REDEEM SHARES We will redeem or "buy back" your shares at any time. Redemptions will be made at the next net asset value determined after a complete redemption request is received. (For large redemptions, please read "Special Requirements for Large Redemptions," page 15.) Please note that a request to redeem shares in an IRA or 403(b) plan must be accompanied by an executed IRS Form W4-P and a reason for withdrawal as specified by the IRS. BY MAIL Your written instructions to redeem shares may be made either by a redemption form, which we will send you upon request, or by a letter to us. Certain redemptions may require a signature guarantee. Please see "Signature Guarantee," page 15. BY TELEPHONE If you have authorized us to accept telephone instructions, you may redeem your shares by calling an Investor Services Representative. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check in an amount you choose (minimum $50). To set up a Check-A-Month plan or request a brochure, please call an Investor Services Representative. OTHER AUTOMATIC REDEMPTIONS If you have at least a $10,000 balance in your account, you may elect to make redemptions automatically by authorizing us to send funds to you or to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Investor Services Guide. BY WIRE AND ACH You may authorize us to transmit redemption proceeds by wire or ACH. These services will be effective 15 days after we receive the authorization. Your bank will usually receive wired funds within 48 hours of transmission. Funds transferred by ACH may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption 14 How to Invest with American Century InvestmentsAmerican Century Investments proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS We have elected to be governed by Rule18f-1 under the Investment Company Act, which obligates the fund make certain redemptions in cash. This requirement to pay redemptions in cash applies to situations where one shareholder redeems, during any 90-day period, up to the lesser of $250,000 or 1% of the assets of the fund. Although redemptions in excess of this limitation will also normally be paid in cash, we reserve the right under unusual circumstances to honor these redemptions by making payment in whole or in part in readily marketable securities (a "redemption-in-kind"). If payment is made in securities, the securities will be selected by the fund, will be valued in the same manner as they are in computing the fund's net asset value and will be provided without prior notice. If your redemption would exceed this limit and you would like to avoid being paid in securities, please provide us with an unconditional instruction to redeem at least 15 days prior to the date on which the redemption transaction is to occur. The instruction must specify the dollar amount or number of shares to be redeemed and the date of the transaction. This minimizes the effect of the redemption on the fund and its remaining shareholders. Despite the fund's right to redeem fund shares through a redemption-in-kind, we do not expect to exercise this option unless the fund has an unusually low level of cash to meet redemptions and/or is experiencing unusually strong demands for its cash. Such a demand might be caused, for example, by extreme market conditions that result in an abnormally high level of redemption requests concentrated in a short period of time. Absent these or similar circumstances, we expect redemptions in excess of $250,000 to be paid in cash in any fund with assets of more than $50 million if total redemptions from any one account in any 90-day period do not exceed one-half of 1% of the total assets of the fund. REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you to either bring the value of the shares held in the account up to the minimum or to establish an automatic investment that is the equivalent of at least $50 per month. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and the proceeds from the redemption will be sent by check to your address of record. We reserve the right to increase the investment minimums. SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee would be required when: o redeeming more than $25,000; or o establishing or increasing a Check-A-Month or automatic transfer on an existing account. You can obtain a signature guarantee from a bank or trust company, credit union, broker-dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Investor Services Guide. We reserve the right to require a signature guarantee on any transaction, or to change this policy at any time. SPECIAL SHAREHOLDER SERVICES We offer several service options to make your account easier to manage. These are listed on the account application. Please make note of these options and elect the ones that are appropriate for you. Be aware that the "Full Services" option offers you the most flexibility. You will find more information about each of these service options in our Investor Services Guide. Our special shareholder services include: AUTOMATED INFORMATION LINE We offer an Automated Information Line, 24 hours a day, seven days a week, at 1-800-345-8765. By calling Prospectus How to Invest with American Century Investments 15 the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated Information Line to make investments into your accounts (if we have your bank information on file) and obtain your share balance, value and most recent transactions. If you have authorized us to accept telephone instructions, you also may exchange shares from one fund to another via the Automated Information Line. Redemption instructions cannot be given via the Automated Information Line. ONLINE ACCOUNT ACCESS You may contact us 24 hours a day, seven days a week, at www.americancentury.com to access your funds' daily share prices, receive updates on major market indexes and view historical performance of your funds. If you select "Full Services" on your application, you can use your personal access code and Social Security number to view your account balances and account activity, make subsequent investments from your bank account or exchange shares from one fund to another. OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central time are effective the same day, and orders or cancellations received after 2 p.m. Central time are effective the next business day. TAX-QUALIFIED RETIREMENT PLANS The fund is available for your tax-deferred retirement plan. Call or write us and request the appropriate forms for: o Individual Retirement Accounts (IRAs); o 403(b) plans for employees of public school systems and non-profit organizations; or o Profit sharing plans and pension plans for corporations and other employers. If your IRA and 403(b) accounts do not total $10,000, each account is subject to an annual $10 fee, up to a total of $30 per year. You can also transfer your tax-deferred plan to us from another company or custodian. Call or write us for a Request to Transfer form. IMPORTANT POLICIES REGARDING YOUR INVESTMENTS Every account is subject to policies that could affect your investment. Please refer to the Investor Services Guide for further information about the policies discussed below, as well as further detail about the services we offer. (1) We reserve the right for any reason to suspend the offering of shares for a period of time, or to reject any specific purchase order (including purchases by exchange). Additionally, purchases may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. (2) We reserve the right to make changes to any stated investment requirements, including those that relate to purchases, transfers and redemptions. In addition, we may also alter, add to or terminate any investor services and privileges. Any changes may affect all shareholders or only certain series or classes of shareholders. (3) Shares being acquired must be qualified for sale in your state of residence. 16 How to Invest with American Century InvestmentsAmerican Century Investments (4) Transactions requesting a specific price and date, other than open orders, will be refused. Once you have mailed or otherwise transmitted your transaction instructions to us, they may not be modified or canceled. (5) If a transaction request is made by a corporation, partnership, trust, fiduciary, agent or unincorporated association, we will require evidence satisfactory to us of the authority of the individual making the request. (6) We have established procedures designed to assure the authenticity of instructions received by telephone. These procedures include requesting personal identification from callers, recording telephone calls, and providing written confirmations of telephone transactions. These procedures are designed to protect shareholders from unauthorized or fraudulent instructions. If we do not employ reasonable procedures to confirm the genuineness of instructions, then we may be liable for losses due to unauthorized or fraudulent instructions. The company, its transfer agent and investment advisor will not be responsible for any loss due to instructions they reasonably believe are genuine. (7) All signatures should be exactly as the name appears in the registration. If the owner's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. (8) Unusual stock market conditions have in the past resulted in an increase in the number of shareholder telephone calls. If you experience difficulty in reaching us during such periods, you may send your transaction instructions by mail, express mail or courier service, or you may visit one of our Investors Centers. You may also use our Automated Information Line if you have requested and received an access code and are not attempting to redeem shares. (9) If you fail to provide us with the correct certified taxpayer identification number, we may reduce any redemption proceeds by $50 to cover the penalty the IRS will impose on us for failure to report your correct taxpayer identification number on information reports. (10) We will perform special inquiries on shareholder accounts. A research fee of $15 per hour may be applied. REPORTS TO SHAREHOLDERS At the end of each calendar quarter, we will send you a consolidated statement that summarizes all of your American Century holdings, as well as an individual statement for each fund you own that reflects all year-to-date activity in your account. You may request a statement of your account activity at any time. With the exception of most automatic transactions, each time you invest, redeem, transfer or exchange shares, we will send you a confirmation of the transaction. See the Investor Services Guide for more detail. Carefully review all the information relating to transactions on your statements and confirmations to ensure that your instructions were acted on properly. Please notify us immediately in writing if there is an error. If you fail to provide notification of an error with reasonable promptness, i.e., within 30 days of non-automatic transactions or within 30 days of the date of your consolidated quarterly statement, in the case of automatic transactions, we will deem you to have ratified the transaction. No later than January 31 of each year, we will send you reports that you may use in completing your U.S. income tax return. See the Investor Services Guide for more information. Each year, we will send you an annual and a semiannual report relating to your fund, each of which is incorporated herein by reference. The annual report includes audited financial statements and a list of portfolio securities as of the fiscal year end. The semiannual report includes unaudited financial statements for the first six months of the fiscal year, as well as a list of portfolio securities at the end of the period. You also will receive an updated prospectus at least once each year. Please read these materials carefully, as they will help you understand your fund. Prospectus How to Invest with American Century Investments 17 EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS Information contained in our Investor Services Guide pertains to shareholders who invest directly with American Century rather than through an employer-sponsored retirement plan or through a financial intermediary. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan, your ability to purchase shares of the fund, exchange them for shares of other American Century funds, and redeem them will depend on the terms of your plan. If you own or are considering purchasing fund shares through a bank, broker-dealer, insurance company or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Service Representatives by calling 1-800-345-3533 to request information about our funds and services, to obtain a current prospectus or to get answers to any questions about our funds that you are unable to obtain through your plan administrator or financial intermediary. 18 How to Invest with American Century InvestmentsAmerican Century Investments ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined as of the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or one of our agents before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined as of, the close of the Exchange on, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which the net asset value of the fund is determined. Investments by telephone pursuant to your prior authorization to us to draw on your bank account are considered received at the time of your telephone call. Investment and transaction instructions received by us on any business day by mail prior to the time as of which the net asset value of the fund is determined, will receive that day's price. Investments and instructions received after that time will receive the price determined on the next business day. If you invest in fund shares through an employer-sponsored retirement plan or other financial intermediary, it is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the fund's transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangements with the fund or the fund's distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of the fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. 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 exchanged to dollars at the prevailing foreign exchange rate. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets Prospectus Additional Information You Should Know 19 is normally completed at various times before the close of business on each day that the New York Stock Exchange is open. If an event were to occur after the value of a security was established but before the net asset value per share was determined that was likely to materially change the net asset value, then that security would be valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Trading of these securities in foreign markets may not take place on every New York Stock Exchange business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the New York Stock Exchange is not open and on which the fund's net asset value is not calculated. Therefore, such calculation does 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 fund's portfolio may be affected on days when shares of the fund may not be purchased or redeemed. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset value of the Investor Class of the fund is published in leading newspapers daily. The net asset value of the fund may also be obtained by calling us or by accessing our Web site at www.americancentury.com. DISTRIBUTIONS Distributions from net investment income are declared and paid quarterly. Distributions from net realized securities gains, if any, are declared and paid once a year, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code and Regulations, in all events in a manner consistent with the provisions of the Investment Company Act. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our Investor Services Guide for further information regarding your distribution options. A distribution on shares of the fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are included in the value of your shares, when they are distributed, the value of your shares is reduced by the amount of the distribution. If you buy your share through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. See "Taxes," this page. TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS 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. Distributions from net long-term capital gains are taxable as long-term capital gains regardless 20 Additional Information You Should Know American Century Investments of the length of time you have held the shares on which such distributions are paid. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Dividends and interest received by the 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 of investments by non-resident investors. The foreign taxes paid by the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter 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 fund shareholders 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. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code and Regulations, we are required by federal law to withhold and remit to the IRS 31% of reportable payments (which may include dividends, capital gains distributions and redemptions). Those regulations require you to certify that the Social Security number or tax identification number you provide is correct and that you are not subject to 31% withholding for previous under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of the fund (including redemptions 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be Prospectus Additional Information You Should Know 21 subject to the "wash sale" rules of the Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the fund. Acting pursuant to an investment advisory agreement entered into with the fund, American Century Investment Management, Inc. serves as the investment manager of the fund. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment management services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolio of the fund and directs the purchase and sale of its investment securities. It utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the portfolio as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing Balanced and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined American Century in 1981. He is a member of the team that manages the equity portion of Balanced. BRUCE A. WIMBERLY, Portfolio Manager, joined American Century in September 1994 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Wimberly attended Kellogg Graduate School of Management, Northwestern University from August 1992 to August 1994, where he obtained his MBA degree. Prior to that he served as a Research Analyst for Frontier Capital Management Company, Boston, Massachusetts. Mr. Wimberly is a member of the team that manages the equity portion of Balanced. NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined American Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. He is a member of the team that manages the fixed income portion of Balanced. JEFFREY L. HOUSTON, Portfolio Manager, has worked for American Century since November 1990. He is a member of the team that manages the fixed income portion of Balanced. The activities of the manager are subject only to directions of the fund's Board of Directors. The manager pays all the expenses of the fund except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the Investor Class of the fund, the manager receives an annual fee of 1% of the average net assets. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product 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). CODE OF ETHICS The fund and the manager have adopted a Code of Ethics that restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that 22 Additional Information You Should Know American Century Investments employees with access to information about the purchase or sale of securities in the fund's portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund, and is paid for such services by the manager. Certain recordkeeping and administrative services that would otherwise be performed by the transfer agent may be performed by an insurance company or other entity providing similar services for various retirement plans using shares of the fund as a funding medium, by broker-dealers and financial advisors for their customers investing in shares of American Century or by sponsors of multi mutual fund no- or low-transaction fee programs. The manager or an affiliate may enter into contracts to pay them for such recordkeeping and administrative services out of its unified management fee. Although there is no sales charge levied by the fund, transactions in shares of the fund may be executed by brokers or investment advisors who charge a transaction-based fee or other fee for their services. Such charges may vary among broker-dealers and financial advisors, but in all cases will be retained by the broker-dealer or financial advisor and not remitted to the fund or the investment manager. You should be aware of the fact that these transactions may be made directly with American Century without incurring such fees. 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the fund's Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by American Century Investment Services, Inc. (the "Distributor"), a registered broker-dealer and an affiliate of the fund's investment manager. The manager pays all expenses for promoting and distributing the Investor Class of fund shares offered by this Prospectus. The Investor Class of shares does not pay any commissions or other fees to the Distributor or to any other broker-dealers or financial intermediaries in connection with the distribution of fund shares. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the funds, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is American Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may be made by mail to that address, or by phone to 1-800-345-2021 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers four classes of Balanced: an Investor Class, an Institutional Class, a Service Prospectus Additional Information You Should Know 23 Class, and an Advisor Class. The shares offered by this Prospectus are Investor Class shares and have no up-front charges, commissions, or 12b-1 fees. The other classes of shares are primarily offered to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Investor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the other classes of shares not offered by this Prospectus, call us at 1-800-345-3533 or contact a sales representative or financial intermediary who offers those classes of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class, (d) each class may have different exchange privileges, and (e) the Institutional Class may provide for automatic conversion from that class into shares of another class of the same fund. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except for those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the fund to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. 24 Additional Information You Should Know American Century Investments NOTES Notes 25 P.O. Box 419200 Kansas City, Missouri 64141-6200 Person-to-person assistance: 1-800-345-2021 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-340-7962 Internet: www.americancentury.com [american century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7773 Recycled PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 BENHAM GROUP(R) Cash Reserve INVESTOR CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. AMERICAN CENTURY INVESTMENTS BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY(R) GROUP MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Cash Reserve PROSPECTUS MARCH 1, 1997 Cash Reserve INVESTOR CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load mutual funds covering a variety of investment opportunities. One of the money market funds from our Benham Group is described in this Prospectus. Its investment objective is listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. Through its Investor Class of shares, American Century offers investors a full line of no-load funds, investments that have no sales charges or commissions. This Prospectus gives you information about the fund that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: American Century Investments 4500 Main Street o P.O. Box 419200 Kansas City, Missouri 64141-6200 o 1-800-345-2021 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-634-4113 o In Missouri: 816-753-1865 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVE OF THE FUND AMERICAN CENTURY - BENHAM CASH RESERVE FUND Cash Reserve is a money market fund which seeks to obtain maximum current income consistent with the preservation of principal and maintenance of liquidity. The fund intends to pursue its investment objective by investing substantially all of its assets in a portfolio of money market instruments and maintaining a weighted average maturity of not more than 90 days. INVESTMENTS IN THE FUND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT OR ANY OTHER AGENCY. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A $1.00 SHARE PRICE. There is no assurance that the fund will achieve its investment objective. NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objective American Century Investments TABLE OF CONTENTS Investment Objective of the Fund .....................................2 Transaction and Operating Expense Table ..............................4 Financial Highlights .................................................5 INFORMATION REGARDING THE FUND Investment Policies of the Fund ......................................6 Cash Reserve ......................................................6 Other Investment Practices, Their Characteristics and Risks ..........6 Repurchase Agreements .............................................6 Derivative Securities .............................................7 Portfolio Lending .................................................7 Foreign Securities ................................................8 When-Issued Securities ............................................8 Rule 144A Securities ..............................................8 Performance Advertising ..............................................8 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS American Century Investments ........................................10 Investing in American Century .......................................10 How to Open an Account ..............................................10 By Mail ........................................................10 By Wire ........................................................10 By Exchange ....................................................11 In Person ......................................................11 Subsequent Investments ...........................................11 By Mail ........................................................11 By Telephone ...................................................11 By Online Access ...............................................11 By Wire ........................................................11 In Person ......................................................11 Automatic Investment Plan ........................................11 How to Exchange from One Account to Another .........................11 By Mail ........................................................11 By Telephone ...................................................12 By Online Access ...............................................12 How to Redeem Shares ................................................12 By Mail ........................................................12 By Telephone ...................................................12 By Check-A-Month ...............................................12 Other Automatic Redemptions ....................................12 Redemption Proceeds ..............................................12 By Check .......................................................12 By Wire and ACH ................................................12 Redemption of Shares in Low-Balance Accounts .....................12 Signature Guarantee .................................................13 Special Shareholder Services ........................................13 Automated Information Line .....................................13 CheckWriting ...................................................13 Online Account Access ..........................................13 Open Order Service .............................................14 Tax-Qualified Retirement Plans .................................14 Important Policies Regarding Your Investments .......................14 Reports to Shareholders .............................................15 Employer-Sponsored Retirement Plans and Institutional Accounts ......15 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price .........................................................16 When Share Price Is Determined ...................................16 How Share Price Is Determined ....................................16 Where to Find Yield Information ..................................16 Distributions .......................................................16 Taxes ...............................................................17 Tax-Deferred Accounts ............................................17 Taxable Accounts .................................................17 Management ..........................................................17 Investment Management ............................................17 Code of Ethics ...................................................18 Transfer and Administrative Services .............................18 Distribution of Fund Shares .........................................19 Further Information About American Century ..........................19 Prospectus Table of Contents 3 TRANSACTION AND OPERATING EXPENSE TABLE Cash Reserve SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases ......................... none Maximum Sales Load Imposed on Reinvested Dividends .............. none Deferred Sales Load ............................................. none Redemption Fee(1) ............................................... none Exchange Fee .................................................... none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees ................................................. 0.70% 12b-1 Fees ...................................................... none Other Expenses(2) ............................................... 0.00% Total Fund Operating Expenses ................................... 0.70% EXAMPLE: You would pay the following expenses on a 1 year $ 7 $1,000 investment, assuming a 5% annual return and 3 years 22 redemption at the end of each time period: 5 years 39 10 years 87 (1) Redemption proceeds sent by wire are subject to a $10 processing charge. (2) Other expenses, which include the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than .01 of 1% of average net assets for the most recent fiscal year. The purpose of the table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of Cash Reserve offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Investor Class shares and have no up-front or deferred sales charges, commissions, or 12b-1 fees. The fund offers two other classes of shares, primarily to institutional investors, that have different fee structures than the Investor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for the other classes. For additional information about the various classes, see "Further Information About American Century," page 19. 4 Transaction and Operating Expense Table American Century Investments
FINANCIAL HIGHLIGHTS CASH RESERVE The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1) 1989(1) 1988(1) 1987(1) PER-SHARE DATA Net Asset Value, Beginning of Year .................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income ........... .05 .05 .03 .02 .04 .06 .07 .08 .07 .06 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ...... (.05) (.052) (.032) (.023) (.037) (.058) (.074) (.083) (.065) (.056) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ....... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ................. 4.99% 5.38% 3.21% 2.30% 3.74% 5.95% 7.67% 8.66% 6.73% 5.75% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. .70% .70% .80% 1.00% .98%(3) .97%(3) 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income to Average Net Assets ......................... 4.88% 5.27% 3.18% 2.30% 3.62% 5.75% 7.40% 8.35% 6.52% 5.80% Net Assets, End of Year (in millions) ................. $1,347 $1,470 $1,299 $1,256 $1,488 $1,236 $954 $639 $489 $448 (1) The data presented has been restated to give effect to a 100 for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Expenses are shown net of management fees waived by the manager for low-balance account fees collected during period.
Prospectus Financial Highlights 5 INFORMATION REGARDING THE FUND INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its respective investment objectives. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. CASH RESERVE Cash Reserve, which seeks to obtain a level of current income consistent with preservation of capital and maintenance of liquidity, requires a minimum investment of $2,500 ($1,000 for IRAs). Cash Reserve is designed for investors who want income and no fluctuation in their principal. Cash Reserve expects, but cannot guarantee, that it will maintain a constant share price of $1.00. The fund follows industry-standard guidelines on the quality and maturity of its investments, purchasing only securities having remaining maturities of not more than 13 months and by maintaining a weighted average portfolio maturity of not more than 90 days. Cash Reserve invests substantially all of its assets in a diversified portfolio of U.S. dollar denominated high quality money market instruments, consisting of: (1) Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities (2) Commercial Paper (3) Certificates of Deposit and Euro Dollar Certificates of Deposit (4) Bankers' Acceptances (5) Short-term notes, bonds, debentures, or other debt instruments (6) Repurchase agreements 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 which at the time of purchase have a short-term rating of A-1 by Standard & Poor's Corporation ("S&P") or P-1 by Moody's Investors Services ("Moody's"), or if they have no short-term rating are issued or guaranteed by an entity having a long-term rating of at least AA by S&P or Aa by Moody's. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. REPURCHASE AGREEMENTS The fund 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 fund. 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 repurchase 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. Since 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 6 Information Regarding the Fund American Century Investments 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. The fund will limit repurchase agreement transactions to securities issued by the United States government, 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. The fund may invest in repurchase agreements with respect to any security in which the fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. The fund will not invest more than 10% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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 more accurately described 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. The fund may not invest in a derivative security unless the reference index or the instrument to which it relates is an eligible investment for the fund. 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the Board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, the fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned Prospectus Information Regarding the Fund 7 securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, including foreign governments, when these securities meet its standards of selection. Securities of foreign issuers may trade in the U.S. or foreign securities markets. The fund will limit its purchase of debt securities to U.S. dollar denominated obligations. Such securities will be primarily from developed markets. Investments in foreign securities may present certain risks, including those resulting from future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. 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 each security may decline prior to delivery, which could result in a loss to the fund. A separate account for the fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since the secondary market for such securities is limited to certain qualified institutional investors, the liquidity of such securities may be limited accordingly and the fund may, from time to time, hold a Rule 144A security that is illiquid. In such an event, the manager will consider appropriate remedies to minimize the effect on the fund's liquidity. The fund may not invest more than 10% of its assets, in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, yield and effective yield. Performance data may be quoted separately for the Investor Class and for the other classes offered by the funds. Cumulative total return data is computed by considering all elements of return, including reinvest- 8 Information Regarding the Fund American Century Investments ment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period of time expressed as a percentage of the fund's share price. In the case of Cash Reserve, yield is calculated by measuring the income generated by an investment in the fund over a seven-day period (net of fund expenses). This income is then "annualized." That is, the amount of income generated by the investment over the seven-day period is assumed to be generated over each similar period each week throughout a full year and is shown as a percentage of the investment. The "effective yield" is calculated in a similar manner but, when annualized, the income earned by the investment is assumed to be reinvested. The effective yield will be slightly higher than the yield because of the compounding effect of the assumed reinvestment. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 2 1/2-year CD rates. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. Prospectus Information Regarding the Fund 9 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS The Cash Reserve Fund is a part of the American Century Investments family of mutual funds. Our family provides a full range of investment opportunities, from the aggressive equity growth funds in our Twentieth Century Group, to the fixed income funds in our Benham Group, to the moderate risk and specialty funds in our American Century Group. Please call 1-800-345-2021 for a brochure or prospectuses for the other funds in the American Century Investments family. INVESTING IN AMERICAN CENTURY The following section explains how to invest in American Century funds, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Investor Services Guide that you will receive when you open an account. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan or through a bank, broker-dealer or other financial intermediary, the following sections, as well as information contained in our Investor Services Guide, may not apply to you. Please read "Employer-Sponsored Retirement Plans and Institutional Accounts," page 15. HOW TO OPEN AN ACCOUNT To open an account, you must complete and sign an application, furnishing your taxpayer identification number. (You must also certify whether you are subject to withholding for failing to report income to the IRS.) Investments received without a certified taxpayer identification number will be returned. The minimum investment is $2,500 ($1,000 for IRA accounts). The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services Representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to American Century Investments. BY WIRE You may make your initial investment by wiring funds. To do so, call us or mail a completed application and provide your bank with the following information: o RECEIVING BANK AND ROUTING NUMBER: Commerce Bank, N.A. (101000019) o BENEFICIARY (BNF): American Century Services Corporation 4500 Main St., Kansas City, Missouri 64111 o BENEFICIARY ACCOUNT NUMBER (BNF ACCT): 2804918 o REFERENCE FOR BENEFICIARY (RFB): American Century account number into which you are investing. If more than one, leave blank and see Bank to Bank Information below. o ORIGINATOR TO BENEFICIARY (OBI): Name and address of owner of account into which you are investing. o BANK TO BANK INFORMATION (BBI OR FREE FORM TEXT): o Taxpayer identification or Social Security number. o If more than one account, account numbers and amount to be invested in each account. o Current tax year, previous tax year or rollover designation if an IRA. Specify whether IRA, SEP-IRA or SARSEP-IRA. 10 How to Invest with American Century Investments American Century Investments BY EXCHANGE Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another American Century account. See this page for more information on exchanges. IN PERSON If you prefer to work with a representative in person, please visit one of our Investors Centers, located at: 4500 Main Street Kansas City, Missouri 64111 1665 Charleston Road Mountain View, California 94043 2000 S. Colorado Blvd. Denver, Colorado 80222 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see "Automatic Investment Plan," on this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the investment slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without an investment slip.) BY TELEPHONE Once your account is open, you may make investments by telephone if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. You may call an Investor Services Representative or use our Automated Information Line. BY ONLINE ACCESS Once your account is open, you may make investments online if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. BY WIRE You may make subsequent investments by wire. Follow the wire transfer instructions on page 10 and indicate your account number. IN PERSON You may make subsequent investments in person at one of our Investors Centers. The locations of our three Investors Centers are listed on this page. AUTOMATIC INVESTMENT PLAN You may elect on your application to make investments automatically by authorizing us to draw on your bank account regularly. Such investments must be at least the equivalent of $50 per month. You also may choose an automatic payroll or government direct deposit. If you are establishing a new account, check the appropriate box under "Automatic Investments" on your application to receive more information. If you would like to add a direct deposit to an existing account, please call one of our Investor Services Representatives. HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER As long as you meet any minimum investment requirements, you may exchange your Cash Reserve fund shares to our other funds. An exchange request will be processed as of the same day it is received if it is received before the funds' net asset values are calculated, which is one hour prior to the close of the New York Stock Exchange for funds issued by the American Century Target Maturities Trust, and at the close of the Exchange for all of our other funds. See "When Share Price is Determined," page 16. For any single exchange, the shares of each fund being acquired must have a value of at least $100. However, we will allow investors to set up an Automatic Exchange Plan between any two funds in the amount of at least $50 per month. See our Investor Services Guide for further information about exchanges. BY MAIL You may direct us in writing to exchange your shares from one American Century account to another. For additional information, please see our Investor Services Guide. Prospectus How to Invest with American Century Investments 11 BY TELEPHONE You may make exchanges over the telephone (either with an Investor Services Representative or using our Automated Information Line--see page 13) if you have authorized us to accept telephone instructions. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to receive the appropriate form. BY ONLINE ACCESS You can make exchanges online if you have authorized us to accept instructions over the Internet. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to get the appropriate form. HOW TO REDEEM SHARES We will redeem or "buy back" your shares at any time. Redemptions will be made at the next net asset value determined after a completed redemption request is received. Please note that a request to redeem shares in an IRA or 403(b) plan must be accompanied by an executed IRS Form W4-P and a reason for withdrawal as specified by the IRS. BY MAIL Your written instructions to redeem shares may be made either by a redemption form, which we will send you upon request, or by a letter to us. Certain redemptions may require a signature guarantee. Please see "Signature Guarantee," page 13. BY TELEPHONE If you have authorized us to accept telephone instructions, you may redeem your shares by calling an Investor Services Representative. BY CHECK-A-MONTH You may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check in an amount you choose (minimum $50). To set up a Check-A-Month plan, please call and request our Check-A-Month brochure. OTHER AUTOMATIC REDEMPTIONS You may elect to make redemptions automatically by authorizing us to send funds to you or your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Investor Services Guide. BY WIRE AND ACH You may authorize us to transmit redemption proceeds by wire or ACH. These services will be effective 15 days after we receive the authorization. Your bank will usually receive wired funds within 48 hours of transmission. Funds transferred by ACH may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you of the necessity of bringing the value of the shares held in the account up to the minimum. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and the proceeds from the redemption will be sent by check to your address of record. We reserve the right to increase the investment minimums. 12 How to Invest with American Century Investments American Century Investments SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee will be required when: o Redeeming more than $25,000 o Establishing or increasing a Check-A-Month or automatic transfer on an existing account You may obtain a signature guarantee from a bank or trust company, credit union, broker, dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Investor Services Guide. We reserve the right to require a signature guarantee on any transaction, or to change this policy at any time. SPECIAL SHAREHOLDER SERVICES We offer several service options to make your account easier to manage. These are listed on the account application. Please make note of these options and elect the ones that are appropriate for you. Be aware that the "Full Services" option offers you the most flexibility. You will find more information about each of these service options in our Investor Services Guide. Our special shareholder services include: AUTOMATED INFORMATION LINE We offer an Automated Information Line, 24 hours a day, seven days a week, at 1-800-345-8765. By calling the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated Information Line to make investments into your accounts (if we have your bank information on file) and obtain your share balance, value and most recent transactions. If you have authorized us to accept telephone instructions, you also may exchange shares from one fund to another via the Automated Information Line. Redemption instructions cannot be given via the Automated Information Line. CHECKWRITING We offer CheckWriting as a service option for your Cash Reserve account. CheckWriting allows you to redeem shares in your account by writing a draft ("check") against your account balance. (Shares held in certificate form may not be redeemed by check.) There is no limit on the number of checks you can write, but each one must be for at least $100. When you write a check, you will continue to receive dividends on all shares until your check is presented for payment to our clearing bank. If you redeem all shares in your account by check, any accrued distributions on the redeemed shares will be paid to you in cash on the next monthly distribution date. If you want to add CheckWriting to an existing account that offers CheckWriting, contact us by phone or mail for an appropriate form. For a new account, you may elect CheckWriting on your purchase application by choosing the Full Services option. CheckWriting is not available for any account held in an IRA or 403(b) plan. CheckWriting redemptions may only be made on checks provided by us. Currently, there is no charge for checks or for the CheckWriting service. We will return checks drawn on insufficient funds or on funds from investments made by any means other than by wire within the previous 15 days. Neither the company nor our clearing bank will be liable for any loss or expenses associated with returned checks. Your account may be assessed a $15 service charge for checks drawn on insufficient funds. A stop payment may be ordered on a check written against your account. We will use reasonable efforts to stop a payment, but we cannot guarantee that we will be able to do so. If we are successful in fulfilling a stop-payment order, your account may be assessed a $15 fee. ONLINE ACCOUNT ACCESS You may contact us 24 hours a day, seven days a week at www.americancentury.com to access your funds' daily share prices, receive updates on major market indexes and view historical performance of your funds. If you select "Full Services" on your application, you can use your personal access code and Social Security number to view your account balances and account activity, make subsequent investments Prospectus How to Invest with American Century Investments 13 from your bank account or exchange shares from one fund to another. OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central time are effective the same day, and orders or cancellations received after 2 p.m. Central time are effective the next business day. TAX-QUALIFIED RETIREMENT PLANS The fund is available for your tax-deferred retirement plan. Call or write us and request the appropriate forms for: o Individual Retirement Accounts (IRAs) o 403(b) plans for employees of public school systems and non-profit organizations o Profit sharing plans and pension plans for corporations and other employers If your IRA and 403(b) accounts do not total $10,000, each account is subject to an annual $10 fee, up to a total of $30 per year. You can also transfer your tax-deferred plan to us from another company or custodian. Call or write us for a Request to Transfer form. IMPORTANT POLICIES REGARDING YOUR INVESTMENTS Every account is subject to policies that could affect your investment. Please refer to the Investor Services Guide for further information about the policies discussed below, as well as further detail about the services we offer. (1) We reserve the right for any reason to suspend the offering of shares for a period of time, or to reject any specific purchase order (including purchases by exchange). Additionally, purchases may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. (2) We reserve the right to make changes to any stated investment requirements, including those that relate to purchases, transfers and redemptions. In addition, we may also alter, add to or terminate any investor services and privileges. Any changes may affect all shareholders or only certain series or classes of shareholders. (3) Shares being acquired must be qualified for sale in your state of residence. (4) Transactions requesting a specific price and date, other than open orders, will be refused. Once you have mailed or otherwise transmitted your transaction instructions to us, they may not be modified or canceled. (5) If a transaction request is made by a corporation, partnership, trust, fiduciary, agent or unincorporated association, we will require evidence satisfactory to us of the authority of the individual making the request. (6) We have established procedures designed to assure the authenticity of instructions received by telephone. These procedures include requesting personal identification from callers, recording telephone calls, and providing written confirmations of telephone transactions. These procedures are designed to protect shareholders from unauthorized or fraudulent instructions. If we do not employ reasonable procedures to confirm the genuineness of instructions, then we may be liable for losses due to unauthorized or fraudulent instructions. The company, its transfer agent and investment 14 How to Invest with American Century Investments American Century Investments advisor will not be responsible for any loss due to instructions they reasonably believe are genuine. (7) All signatures should be exactly as the name appears in the registration. If the owner's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. (8) Unusual stock market conditions have in the past resulted in an increase in the number of shareholder telephone calls. If you experience difficulty in reaching us during such periods, you may send your transaction instructions by mail, express mail or courier service, or you may visit one of our Investors Centers. You may also use our Automated Information Line if you have requested and received an access code and are not attempting to redeem shares. (9) If you fail to provide us with the correct certified taxpayer identification number, we may reduce any redemption proceeds by $50 to cover the penalty the IRS will impose on us for failure to report your correct taxpayer identification number on information reports. (10) We will perform special inquiries on shareholder accounts. A research fee of $15 per hour may be applied. REPORTS TO SHAREHOLDERS At the end of each calendar quarter, we will send you a consolidated statement that summarizes all of your American Century holdings, as well as an individual statement for each fund you own that reflects all year-to-date activity in your account. You may request a statement of your account activity at any time. With the exception of most automatic transactions and CheckWriting activity, each time you invest, redeem, transfer or exchange shares, we will send you a confirmation of the transaction. CheckWriting activity will be confirmed monthly. See the Investor Services Guide for more detail. Carefully review all the information relating to transactions on your statements and confirmations to ensure that your instructions were acted on properly. Please notify us immediately in writing if there is an error. If you fail to provide notification of an error with reasonable promptness, i.e., within 30 days of non-automatic transactions or within 30 days of the date of your consolidated quarterly statement, in the case of automatic transactions, we will deem you to have ratified the transaction. No later than January 31 of each year, we will send you reports that you may use in completing your U.S. income tax return. See the Investor Services Guide for more information. Each year, we will send you an annual and a semiannual report relating to your fund, each of which is incorporated herein by reference. The annual report includes audited financial statements and a list of portfolio securities as of the fiscal year end. The semiannual report includes unaudited financial statements for the first six months of the fiscal year, as well as a list of portfolio securities at the end of the period. You also will receive an updated prospectus at least once each year. Please read these materials carefully, as they will help you understand your fund. EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS Information contained in our Investor Services Guide pertains to shareholders who invest directly with American Century rather than through an employer-sponsored retirement plan or through a financial intermediary. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan, your ability to purchase shares of the funds, exchange them for shares of other American Century funds, and redeem them will depend on the terms of your plan. If you own or are considering purchasing fund shares through a bank, broker-dealer, insurance company or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Service Representatives by calling 1-800-345-3533 to request information about our funds and services, to obtain a current prospectus or to get answers to any questions about our funds that you are unable to obtain through your plan administrator or financial intermediary. Prospectus How to Invest with American Century Investments 15 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined as of the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or one of our agents before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined as of, the close of the Exchange on, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which the net asset value of the fund is determined. Investments by telephone pursuant to your prior authorization to us to draw on your bank account are considered received at the time of your telephone call. Investment and transaction instructions received by us on any business day by mail prior to the time as of which the net asset value of the fund is determined, will receive that day's price. Investments and instructions received after that time will receive the price determined on the next business day. If you invest in fund shares through an employer-sponsored retirement plan or other financial intermediary, it is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the fund's transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangement with the fund or the fund's distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The securities held by the fund are valued on the basis of amortized cost. This method involves initially valuing a security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium paid at the time of the purchase, rather than determining the security's market value from day to day. WHERE TO FIND YIELD INFORMATION The yield of the Investor Class of Cash Reserve is published weekly in leading financial publications and daily in many local newspapers. Yield information may also be obtained by calling us or by accessing our Web site (www.americancentury.com). DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income plus net realized gains on portfolio securities is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month, except for year-end distributions which will be made on the last business day of the year. You will begin to participate in the distributions the day AFTER your purchase is effective. See "When Share Price is Determined," above. If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed (other than by CheckWriting), the distribution on the redeemed shares will be included with your redemption proceeds. 16 Additional Information You Should Know American Century Investments Cash Reserve does not expect to realize any long-term capital gains, and accordingly, does not expect to pay any capital gains distributions. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 59 1/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our Investor Services Guide for further information regarding your distribution options. TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the fund will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS 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, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable as long-term capital gains regardless of the length of time the shares on which such distributions are paid have been held by the shareholder. Distributions are taxable to you regardless of whether they are taken in cash or reinvested. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code and Regulations, we are 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. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the fund. Acting pursuant to an investment management agreement entered into with the fund, American Century Investment Management, Inc., serves as the investment manager of the fund. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri, 64111. Prospectus Additional Information You Should Know 17 The manager has been providing investment advisory services to investment companies and institutional clients since 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolio of the fund and directs the purchase and sale of its investment securities. It utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the portfolio as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund or of sectors of the fund as necessary between team meetings. The portfolio manager members of the teams managing the fund and their work experience for the last five years are as follows: ROBERT V. GAHAGAN, Vice President and Portfolio Manager, has worked for American Century since May 1983. He became a Portfolio Manager in December 1991. Prior to that he served as Assistant Portfolio Manager. AMY O'DONNELL, Portfolio Manager, joined Benham in 1988, becoming a member of its portfolio department in 1988. In 1992 she assumed her current position as a Portfolio Manager of three other Benham funds. The activities of the manager are subject only to directions of the fund's Board of Directors. The manager pays all the expenses of the fund except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the fund, the manager receives an annual fee of 0.70% of the average net assets of Cash Reserve. On the first business day of each month, the fund pays a management fee to the manager 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 the 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). CODE OF ETHICS The fund and the manager have adopted a Code of Ethics, which restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the fund's portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri, 64111, acts as transfer and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund and is paid for such services by the manager. Certain recordkeeping and administrative services that would otherwise be performed by the transfer agent may be performed by an insurance company or other entity providing similar services for various retirement plans using shares of the fund as a funding medium, by broker-dealers and financial advisors for their customers investing in shares of American Century or by sponsors of multi mutual fund no- or low-transaction fee programs. The manager or an affiliate may enter into contracts to pay them for such recordkeeping and administrative services out of its unified management fee. 18 Additional Information You Should Know American Century Investments Although there is no sales charge levied by the fund, transactions in shares of the fund may be executed by brokers or investment advisors who charge a transaction-based fee or other fee for their services. Such charges may vary among broker-dealers and financial advisors, but in all cases will be retained by the broker-dealer or financial advisor and not remitted to the fund or the investment manager. You should be aware of the fact that these transactions may be made directly with American Century without incurring such fees. 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 manager. The manager and the transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the Board of Directors of the fund, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by American Century Investment Services, Inc. (the "Distributor"), a registered broker-dealer and an affiliate of the fund's investment manager. The manager pays all expenses for promoting and distributing the Investor Class of fund shares offered by this Prospectus. The Investor Class of shares does not pay any commissions or other fees to the Distributor or to any other broker-dealers or financial intermediaries in connection with the distribution of fund shares. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the fund, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is American Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may be made by mail to that address, or by phone to 1-800-345-2021 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers three classes of Cash Reserve: an Investor Class, a Service Class, and an Advisor Class. The shares offered by this Prospectus are Investor Class shares and have no up-front charges, commissions, or 12b-1 fees. The other classes of shares are primarily offered to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Investor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the other classes of shares not offered by this Prospectus, call us at 1-800-345-3533 or contact a sales representative or financial intermediary who offers those classes of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting Prospectus Additional Information You Should Know 19 such class, and (d) each class may have different exchange privileges. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the fund to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. 20 Additional Information You Should Know American Century Investments NOTES Notes 21 P.O. Box 419200 Kansas City, Missouri 64141-6200 Person-to-person assistance: 1-800-345-2021 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-340-7962 Internet: www.americancentury.com [american century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7765 Recycled PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 BENHAM GROUP(R) Short-Term Government Fund Intermediate-Term Government Fund INVESTOR CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. AMERICAN CENTURY INVESTMENTS BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY(R) GROUP MONEY MARKET FUNDS ASSET ALLOCATION & GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Short-Term Government Fund Intermediate-Term Government Fund PROSPECTUS MARCH 1, 1997 SHORT-TERM GOVERNMENT FUND INTERMEDIATE-TERM GOVERNMENT FUND INVESTOR CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load mutual funds covering a variety of investment opportunities. Two of the funds from our Benham Group that invest primarily in debt instruments of the U.S. government and its agencies are described in this Prospectus. Their investment objectives are listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. Through its Investor Class, American Century offers investors a full line of no-load funds, investments that have no sales charges or commissions. This Prospectus gives you information about the funds that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: AMERICAN CENTURY INVESTMENTS 4500 Main Street o P.O. Box 419200 Kansas City, Missouri 64141-6200 o 1-800-345-2021 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-634-4113 o In Missouri: 816-753-1865 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVES OF THE FUNDS AMERICAN CENTURY -- BENHAM SHORT-TERM GOVERNMENT FUND The Short-Term Government Fund seeks a competitive level of income. The fund intends to pursue its investment objective by investing in securities of the U.S. government and its agencies and maintaining a weighted average maturity of three years or less. AMERICAN CENTURY -- BENHAM INTERMEDIATE-TERM GOVERNMENT FUND The Intermediate-Term Government Fund seeks a competitive level of income. The fund intends to pursue its investment objective by investing in securities of the U.S. government and its agencies and maintaining a weighted average maturity of three to 10 years. There is no assurance that the funds will achieve their respective investment objectives. NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objectives American Century Investments TABLE OF CONTENTS Investment Objectives of the Funds.............................................2 Transaction and Operating Expense Table........................................4 Financial Highlights...........................................................5 INFORMATION REGARDING THE FUNDS Investment Policies of the Funds...............................................7 Short-Term Government Fund and Intermediate-Term Government Fund..........................................7 Fundamentals of Fixed Income Investing.........................................8 Other Investment Practices, Their Characteristics and Risks...................................................................9 Portfolio Turnover.........................................................9 Repurchase Agreements......................................................9 Derivative Securities......................................................9 Portfolio Lending.........................................................10 When-Issued Securities....................................................10 Performance Advertising.......................................................11 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS American Century Investments..................................................12 Investing in American Century.................................................12 How to Open an Account........................................................12 By Mail................................................................12 By Wire................................................................12 By Exchange............................................................13 In Person..............................................................13 Subsequent Investments....................................................13 By Mail................................................................13 By Telephone...........................................................13 By Online Access.......................................................13 By Wire................................................................13 In Person..............................................................13 Automatic Investment Plan.................................................13 How to Exchange from One Account to Another...................................13 By Mail................................................................14 By Telephone...........................................................14 By Online Access.......................................................14 How to Redeem Shares..........................................................14 By Mail................................................................14 By Telephone...........................................................14 By Check-A-Month.......................................................14 Other Automatic Redemptions............................................14 Redemption Proceeds.......................................................14 By Check...............................................................14 By Wire and ACH........................................................14 Redemption of Shares in Low-Balance Accounts..............................14 Signature Guarantee...........................................................15 Special Shareholder Services..................................................15 Automated Information Line.............................................15 Online Account Access..................................................15 Open Order Service.....................................................15 Tax-Qualified Retirement Plans.........................................16 Important Policies Regarding Your Investments.................................16 Reports to Shareholders.......................................................16 Employer-Sponsored Retirement Plans and Institutional Accounts...........................................17 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price...................................................................18 When Share Price Is Determined............................................18 How Share Price Is Determined.............................................18 Where to Find Information About Share Price...............................18 Distributions.................................................................18 Taxes 19 Tax-Deferred Accounts.....................................................19 Taxable Accounts..........................................................19 Management....................................................................20 Investment Management.....................................................20 Code of Ethics............................................................21 Transfer and Administrative Services......................................21 Distribution of Fund Shares...................................................21 Further Information About American Century....................................21 Prospectus Table of Contents 3
TRANSACTION AND OPERATING EXPENSE TABLE Intermediate-Term Short-Term Government Fund Government Fund SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases....................... none none Maximum Sales Load Imposed on Reinvested Dividends............ none none Deferred Sales Load........................................... none none Redemption Fee(1)............................................. none none Exchange Fee.................................................. none none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees............................................... 0.75% 0.70% 12b-1 Fees.................................................... none none Other Expenses(2)............................................. 0.00% 0.00% Total Fund Operating Expenses................................. 0.75% 0.70% EXAMPLE: You would pay the following expenses on a 1 year $ 8 $ 7 $1,000 investment, assuming a 5% annual return and 3 years 24 22 redemption at the end of each time period: 5 years 42 39 10 years 93 87 (1) Redemption proceeds sent by wire are subject to a $10 processing charge. (2) Other expenses, the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year.
The purpose of the table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of the funds offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Investor Class shares. The funds offer two other classes of shares, one of which is primarily made available to retail investors and one that is primarily made available to institutional investors. The other classes have different fee structures than the Investor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for those classes. For additional information about the various classes, see "Further Information About American Century," page 21. 4 Transaction and Operating Expense Table American Century Investments
FINANCIAL HIGHLIGHTS SHORT-TERM GOVERNMENT FUND The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants. Their report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1) 1989(1) 1988(1) 1987(1) PER-SHARE DATA Net Asset Value, Beginning of Period................ $9.51 $9.27 $9.67 $9.61 $9.41 $9.08 $9.32 $9.42 $9.55 $10.16 ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ Income from Investment Operations Net Investment Income ......... .51 .52 .40 .36 .44 .63 .79 .84 .81 .79 Net Realized and Unrealized Gain (Loss) on Investment Transactions........ (.04) .24 (.40) .06 .20 .33 (.24) (.10) (.13) (.49) ---- --- ---- --- --- --- ---- ---- ---- ---- Total Income from Investment Operations.......... .47 .76 -- .42 .64 .96 .55 .74 .68 .30 --- --- --- --- --- --- --- --- --- Distributions From Net Investment Income..... (.51) (.519) (.402) (.36) (.441) (.635) (.789) (.843) (.815) (.792) From Net Realized Gains on Investment Transactions..... -- -- -- -- -- -- -- -- -- (.122) ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ Total Distributions............ (.51) (.519) (.402) (.36) (.441) (.635) (.789) (.843) (.815) (.914) ---- ----- ----- ---- ----- ----- ----- ----- ----- ----- Net Asset Value, End of Period..... $9.47 $9.51 $9.27 $9.67 $9.61 $9.41 $9.08 $9.32 $9.42 $9.55 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== TOTAL RETURN(2)................. 5.09% 8.42% .07% 4.45% 6.85% 10.99% 6.28% 8.36% 7.44% 3.14% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets.............. .70% .70% .81% 1.00% .99%(3) .99%(3) 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income to Average Net Assets.............. 5.39% 5.53% 4.17% 3.73% 4.62% 6.88% 8.64% 9.10% 8.60% 8.10% Portfolio Turnover Rate............ 246% 128% 470% 413% 391% 779% 620% 567% 578% 468% Net Assets, End of Period (in thousands)........... $349,772 $391,331 $396,753 $511,981 $569,430 $534,515 $455,536 $443,475 $440,380 $335,601 (1) The data presented has been restated to give effect to a 10 for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Expenses are shown net of management fees waived by the manager for low-balance account fees collected during period.
Prospectus Financial Highlights 5
FINANCIAL HIGHLIGHTS INTERMEDIATE-TERM GOVERNMENT FUND The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants. Their report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994(1) PER-SHARE DATA Net Asset Value, Beginning of Period....................... $10.04 $9.55 $10.00 ------ ----- ------ Income from Investment Operations Net Investment Income .................................. .54 .58 .34 Net Realized and Unrealized Gain (Loss) ................ (.14) .49 (.45) ---- --- ---- Total from Investment Operations........................ .40 1.07 (.11) --- ---- ---- Distributions From Net Investment Income.............................. (.54) (.583) (.343) From Net Realized Gain on Investment Transactions....... (.06) -- -- ------ ----- ------ Total Distributions..................................... (.60) (.583) (.343) ---- ----- ----- Net Asset Value, End of Period............................. $9.84 $10.04 $9.55 ===== ====== ===== Total Return(2)......................................... 4.12% 11.58% (1.01%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets....... .74% .74% .75% (3) Ratio of Net Investment Income to Average Net Assets.... 5.50% 5.99% 5.43% (3) Portfolio Turnover Rate................................. 112% 137% 205% Net Assets, End of Period (in thousands)................$24,422 $21,981 $6,280 (1) March 1, 1994 (inception) through October 31, 1994. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for less than one year are not annualized. (3) Annualized.
6 Financial Highlights American Century Investments INFORMATION REGARDING THE FUNDS INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. SHORT-TERM GOVERNMENT FUND AND INTERMEDIATE-TERM GOVERNMENT FUND These funds seek to provide a competitive level of income and limited price volatility by investing in securities of the U.S. government and its agencies, securities that are considered to be of the highest credit quality. The two funds differ in the weighted average maturities of their portfolios and accordingly, in their degree of risk and level of income. Generally, the longer the weighted average maturity of a fund's portfolio, the higher the yield and the greater the price volatility. The Short-Term Government Fund will maintain a weighted average portfolio maturity of three years or less. The fund is designed for investors who can accept some fluctuation in principal in order to earn a higher level of current income than is generally available from money market securities, but who do not want as much price volatility as is inherent in longer-term securities. The Intermediate-Term Government Fund will maintain a weighted average portfolio maturity of three to 10 years. The fund is designed for investors seeking a higher level of current income than is generally available from shorter-term government securities and who are willing to accept a greater degree of price fluctuation. The market value of the securities in which the Short-Term Government Fund and Intermediate-Term Government Fund invest will fluctuate, and accordingly, the value of your shares will vary from day to day. See "Fundamentals of Fixed Income Investing," page 8. Both funds 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 that are established under an act of Congress. 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. 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 Prospectus Information Regarding the Funds 7 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 manager will 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 manager makes assumptions regarding prepayments on underlying mortgages. In a rising interest rate environment, those prepayments generally decrease, and may decrease below the rate of prepayment assumed by the manager 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. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30-YEAR 20-YEAR 3-MONTH TREASURY TAX-EXEMPT TREASURY BOND.......BONDS ...BILLS 1/92 8%.......6% ......4% 2/92 8%.......6% ......4% 3/92 8%.......6% ......4% 4/92 8%.......6% ......4% 5/92 8%.......6% ......4% 6/92 8%.......6% ......4% 7/92 7%.......6% ......3% 8/92 7%.......6% ......3% 9/92 7%.......6% ......3% 10/92 8%.......6% ......3% 11/92 8%.......6% ......3% 12/92 7%.......6% ......3% 1/93 7%.......6% ......3% 2/93 7%.......5% ......3% 3/93 7%.......6% ......3% 4/93 7%.......6% ......3% 5/93 7%.......6% ......3% 6/93 7%.......5% ......3% 7/93 7%.......5% ......3% 8/93 6%.......5% ......3% 9/93 6%.......5% ......3% 10/93 6%.......5% ......3% 11/93 6%.......5% ......3% 12/93 6%.......5% ......3% 1/94 6%.......5% ......3% 2/94 7%.......5% ......3% 3/94 7%.......6% ......4% 4/94 7%.......6% ......4% 5/94 7%.......6% ......4% 6/94 8%.......6% ......4% 7/94 7%.......6% ......4% 8/94 7%.......6% ......5% 9/94 8%.......6% ......5% 10/94 8%.......6% ......5% 11/94 8%.......7% ......6% 12/94 8%.......6% ......6% 1/95 8%.......6% ......6% 2/95 7%.......6% ......6% 3/95 7%.......6% ......6% 4/95 7%.......6% ......6% 5/95 7%.......6% ......6% 6/95 7%.......6% ......6% 7/95 7%.......6% ......6% 8/95 7%.......6% ......5% 9/95 7%.......6% ......5% 10/95 6%.......5% ......6% 11/95 6%.......5% ......5% 12/95 6%.......5% ......5% 1/96 6%.......5% ......5% 2/96 6%.......5% ......5% 3/96 7%.......6% ......5% 4/96 7%.......6% ......5% 5/96 7%.......6% ......5% 6/96 7%.......6% ......5% 7/96 7%.......6% ......5% 8/96 7%.......6% ......5% 9/96 7%.......6% ......5% 10/96 7%.......6% ......5% 11/96 6%.......6% ......5% 12/96 7%.......6% ......5% BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% 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% YEARS TO MATURITY [bar graph data] SHORT-TERM GOVERNMENT FUND Likely Maturities of Individual Holdings 0-8 years Expected Weighted Average Portfolio Maturity Range 6 mos.-5 years INTERMEDIATE-TERM GOVERNMENT FUND Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 5-20 years Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. 8 Information Regarding the Funds American Century Investments AUTHORIZED QUALITY RANGES A-1 A-2 A-3 P-1 P-2 P-3 MIG-1MIG-2 MIG-3 SP-1 SP-2 SP-3 AAA AA A BBB BB B CCC CC C D Short-Term Government Fund x x x x Intermediate-Term Government Fund x x x x In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The portfolio maturity of each fund has implications for the degree of price volatility and the yield level to be expected from each. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5-6 of this Prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to a fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. A high turnover rate involves correspondingly higher transaction costs that are borne directly by a fund. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund 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 that fund. 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 repurchase 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. Since 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. The funds will limit repurchase agreement transactions to securities issued by the U.S. government, 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. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, each of 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 more accurately described as "index/structured" securities. Index/structured securities are derivative securities Prospectus Information Regarding the Funds 9 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. 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 bond whose interest rate is indexed to the return on two-year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), while a security whose underlying value is linked to the price of oil would not be a permissible investment since 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, each fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. 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 each security may decline prior to delivery, which 10 Information Regarding the Funds American Century Investments could result in a loss to the fund. A separate account for each fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. PERFORMANCE ADVERTISING From time to time, funds may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return and yield. Performance data may be quoted separately for the Investor Class and for the other classes. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, a fund's yield may not equal the income paid on your shares or the income reported in a fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 21/2-year CD rates. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. Prospectus Information Regarding the Funds 11 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS The funds offered by this Prospectus are a part of the American Century Investments family of mutual funds. Our family provides a full range of investment opportunities, from the aggressive equity growth funds in our Twentieth Century Group, to the fixed income funds in our Benham Group, to the moderate risk and specialty funds in our American Century Group. Please call 1-800-345-2021 for a brochure or prospectuses for the other funds in the American Century Investments family. INVESTING IN AMERICAN CENTURY The following section explains how to invest in American Century funds, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Investor Services Guide that you will receive when you open an account. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan or through a bank, broker-dealer or other financial intermediary, the following sections, as well as the information contained in our Investor Services Guide, may not apply to you. Please read "Employer-sponsored Retirement Plans and Institutional Accounts," page 17. HOW TO OPEN AN ACCOUNT To open an account, you must complete and sign an application, furnishing your taxpayer identification number. (You must also certify whether you are subject to withholding for failing to report income to the IRS.) Investments received without a certified taxpayer identification number will be returned. The minimum investment is $2,500 ($1,000 for IRA accounts). The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services Representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to American Century Investments. BY WIRE You may make your initial investment by wiring funds. To do so, call us or mail a completed application and provide your bank with the following information: o RECEIVING BANK AND ROUTING NUMBER: Commerce Bank, N.A. (101000019) o BENEFICIARY (BNF): American Century Services Corporation 4500 Main St., Kansas City, Missouri 64111 o BENEFICIARY ACCOUNT NUMBER (BNF ACCT): 2804918 o REFERENCE FOR BENEFICIARY (RFB): American Century account number into which you are investing. If more than one, leave blank and see Bank to Bank Information below. o ORIGINATOR TO BENEFICIARY (OBI): Name and address of owner of account into which you are investing. o BANK TO BANK INFORMATION (BBI or Free Form Text): o Taxpayer identification or Social Security number. o If more than one account, account numbers and amount to be invested in each account. 12 How to Invest With American Century Investments American Century Investments o Current tax year, previous tax year or rollover designation if an IRA. Specify whether IRA, SEP-IRA or SARSEP-IRA. BY EXCHANGE Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another American Century account. See this page for more information on exchanges. IN PERSON If you prefer to work with a representative in person, please visit one of our Investors Centers, located at: 4500 Main Street Kansas City, Missouri 64111 1665 Charleston Road Mountain View, California 94043 2000 S. Colorado Blvd. Denver, Colorado 80222 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see "Automatic Investment Plan," this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the investment slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without an investment slip.) BY TELEPHONE Once your account is open, you may make investments by telephone if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. You may call an Investor Services Representative or use our Automated Information Line. BY ONLINE ACCESS Once your account is open, you may make investments online if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. BY WIRE You may make subsequent investments by wire. Follow the wire transfer instructions on page 12 and indicate your account number. IN PERSON You may make subsequent investments in person at one of our Investors Centers. The locations of our three Investors Centers are listed on this page. AUTOMATIC INVESTMENT PLAN You may elect on your application to make investments automatically by authorizing us to draw on your bank account regularly. Such investments must be at least the equivalent of $50 per month. You also may choose an automatic payroll or government direct deposit. If you are establishing a new account, check the appropriate box under "Automatic Investments" on your application to receive more information. If you would like to add a direct deposit to an existing account, please call one of our Investor Services Representatives. HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER As long as you meet any minimum investment requirements, you may exchange your fund shares to our other funds up to six times per year per account. An exchange request will be processed as of the same day it is received, if it is received before the funds' net asset values are calculated, which is one hour prior to the close of the New York Stock Exchange for funds issued by the American Century Target Maturities Trust, and at the close of the Exchange for all of our other funds. See "When Share is Determined", page 18. For any single exchange, the shares of each fund being acquired must have a value of at least $100. However, we will allow investors to set up an Automatic Exchange Plan between any two funds in the amount of at least $50 per month. See our Investor Services Guide for further information about exchanges. See "When Share Price is Determined," page 18. Prospectus How to Invest with American Century Investments 13 BY MAIL You may direct us in writing to exchange your shares from one American Century account to another. For additional information, please see our Investor Services Guide. BY TELEPHONE You can make exchanges over the telephone (either with an Investor Services Representative or using our Automated Information Line -- see page 15) if you have authorized us to accept telephone instructions. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to get the appropriate form. BY ONLINE ACCESS You can make exchanges online if you have authorized us to accept instructions over the Internet. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to get the appropriate form. HOW TO REDEEM SHARES We will redeem or "buy back" your shares at any time. Redemptions will be made at the next net asset value determined after a complete redemption request is received. Please note that a request to redeem shares in an IRA or 403(b) plan must be accompanied by an executed IRS Form W4-P and a reason for withdrawal as specified by the IRS. BY MAIL Your written instructions to redeem shares may be made either by a redemption form, which we will send you upon request, or by a letter to us. Certain redemptions may require a signature guarantee. Please see "Signature Guarantee," page 15. BY TELEPHONE If you have authorized us to accept telephone instructions, you may redeem your shares by calling an Investor Services Representative. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please call and request our Check-A-Month brochure. OTHER AUTOMATIC REDEMPTIONS If you have at least a $10,000 balance in your account, you may elect to make redemptions automatically by authorizing us to send funds directly to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Investor Services Guide. BY WIRE AND ACH You may authorize us to transmit redemption proceeds by wire or ACH. These services will be effective 15 days after we receive the authorization. Your bank will usually receive wired funds within 48 hours of transmission. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you of the necessity to bring the value 14 How to Invest With American Century Investments American Century Investments of the shares held in the account up to the minimum. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and the proceeds from the redemption will be sent by check to your address of record. We reserve the right to increase the investment minimums. SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee would be required when: o redeeming more than $25,000; o establishing or increasing a Check-A-Month or automatic transfer on an existing account. You can obtain a signature guarantee from a bank or trust company, credit union, broker-dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Investor Services Guide. We reserve the right to require a signature guarantee on any transaction, or to change this policy at any time. SPECIAL SHAREHOLDER SERVICES We offer several service options to make your account easier to manage. These are listed on the account application. Please make note of these options and elect the ones that are appropriate for you. Be aware that the "Full Services" option offers you the most flexibility. You will find more information about each of these service options in our Investor Services Guide. Our special shareholder services include: AUTOMATED INFORMATION LINE We offer an Automated Information Line, 24 hours a day, seven days a week, at 1-800-345-8765. By calling the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated Information Line to make investments into your accounts (if we have your bank information on file) and obtain your share balance, value and most recent transactions. If you have authorized us to accept telephone instructions, you also may exchange shares from one fund to another via the Automated Information Line. Redemption instructions cannot be given via the Automated Information Line. ONLINE ACCOUNT ACCESS You may contact us 24 hours a day, seven days a week, at www.americancentury.com to access your funds' daily share prices, receive updates on major market indexes and view historical performance of your funds. If you select "Full Services" on your application, you can use your personal access code and Social Security number to view your account balances and account activity, make subsequent investments from your bank account or exchange shares from one fund to another. OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central time are effective the same day, and orders or cancellations received after 2 p.m. Central time are effective the next business day. Prospectus How to Invest with American Century Investments 15 TAX-QUALIFIED RETIREMENT PLANS Each fund is available for your tax-deferred retirement plan. Call or write us and request the appropriate forms for: o Individual Retirement Accounts (IRAs); o 403(b) plans for employees of public school systems and non-profit organizations; o profit sharing plans and pension plans for corporations and other employers. If your IRA and 403(b) accounts do not total $10,000, each account is subject to an annual $10 fee, up to a total of $30 per year. You can also transfer your tax-deferred plan to us from another company or custodian. Call or write us for a Request to Transfer form. IMPORTANT POLICIES REGARDING YOUR INVESTMENTS Every account is subject to policies that could affect your investment. Please refer to the Investor Services Guide for further information about the policies discussed below, as well as further detail about the services we offer. (1) We reserve the right for any reason to suspend the offering of shares for a period of time, or to reject any specific purchase order (including purchases by exchange). Additionally, purchases may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. (2) We reserve the right to make changes to any stated investment requirements, including those that relate to purchases, transfers and redemptions. In addition, we may also alter, add to or terminate any investor services and privileges. Any changes may affect all shareholders or only certain series or classes of shareholders. (3) Shares being acquired must be qualified for sale in your state of residence. (4) Transactions requesting a specific price and date, other than open orders, will be refused. Once you have mailed or otherwise transmitted your transaction instructions to us, they may not be modified or canceled. (5) If a transaction request is made by a corporation, partnership, trust, fiduciary, agent or unincorporated association, we will require evidence satisfactory to us of the authority of the individual making the request. (6) We have established procedures designed to assure the authenticity of instructions received by telephone. These procedures include requesting personal identification from callers, recording telephone calls, and providing written confirmations of telephone transactions. These procedures are designed to protect shareholders from unauthorized or fraudulent instructions. If we do not employ reasonable procedures to confirm the genuineness of instructions, then we may be liable for losses due to unauthorized or fraudulent instructions. The company, its transfer agent and investment advisor will not be responsible for any loss due to instructions they reasonably believe are genuine. (7) All signatures should be exactly as the name appears in the registration. If the owner's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. (8) Unusual stock market conditions have in the past resulted in an increase in the number of shareholder telephone calls. If you experience difficulty in reaching us during such periods, you may send your transaction instructions by mail, express mail or courier service, or you may visit one of our Investors Centers. You may also use our Automated Information Line if you have requested and received an access code and are not attempting to redeem shares. (9) If you fail to provide us with the correct certified taxpayer identification number, we may reduce any redemption proceeds by $50 to cover the penalty the IRS will impose on us for failure to report your correct taxpayer identification number on information reports. (10) We will perform special inquiries on shareholder accounts. A research fee of $15 per hour may be applied. REPORTS TO SHAREHOLDERS At the end of each calendar quarter, we will send you a consolidated statement that summarizes all of your American Century holdings, as well as an individual statement for each fund you own that reflects 16 How to Invest With American Century Investments American Century Investments all year-to-date activity in your account. You may request a statement of your account activity at any time. With the exception of most automatic transactions, each time you invest, redeem, transfer or exchange shares, we will send you a confirmation of the transaction. See the Investor Services Guide for more detail. Carefully review all the information relating to transactions on your statements and confirmations to ensure that your instructions were acted on properly. Please notify us immediately in writing if there is an error. If you fail to provide notification of an error with reasonable promptness, i.e., within 30 days of non-automatic transactions or within 30 days of the date of your consolidated quarterly statement, in the case of automatic transactions, we will deem you to have ratified the transaction. No later than January 31 of each year, we will send you reports that you may use in completing your U.S. income tax return. See the Investor Services Guide for more information. Each year, we will send you an annual and a semiannual report relating to your fund, each of which is incorporated herein by reference. The annual report includes audited financial statements and a list of portfolio securities as of the fiscal year end. The semiannual report includes unaudited financial statements for the first six months of the fiscal year, as well as a list of portfolio securities at the end of the period. You also will receive an updated prospectus at least once each year. Please read these materials carefully, as they will help you understand your fund. EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS Information contained in our Investor Services Guide pertains to shareholders who invest directly with American Century rather than through an employer-sponsored retirement plan or through a financial intermediary. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan, your ability to purchase shares of the funds, exchange them for shares of other American Century funds, and redeem them will depend on the terms of your plan. If you own or are considering purchasing fund shares through a bank, broker-dealer, insurance company or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Service Representatives by calling 1-800-345-3533 to request information about our funds and services, to obtain a current prospectus or to get answers to any questions about our funds that you are unable to obtain through your plan administrator or financial intermediary. Prospectus How to Invest with American Century Investments 17 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of a fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined at the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after we receive your investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares of a fund received by us or one of our agents before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined on, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which the net asset value of the fund is determined. Investments by telephone pursuant to your prior authorization to us to draw on your bank account are considered received at the time of your telephone call. Investment and transaction instructions received by us on any business day by mail prior to the time as of which the net asset value of the fund is determined, will receive that day's price. Investments and instructions received after that time will receive the price determined on the next business day. If you invest in fund shares through an employer-sponsored retirement plan or other financial intermediary, it is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangement with the funds or the funds' distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of each fund, except as otherwise noted, 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. 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. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the Investor Class of the funds are published in leading newspapers daily. Net asset values also may be obtained by calling us or by accessing our Web site (www.americancentury.com). DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month, except for year-end distributions, which will be paid on the last business day of the month. You will begin to participate in the distributions the day AFTER your purchase is effective. See "When Share Price is Determined," this page. If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. 18 Additional Information You Should Know American Century Investments Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code and Regulations, in all events in a manner consistent with the provisions of the Investment Company Act. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our Investor Services Guide for further information regarding your distribution options. TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS 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, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable as long-term capital gains, regardless of the length of time the shares on which such distributions are paid have been held by the shareholder. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. The funds will advise shareholders of the percentage, if any, of the dividends not exempt from federal income tax. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code and Regulations, we are required by federal law to withhold and remit to the IRS 31% of reportable payments (which may include Prospectus Additional Information You Should Know 19 dividends, capital gains distributions and redemptions). Those regulations require you to certify that the Social Security number or tax identification number you provide is correct and that you are not subject to 31% withholding for previous under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of a fund (including redemptions 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of The Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the funds. Acting pursuant to an investment management agreement entered into with the funds, American Century Investment Management, Inc. serves as the investment manager of the funds. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri, 64111. The manager has been providing investment advisory services to investment companies and institutional clients since 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolios of each fund and directs the purchase and sale of their investment securities. It utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the funds' portfolios and the funds' asset mix as it deems appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the funds or of sectors of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this prospectus and their work experience for the last five years are as follows: C. CASEY COLTON, Portfolio Manager, joined BMC in 1990 as a Municipal Analyst. He was promoted to his current position in 1995. Mr. Colton is a Chartered Financial Analyst (CFA). He is a member of the team that manages the Intermediate-Term Government Fund. ROBERT V. GAHAGAN, Vice President and Portfolio Manager, has worked for American Century since May 1983. He became a Portfolio Manager in December 1991. Prior to that he served as Assistant Portfolio Manager. He is a member of the team that manages the Short-Term Government Fund. NEWLIN RANKIN, Portfolio Manager, joined BMC in 1994. He has been primarily responsible for the day-to-day operations of the Benham ARM Fund since January 1995 and is a member of the team that manages the Short-Term Government Fund. Prior to joining BMC, Mr. Rankin was an Assistant Vice-President at Wells Fargo Bank from 1991 to 1993. The activities of the manager are subject only to directions of the funds' Board of Directors. The manager pays all the expenses of the funds except brokerage, taxes, interest, fees and expenses of the 20 Additional Information You Should Know American Century Investments non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the Investor Class of the funds, the manager receives an annual fee at the following rates: o 0.70 of 1% of the average net assets of Short-Term Government; and o 0.75 of 1% of the average net assets of Intermediate-Term Government. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by the aggregate average daily closing value of each 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). CODE OF ETHICS The funds and the manager have adopted a Code of Ethics that restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the funds' portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri, 64111, acts as transfer agent and dividend paying agent for the funds. It provides facilities, equipment and personnel to the funds, and is paid for such services by the manager. Certain recordkeeping and administrative services that would otherwise be performed by the transfer agent may be performed by an insurance company or other entity providing similar services for various retirement plans using shares of the funds as a funding medium, by broker-dealers and financial advisors for their customers investing in shares of American Century or by sponsors of multi mutual fund no- or low-transaction fee programs. The manager or an affiliate may enter into contracts to pay them for such recordkeeping and administrative services out of its unified management fee. Although there is no sales charge levied by the funds, transactions in shares of the funds may be executed by brokers or investment advisors who charge a transaction-based fee or other fee for their services. Such charges may vary among broker-dealers and financial advisors, but in all cases will be retained by the broker-dealer or financial advisor and not remitted to the funds or the investment manager. You should be aware of the fact that these transactions may be made directly with American Century without incurring such fees. 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the funds' Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by American Century Investment Services, Inc. (the "Distributor"), a registered broker-dealer and an affiliate of the funds' investment manager. The manager pays all expenses for promoting and distributing the Investor Class of fund shares offered by this Prospectus. The Investor Class of shares does not pay any commissions or other fees to the Distributor or to any other broker-dealers or financial intermediaries in connection with the distribution of fund shares. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the funds, was organized as a Maryland corpora- Prospectus Additional Information You Should Know 21 tion on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is American Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may be made by mail to that address, or by phone to 1-800-345-2021 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers three classes of each of the funds offered by this Prospectus: an Investor Class, a Service Class, and an Advisor Class. The shares offered by this Prospectus are Investor Class shares and have no up-front charges, commissions, or 12b-1 fees. The other classes of shares are primarily made available to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Investor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the other classes of shares not offered by this Prospectus, call us at 1-800-345-3533 or contact a sales representative or financial intermediary who offers those classes of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class and (d) each class may have different exchange privileges. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the funds to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the funds' by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the funds to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. 22 Additional Information You Should Know American Century Investments NOTES Notes 23 NOTES 24 Notes American Century Investments NOTES Notes 25 P.O. Box 419200 Kansas City, Missouri 64141-6200 Person-to-person assistance: 1-800-345-2021 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-340-7962 Internet: www.americancentury.com [american century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7770 Recycled PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 BENHAM GROUP(R) Limited-Term Bond Intermediate-Term Bond Benham Bond INVESTOR CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering bonds, stocks, specialty investments and blended portfolios. To make it easier to identify funds that meet your needs, all American Century funds have been collected into one of three groups based on investment style and objectives. These groups, which appear below, are designed to simplify your fund decisions. American Century Investments BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY(R) GROUP MONEY MARKET FUNDS ASSET ALLOCATION & GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Limited-Term Bond Intermediate-Term Bond Benham Bond PROSPECTUS MARCH 1, 1997 Limited-Term Bond Intermediate-Term Bond o Benham Bond INVESTOR CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load mutual funds covering a variety of investment opportunities. Three of the funds from our Benham Group that invest primarily in fixed income or debt instruments are described in this Prospectus. Their investment objectives are listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. Through its Investor Class of shares, American Century offers investors a full line of no-load funds, investments that have no sales charges or commissions. This Prospectus gives you information about the funds that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: AMERICAN CENTURY INVESTMENTS 4500 Main Street o P.O. Box 419200 Kansas City, Missouri 64141-6200 o 1-800-345-2021 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-634-4113 o In Missouri: 816-753-1865 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVES OF THE FUNDS AMERICAN CENTURY - BENHAM LIMITED-TERM BOND FUND The Limited-Term Bond Fund seeks income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of five years or less. AMERICAN CENTURY - BENHAM INTERMEDIATE-TERM BOND FUND The Intermediate-Term Bond Fund seeks a competitive level of income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of three to 10 years. AMERICAN CENTURY - BENHAM BOND FUND The Benham Bond Fund seeks a high level of income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of 10 years or greater. Effective March 1, 1997, the fund's policy regarding portfolio weighted average will change. As of that date, there will be no weighted average portfolio maturity requirement for the funds, although it is expected that the fund will invest primarily in intermediate and long-term bonds. You should consider this impending policy change prior to making an investment in the fund. There is no assurance that the funds will achieve their respective investment objectives. NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objectives American Century Investments TABLE OF CONTENTS Investment Objectives of the Funds.............................................2 Transaction and Operating Expense Table........................................4 Financial Highlights...........................................................5 INFORMATION REGARDING THE FUNDS Investment Policies of the Funds...............................................8 Limited-Term Bond, Intermediate-Term Bond and Benham Bond.........................................................8 Fundamentals of Fixed Income Investing........................................10 Other Investment Practices, Their Characteristics and Risks..................................................10 Portfolio Turnover........................................................10 Repurchase Agreements.....................................................11 Derivative Securities.....................................................11 Portfolio Lending.........................................................12 Foreign Securities........................................................12 When-Issued Securities....................................................12 Rule 144A Securities......................................................12 Interest Rate Futures Contracts and Options Thereon........................................................13 Performance Advertising...................................................14 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS American Century Investments..................................................15 Investing In American Century.................................................15 How to Open an Account........................................................15 By Mail ...............................................................15 By Wire................................................................15 By Exchange............................................................16 In Person..............................................................16 Subsequent Investments....................................................16 By Mail ...............................................................16 By Telephone...........................................................16 By Online Access.......................................................16 By Wire................................................................16 In Person..............................................................16 Automatic Investment Plan.................................................16 How to Exchange from One Account to Another...................................16 By Mail................................................................16 By Telephone...........................................................17 By Online Access.......................................................17 How to Redeem Shares..........................................................17 By Mail ...............................................................17 By Telephone...........................................................17 By Check-A-Month.......................................................17 Other Automatic Redemptions............................................17 Redemption Proceeds.......................................................17 By Check ..............................................................17 By Wire and ACH........................................................17 Redemption of Shares in Low-Balance Accounts..............................17 Signature Guarantee...........................................................18 Special Shareholder Services..................................................18 Automated Information Line................................................18 Online Account Access.....................................................18 Open Order Service........................................................18 Tax-Qualified Retirement Plans............................................19 Important Policies Regarding Your Investments.................................19 Reports to Shareholders.......................................................19 Employer-Sponsored Retirement Plans and Institutional Accounts.................................................20 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price...................................................................21 When Share Price Is Determined............................................21 How Share Price Is Determined.............................................21 Where to Find Information About Share Price...............................22 Distributions.................................................................22 Taxes 22 Tax-Deferred Accounts.....................................................22 Taxable Accounts..........................................................22 Management....................................................................23 Investment Management.....................................................23 Code of Ethics............................................................24 Transfer and Administrative Services......................................24 Distribution of Fund Shares...................................................25 Further Information About American Century....................................25 Prospectus Table of Contents 3
TRANSACTION AND OPERATING EXPENSE TABLE Limited-Term Intermediate-Term Benham Bond Bond Bond SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases....................... none none none Maximum Sales Load Imposed on Reinvested Dividends............ none none none Deferred Sales Load........................................... none none none Redemption Fee(1)............................................. none none none Exchange Fee.................................................. none none none ANNUAL FUND OPERATING EXPENSES: (AS A PERCENTAGE OF NET ASSETS) Management Fees............................................... 0.70% 0.75% 0.80% 12b-1 Fees.................................................... none none none Other Expenses(2)............................................. 0.00% 0.00% 0.00% Total Fund Operating Expenses................................. 0.70% 0.75% 0.80% EXAMPLE You would pay the following expenses on a ..............1 year $ 7 $ 8 $ 8 $1,000 investment, assuming a 5% annual return and ....3 years $22 $24 26 redemption at the end of each time period:.............5 years $39 $42 44 10 years $87 $93 99
(1) Redemption proceeds sent by wire are subject to a $10 processing charge. (2) Other expenses, which include the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year. The purpose of the table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of the American Century funds offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Investor Class shares and have no up-front or deferred sales charges, commissions, or 12b-1 fees. The funds offer two other classes of shares to investors, primarily to institutional investors, that have different fee structures than the Investor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for the other classes. For additional information about the various classes, see "Further Information About American Century," page 25. 4 Transaction and Operating Expense Table American Century Investments FINANCIAL HIGHLIGHTS LIMITED-TERM BOND The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994(1) PER-SHARE DATA Net Asset Value, Beginning of Period....................... $9.96 $9.68 $10.00 ----- ----- ------ Income from Investment Operations Net Investment Income................................... .56 .56 .31 Net Realized and Unrealized Gain (Loss) on Investment Transactions................................. (.03) .28 (.32) ---- --- ---- Total from Investment Operations........................ .53 .84 (.01) --- --- ---- Distributions From Net Investment Income.............................. (.56) (.557) (.312) ---- ----- ----- Net Asset Value, End of Period............................. $9.93 $9.96 $9.68 ===== ===== ===== TOTAL RETURN(2)......................................... 5.48% 8.89% (.08%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets....... .68% .69% .70% (3) Ratio of Net Investment Income to Average Net Assets.... 5.63% 5.70% 4.79% (3) Portfolio Turnover Rate................................. 121% 116% 48% Net Assets, End of Period (in thousands)................ $8,092 $7,193 $4,375 (1) March 1, 1994 (inception) through October 31, 1994. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (3) Annualized.
Prospectus Financial Highlights 5
FINANCIAL HIGHLIGHTS INTERMEDIATE-TERM BOND The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 (1) PER-SHARE DATA Net Asset Value, Beginning of Period....................... $10.07 $9.53 $10.00 ------ ----- ------ Income from Investment Operations Net Investment Income................................... .58 .59 .34 Net Realized and Unrealized Gain (Loss) on Investment Transactions................................. (.06) .54 (.47) ---- --- ---- Total from Investment Operations........................ .52 1.13 (.13) --- ---- ---- Distributions From Net Investment Income.............................. (.58) (.587) (.337) From Net Realized Gains on Investment Transactions...... (.10) -- -- ---- ------ ------ Total Distributions..................................... (.68) (.587) (.337) ---- ----- ----- Net Asset Value, End of Period............................. $9.91 $10.07 $9.53 ===== ====== ===== TOTAL RETURN(2)......................................... 5.36% 12.19% (1.24%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets....... .74% .74% .75% (3) Ratio of Net Investment Income to Average Net Assets.... 5.90% 6.05% 5.23% (3) Portfolio Turnover Rate................................. 87% 133% 48% Net Assets, End of Period (in thousands)................$15,626 $12,827 $4,262 (1) March 1, 1994 (inception) through October 31, 1994. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (3) Annualized.
6 Financial Highlights American Century Investments
FINANCIAL HIGHLIGHTS BENHAM BOND The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1) 1989(1) 1988(1) 1987(1)(2) PER-SHARE DATA Net Asset Value, Beginning of Period.$9.78 $8.91 $10.21 $9.92 $9.56 $8.90 $9.54 $9.19 $8.96 $10.00 ----- ----- ------ ----- ----- ----- ----- ----- ----- ------ Income from Investment Operations Net Investment Income............... .60 .61 .58 .66 .63 .75 .80 .82 .84 .48 Net Realized and Unrealized Gain (Loss) on Investment Transactions...(.14) .87 (1.12) 1.88 .35 .66 (.64) .35 .23 (1.05) ---- --- ----- ---- --- --- ---- --- --- ----- Total from Investment Operations.... .46 1.48 (.54) 2.54 .98 1.41 .16 1.17 1.07 (.57) --- ---- ---- ---- --- ---- --- ---- ---- ---- Distributions From Net Investment Income..........(.60) (.611) (.576) (.662) (.622) (.746) (.796) (.819) (.836) (.475) From Net Realized Gain on Investment Transactions.............(.01) -- (.186) (1.587) -- -- (.006) -- -- -- ---- ----- ------ ----- Total Distributions.................(.61) (.611) (.762) (2.249) (.622) (.746) (.802) (.819) (.836) (.475) ---- ----- ----- ------ ----- ----- ----- ----- ----- ----- Net Asset Value, End of Period.......$9.63 $9.78 $8.91 $10.21 $9.92 $9.56 $8.90 $9.54 $9.19 $8.96 ===== ===== ===== ====== ===== ===== ===== ===== ===== ===== Total Return(3).....................4.91% 17.16% (5.47%) 11.81% 10.40% 16.44% 1.93% 13.51% 12.31% (8.63%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets................ .79% .78% .88% 1.00% .98%(4) .96(4) 1.00% 1.00% 1.00% 1.00%(5) Ratio of Net Investment Income to Average Net Assets................6.18% 6.53% 6.07% 6.54% 6.30% 8.06% 8.81% 8.83% 9.15% 8.10%(5) Portfolio Turnover Rate.............. 100% 105% 78% 113% 186% 219% 98% 216% 280% 146%(5) Net Assets, End of Period (in thousands)................$142,567 $149,223 $121,012 $172,120 $154,031 $114,342 $77,270 $62,302 $25,788 $9,403 (1) The data presented has been restated to give effect to a 10 for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) March 2, 1987 (inception) through October 31, 1987. (3) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Expenses are shown net of management fees waived by the manager for low-balance account fees collected during period. (5) Annualized.
Prospectus Financial Highlights 7 INFORMATION REGARDING THE FUNDS INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. LIMITED-TERM BOND, INTERMEDIATE-TERM BOND AND BENHAM BOND These funds, which seek to provide investors with income through investments in bonds and other debt instruments, require a minimum investment of $2,500 ($1,000 for IRAs). The three funds differ in the weighted average maturities of their portfolios and accordingly in their degree of risk and level of income. Generally, the longer the weighted average maturity, the higher the yield and the greater the price volatility. Limited-Term Bond will invest primarily in investment grade corporate securities and other debt instruments and will maintain, under normal market conditions, a weighted average maturity of five years or less. The fund is designed for investors seeking a competitive level of current income with limited price volatility. Intermediate-Term Bond will invest primarily in investment grade corporate securities and other debt instruments and will maintain, under normal market conditions, a weighted average maturity of three to 10 years. The fund is designed for investors seeking a higher level of current income than is generally available from shorter-term corporate and government securities and who are willing to accept a greater degree of price fluctuation. Benham Bond will invest primarily in investment grade corporate bonds and other debt instruments. There is no weighted average portfolio maturity requirement, although it is expected that the fund will primarily invest in intermediate and long-term bonds. The fund is designed for investors whose primary goal is a level of current income higher than is generally provided by money market or short- and intermediate-term securities and who can accept the generally greater price volatility associated with longer-term bonds. The value of the shares of all three of these funds will vary from day to day. See "Fundamentals of Fixed Income Investing," page 10. Under normal market conditions, each fund will maintain at least 65% of the value of its total assets in investment grade bonds and other debt instruments. Under normal market conditions, each of the funds may invest up to 35% of its assets, and for temporary defensive purposes, up to 100% of its assets, in short-term money market instruments. The manager will actively manage the portfolios, adjusting the weighted average portfolio maturities as necessary in response to expected changes in interest rates. During periods of rising interest rates, the weighted average maturity of a fund may be moved to the shorter end of its maturity range 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 are rising, the weighted average portfolio maturity may be moved toward the longer end of its maturity range. To achieve their objectives, the funds may invest in diversified portfolios of high- and medium-grade debt 8 Information Regarding the Funds American Century Investments securities payable in United States currency. The funds may invest in securities which at the time of purchase are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the manager, as follows: short-term notes within the two highest categories, e.g., at least MIG-2 by Moody's Investor Services ("Moody's") or SP-2 by Standard and Poor's Corporation ("S&P"); corporate, sovereign government, and municipal bonds within the four highest categories (for example, at least Baa by Moody's or BBB by S&P); securities of the United States government and its agencies and instrumentalities (described below); other types of securities rated at least P-2 by Moody's or A-2 by S&P. According to Moody's, bonds rated Baa are medium-grade and possess some speculative characteristics. A BBB rating by S&P indicates S&Ps belief that a security exhibits a satisfactory degree of safety and capacity for repayment, but is more vulnerable to adverse economic conditions or changing circumstances. The government securities in which the funds may invest include: (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 United States government that are established under an act of Congress. 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. Mortgage-related securities in which the funds may invest include collateralized mortgage obligations ("CMOs") issued by a United States 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 United States 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 manager 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 manager makes assumptions regarding prepayments on underlying mortgages. In a rising interest rate environment, those prepayments generally decrease, and may decrease below the rate of prepayment assumed by the manager 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 "Fundamentals of Fixed Income Investing," page 10. As noted, each fund may invest up to 35% of its assets, and for temporary defensive purposes as determined by the manager, up to 100% of its assets in short-term money market instruments. Those instruments may include: (1) Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities; (2) Commercial Paper; (3) Certificates of Deposit and Euro Dollar Certificates of Deposit; (4) Bankers' Acceptances; (5) Short-term notes, bonds, debentures, or other debt instruments; and (6) Repurchase agreements. Prospectus Information Regarding the Funds 9 These investments must meet the rating standards for the funds. To the extent a fund assumes a defensive position, the weighted average maturity of its portfolio may not fall within the ranges stated for the fund. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30-YEAR 20-YEAR 3-MONTH TREASURY TAX-EXEMPT TREASURY BOND.......BONDS ...BILLS 1/92 8%.......6% ......4% 2/92 8%.......6% ......4% 3/92 8%.......6% ......4% 4/92 8%.......6% ......4% 5/92 8%.......6% ......4% 6/92 8%.......6% ......4% 7/92 7%.......6% ......3% 8/92 7%.......6% ......3% 9/92 7%.......6% ......3% 10/92 8%.......6% ......3% 11/92 8%.......6% ......3% 12/92 7%.......6% ......3% 1/93 7%.......6% ......3% 2/93 7%.......5% ......3% 3/93 7%.......6% ......3% 4/93 7%.......6% ......3% 5/93 7%.......6% ......3% 6/93 7%.......5% ......3% 7/93 7%.......5% ......3% 8/93 6%.......5% ......3% 9/93 6%.......5% ......3% 10/93 6%.......5% ......3% 11/93 6%.......5% ......3% 12/93 6%.......5% ......3% 1/94 6%.......5% ......3% 2/94 7%.......5% ......3% 3/94 7%.......6% ......4% 4/94 7%.......6% ......4% 5/94 7%.......6% ......4% 6/94 8%.......6% ......4% 7/94 7%.......6% ......4% 8/94 7%.......6% ......5% 9/94 8%.......6% ......5% 10/94 8%.......6% ......5% 11/94 8%.......7% ......6% 12/94 8%.......6% ......6% 1/95 8%.......6% ......6% 2/95 7%.......6% ......6% 3/95 7%.......6% ......6% 4/95 7%.......6% ......6% 5/95 7%.......6% ......6% 6/95 7%.......6% ......6% 7/95 7%.......6% ......6% 8/95 7%.......6% ......5% 9/95 7%.......6% ......5% 10/95 6%.......5% ......6% 11/95 6%.......5% ......5% 12/95 6%.......5% ......5% 1/96 6%.......5% ......5% 2/96 6%.......5% ......5% 3/96 7%.......6% ......5% 4/96 7%.......6% ......5% 5/96 7%.......6% ......5% 6/96 7%.......6% ......5% 7/96 7%.......6% ......5% 8/96 7%.......6% ......5% 9/96 7%.......6% ......5% 10/96 7%.......6% ......5% 11/96 6%.......6% ......5% 12/96 7%.......6% ......5% BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% 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% YEARS TO MATURITY [bar graph - graph data] LIMITED-TERM BOND Likely Maturities of Individual Holdings 0-8 years Expected Weighted Average Portfolio Maturity Range 6 mos.-5 years INTERMEDIATE-TERM BOND Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 3-20 years BENHAM BOND Likely Maturities of Individual Holdings 0-30 years Expected Weighted Average Portfolio Maturity Range 10-20 years Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. [bar graph data] AUTHORIZED QUALITY RANGES A-1 A-2 A-3 P-1 P-2 P-3 MIG-1MIG-2 MIG-3 SP-1 SP-2 SP-3 AAA AA A BBB BB B CCC CC C D Limited-Term Bond x x x x Intermediate-Term Bond x x x x Benham Bond x x x x In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The maturity and asset quality of each fund have implications for the degree of price volatility and the yield level to be expected from each. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5, 6 and 7 of this Prospectus. 10 Information Regarding the Funds American Century Investments Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the particular fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the funds pay directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund 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 that fund. 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 repurchase 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. Since 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. The funds will limit repurchase agreement transactions to securities issued by the United States government, 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. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, each of 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 more accurately described 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. 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 bond whose interest rate is indexed to the return on two-year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), while a security whose underlying value is linked to the price of oil would not be a permissible investment since 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. Prospectus Information Regarding the Funds 11 There are a range of risks associated with derivative investments, including: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the Board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, each fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. FOREIGN SECURITIES Each of the funds may invest an unlimited amount of its assets in the securities of foreign issuers, including foreign governments, when these securities meet their standards of selection. Securities of foreign issuers may trade in the U.S. or foreign securities markets. The funds will limit their purchase of debt securities to U.S. dollar denominated investment grade obligations. Such securities will be primarily from developed markets. Investments in foreign securities may present certain risks, including those resulting from fluctuations in currency exchange rates, future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. 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 each security may decline prior to delivery, which could result in a loss to the fund. A separate account for each fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The funds may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the funds' cri- 12 Information Regarding the Funds American Century Investments teria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since 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 security that is illiquid. In such an event, the funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No fund may invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON The funds may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts. For options sold, a fund will segregate cash or high-quality debt securities equal to the value of securities underlying the option unless the option is otherwise covered. A fund will deposit in a segregated account with its custodian bank high-quality debt obligations in an amount equal to the fluctuating market value of long futures contracts it has purchased, less any margin deposited on its long position. It may hold cash or acquire such debt obligations for the purpose of making these deposits. A fund will purchase or sell futures contracts and options thereon only for the purpose of hedging against changes in the market value of its portfolio securities or changes in the market value of securities that it may wish to include in its portfolio. A fund will enter into future and option transactions only to the extent that the sum of the amount of margin deposits on its existing futures positions and premiums paid for related options do not exceed 5% of its assets. Since futures contracts and options thereon can replicate movements in the cash markets for the securities in which a fund invests without the large cash investments required for dealing in such markets, they may subject a fund to greater and more volatile risks than might otherwise be the case. The principal risks related to the use of such instruments are (1) the offsetting correlation between movements in the market price of the portfolio investments (held or intended) being hedged and in the price of the futures contract or option may be imperfect; (2) possible lack of a liquid secondary market for closing out futures or option positions; (3) the need for additional portfolio management skills and techniques; and (4) losses due to unanticipated market price movements. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the securities being hedged. Such equal price changes are not always possible because the investment underlying the hedging instrument may not be the same investment that is being hedged. The manager will attempt to create a closely correlated hedge but hedging activity may not be completely successful in eliminating market value fluctuation. The ordinary spreads between prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to distortion. Due to the possibility of distortion, a correct forecast of general interest rate trends by the manager may still not result in a successful transaction. The Prospectus Information Regarding the Funds 13 manager may be incorrect in its expectations as to the extent of various interest rate movements or the time span within which the movements take place. See the Statement of Additional Information for further information about these instruments and their risks. PERFORMANCE ADVERTISING From time to time, the funds may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return and yield. Performance data may be quoted separately for the Investor Class and for the other classes. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, a fund's yield may not equal the income paid on your shares or the income reported in a fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 21/2-year CD rates. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. 14 Information Regarding the Funds American Century Investments HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS The funds offered by this Prospectus are a part of the American Century Investments family of mutual funds. Our family provides a full range of investment opportunities, from the aggressive equity growth funds in our Twentieth Century Group, to the fixed income funds in our Benham Group, to the moderate risk and specialty funds in our American Century Group. Please call 1-800-345-2021 for a brochure or prospectuses for the other funds in the American Century Investments family. INVESTING IN AMERICAN CENTURY The following section explains how to invest in American Century, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Investor Services Guide that you will receive when you open an account. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan or through a bank, broker-dealer or other financial intermediary, the following sections, as well as information contained in our Investor Services Guide, may not apply to you. Please read "Employer-Sponsored Retirement Plans and Institutional Accounts," page 20. HOW TO OPEN AN ACCOUNT To open an account, you must complete and sign an application, furnishing your taxpayer identification number. (You must also certify whether you are subject to withholding for failing to report income to the IRS.) Investments received without a certified taxpayer identification number will be returned. The minimum investment is $2,500 ($1,000 for IRAs). The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services Representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to American Century Investments. BY WIRE You may make your initial investment by wiring funds. To do so, call us or mail a completed application and provide your bank with the following information: o RECEIVING BANK AND ROUTING NUMBER: Commerce Bank, N.A. (101000019) o BENEFICIARY (BNF): American Century Services Corporation 4500 Main St., Kansas City, Missouri 64111 o BENEFICIARY ACCOUNT NUMBER (BNF ACCT): 2804918 o REFERENCE FOR BENEFICIARY (RFB): American Century account number into which you are investing. If more than one, leave blank and see Bank to Bank Information below. o ORIGINATOR TO BENEFICIARY (OBI): Name and address of owner of account into which you are investing. o BANK TO BANK INFORMATION (BBI OR FREE FORM TEXT): o Taxpayer identification or Social Security number o If more than one account, account numbers and amount to be invested in each account. o Current tax year, previous tax year or rollover designation if an IRA. Specify whether IRA, SEP-IRA or SARSEP-IRA. Prospectus How To Invest With American Century Investments 15 BY EXCHANGE Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another American Century account. See this page for more information on exchanges. IN PERSON If you prefer to work with a representative in person, please visit one of our Investors Centers, located at: 4500 Main Street Kansas City, Missouri 64111 1665 Charleston Road Mountain View, California 94043 2000 S. Colorado Blvd. Denver, Colorado 80222 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see "Automatic Investment Plan," this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the investment slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without an investment slip.) BY TELEPHONE Once your account is open, you may make investments by telephone if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. You may call an Investor Services Representative or use our Automated Information Line. BY ONLINE ACCESS Once your account is open, you may make investments online if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. BY WIRE You may make subsequent investments by wire. Follow the wire transfer instructions on page 15 and indicate your account number. IN PERSON You may make subsequent investments in person at one of our Investors Centers. The locations of our three Investors Centers are listed on this page. AUTOMATIC INVESTMENT PLAN You may elect on your application to make investments automatically by authorizing us to draw on your bank account regularly. Such investments must be at least the equivalent of $50 per month. You also may choose an automatic payroll or government direct deposit. If you are establishing a new account, check the appropriate box under "Automatic Investments" on your application to receive more information. If you would like to add a direct deposit to an existing account, please call one of our Investor Services Representatives. HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER As long as you meet any minimum investment requirements, you may exchange your fund shares to our other funds up to six times per year per account. An exchange request will be processed as of the same day it is received if it is received before the funds' net asset values are calculated, which is one hour prior to the close of the New York Stock Exchange for funds issued by the Benham Target Maturities Trust, and at the close of the Exchange for all of our other funds. See "When Share Price is Determined," page 21. For any single exchange, the shares of each fund being acquired must have a value of at least $100. However, we will allow investors to set up an Automatic Exchange Plan between any two funds in the amount of at least $50 per month. See our Investor Services Guide for further information about exchanges. BY MAIL You may direct us in writing to exchange your shares from one American Century account to 16 How To Invest With American Century Investments American Century Investments another. For additional information, please see our Investor Services Guide. BY TELEPHONE You may make exchanges over the telephone (either with an Investor Services Representative or using our Automated Information Line -- see page 18) if you have authorized us to accept telephone instructions. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to receive the appropriate form. BY ONLINE ACCESS You can make exchanges online if you have authorized us to accept instructions over the Internet. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to get the appropriate form. HOW TO REDEEM SHARES We will redeem or "buy back" your shares at any time. Redemptions will be made at the next net asset value determined after a completed redemption request is received. Please note that a request to redeem shares in an IRA or 403(b) plan must be accompanied by an executed IRS Form W4-P and a reason for withdrawal as specified by the IRS. BY MAIL Your written instructions to redeem shares may be made either by a redemption form, which we will send you upon request, or by a letter to us. Certain redemptions may require a signature guarantee. Please see "Signature Guarantee," page 18. BY TELEPHONE If you have authorized us to accept telephone instructions, you may redeem your shares by calling an Investor Services Representative. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check in an amount you choose (minimum $50). To set up a Check-A-Month plan, please call and request our Check-A-Month brochure. OTHER AUTOMATIC REDEMPTIONS If you have at least a $10,000 balance in your account, you may elect to make redemptions automatically by authorizing us to send funds to you or your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Investor Services Guide. BY WIRE AND ACH You may authorize us to transmit redemption proceeds by wire or ACH. These services will be effective 15 days after we receive the authorization. Your bank will usually receive wired funds within 48 hours of transmission. Funds transferred by ACH may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you of the necessity of bringing the value of the shares held in the account up to the minimum. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and the proceeds from the redemption will Prospectus How To Invest With American Century Investments 17 be sent by check to your address of record. We reserve the right to increase the investment minimums. SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee will be required when: o redeeming more than $25,000; or o establishing or increasing a Check-A-Month or automatic transfer on an existing account. You may obtain a signature guarantee from a bank or trust company, credit union, broker-dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Investor Services Guide. We reserve the right to require a signature guarantee on any transaction, or to change this policy at any time. SPECIAL SHAREHOLDER SERVICES We offer several service options to make your account easier to manage. These are listed on the account application. Please make note of these options and elect the ones that are appropriate for you. Be aware that the "Full Services" option offers you the most flexibility. You will find more information about each of these service options in our Investor Services Guide. Our special shareholder services include: AUTOMATED INFORMATION LINE We offer an Automated Information Line, 24 hours a day, seven days a week, at 1-800-345-8765. By calling the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated Information Line to make investments into your accounts (if we have your bank information on file) and obtain your share balance, value and most recent transactions. If you have authorized us to accept telephone instructions, you also may exchange shares from one fund to another via the Automated Information Line. Redemption instructions cannot be given via the Automated Information Line. ONLINE ACCOUNT ACCESS You may contact us 24 hours a day, seven days a week at www.americancentury.com to access your funds' daily share prices, receive updates on major market indexes and view historical performance of your funds. If you select "Full Services" on your applications, you can use your personal access code and Social Security number to view your account balances and account activity, make subsequent investments from your bank account or exchange shares from one fund to another. OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central time are effective the same day, and orders or cancellations received after 2 p.m. Central time are effective the next business day. 18 How To Invest With American Century Investments American Century Investments TAX-QUALIFIED RETIREMENT PLANS Each fund is available for your tax-deferred retirement plan. Call or write us and request the appropriate forms for: o Individual Retirement Accounts (IRAs); o 403(b) plans for employees of public school systems and non-profit organizations; or o Profit sharing plans and pension plans for corporations and other employers. If your IRA and 403(b) accounts do not total $10,000, each account is subject to an annual $10 fee, up to a total of $30 per year. You can also transfer your tax-deferred plan to us from another company or custodian. Call or write us for a Request to Transfer form. IMPORTANT POLICIES REGARDING YOUR INVESTMENTS Every account is subject to policies that could affect your investment. Please refer to the Investor Services Guide for further information about the policies discussed below, as well as further detail about the services we offer. (1) We reserve the right for any reason to suspend the offering of shares for a period of time, or to reject any specific purchase order (including purchases by exchange). Additionally, purchases may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. (2) We reserve the right to make changes to any stated investment requirements, including those that relate to purchases, transfers and redemptions. In addition, we may also alter, add to or terminate any investor services and privileges. Any changes may affect all shareholders or only certain series or classes of shareholders. (3) Shares being acquired must be qualified for sale in your state of residence. (4) Transactions requesting a specific price and date, other than open orders, will be refused. Once you have mailed or otherwise transmitted your transaction instructions to us, they may not be modified or canceled. (5) If a transaction request is made by a corporation, partnership, trust, fiduciary, agent or unincorporated association, we will require evidence satisfactory to us of the authority of the individual making the request. (6) We have established procedures designed to assure the authenticity of instructions received by telephone. These procedures include requesting personal identification from callers, recording telephone calls, and providing written confirmations of telephone transactions. These procedures are designed to protect shareholders from unauthorized or fraudulent instructions. If we do not employ reasonable procedures to confirm the genuineness of instructions, then we may be liable for losses due to unauthorized or fraudulent instructions. The company, its transfer agent and investment advisor will not be responsible for any loss due to instructions they reasonably believe are genuine. (7) All signatures should be exactly as the name appears in the registration. If the owner's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. (8) Unusual stock market conditions have in the past resulted in an increase in the number of shareholder telephone calls. If you experience difficulty in reaching us during such periods, you may send your transaction instructions by mail, express mail or courier service, or you may visit one of our Investors Centers. You may also use our Automated Information Line if you have requested and received an access code and are not attempting to redeem shares. (9) If you fail to provide us with the correct certified taxpayer identification number, we may reduce any redemption proceeds by $50 to cover the penalty the IRS will impose on us for failure to report your correct taxpayer identification number on information reports. (10) We will perform special inquiries on shareholder accounts. A research fee of $15 per hour may be applied. REPORTS TO SHAREHOLDERS At the end of each calendar quarter, we will send you a consolidated statement that summarizes all of your American Century holdings, as well as an individual statement for each fund you own that reflects Prospectus How To Invest With American Century Investments 19 all year-to-date activity in your account. You may request a statement of your account activity at any time. With the exception of most automatic transactions, each time you invest, redeem, transfer or exchange shares, we will send you a confirmation of the transaction. See the Investor Services Guide for more detail. Carefully review all the information relating to transactions on your statements and confirmations to ensure that your instructions were acted on properly. Please notify us immediately in writing if there is an error. If you fail to provide notification of an error with reasonable promptness, i.e., within 30 days of non-automatic transactions or within 30 days of the date of your consolidated quarterly statement, in the case of automatic transactions, we will deem you to have ratified the transaction. No later than January 31 of each year, we will send you reports that you may use in completing your U.S. income tax return. See the Investor Services Guide for more information. Each year, we will send you an annual and a semiannual report relating to your fund, each of which is incorporated herein by reference. The annual report includes audited financial statements and a list of portfolio securities as of the fiscal year end. The semiannual report includes unaudited financial statements for the first six months of the fiscal year, as well as a list of portfolio securities at the end of the period. You also will receive an updated prospectus at least once each year. Please read these materials carefully, as they will help you understand your fund. EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS Information contained in our Investor Services Guide pertains to shareholders who invest directly with American Century rather than through an employer-sponsored retirement plan or through a financial intermediary. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan, your ability to purchase shares of the funds, exchange them for shares of other American Century funds, and redeem them will depend on the terms of your plan. If you own or are considering purchasing fund shares through a bank, broker-dealer, insurance company or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Service Representatives by calling 1-800-345-3533 to request information about our funds and services, to obtain a current prospectus or to get answers to any questions about our funds that you are unable to obtain through your plan administrator or financial intermediary. 20 How To Invest With American Century Investments American Century Investments ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of a fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined as of the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after we receive your investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares of a fund received by us or one of our agents before the time as of which the net asset value of the fund is determined, are effective on, and receive the price determined on, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange. Investments by telephone pursuant to your prior authorization to us to draw on your bank account are considered received at the time of your telephone call. Investment and transaction instructions received by us on any business day by mail prior to the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investments and instructions received after that time will receive the price determined on the next business day. If you invest in fund shares through an employer-sponsored retirement plan or other financial intermediary, it is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption request to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangement with the funds or the funds' distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of each fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. 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 converted to dollars at the prevailing foreign exchange rate. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed at various times before the close of business on each day that the New York Stock Exchange is open. If an event were to occur after the Prospectus Additional Information You Should Know 21 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 New York Stock Exchange business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the New York Stock Exchange is not open and on which a fund's net asset value is not calculated. Therefore, such calculation does not take place contemporaneously with the determination of the prices of many of the portfolio securities used in such calculation and the value of a fund's portfolio may be affected on days when shares of the fund may not be purchased or redeemed. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the Investor Class of the funds offered by this Prospectus are published in leading newspapers daily. Net asset values may also be obtained by calling us or by accessing our Web site (www.americancentury.com). DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income of the funds is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month except for year-end distributions, which will be paid on the last business day of the year. You will begin to participate in the distributions the day after your purchase is effective. See "When Share Price is Determined," page 21. If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code and Regulations, in all events in a manner consistent with the provisions of the Investment Company Act. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our Investor Services Guide for further information regarding your distribution options. TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS 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, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable as long-term capital gains regardless 22 Additional Information You Should Know American Century Investments of the length of time the shares on which such distributions are paid have been held by the shareholder. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code and Regulations, we are required by federal law to withhold and remit to the IRS 31% of reportable payments (which may include dividends, capital gains distributions and redemptions). Those regulations require you to certify that the Social Security number or tax identification number you provide is correct and that you are not subject to 31% withholding for previous under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of a fund (including redemptions 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of the Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the funds. Acting pursuant to an investment management agreement entered into with the funds, American Century Investment Management, Inc. serves as the investment manager of the funds. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of Mutual Funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. Prospectus Additional Information You Should Know 23 The manager supervises and manages the investment portfolio of the funds and directs the purchase and sale of their investment securities. It utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios as they deem appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the teams may also adjust portfolio holdings of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this Prospectus and their work experience for the last five years are as follows: NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined American Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. JEFFREY L. HOUSTON, Portfolio Manager, has worked for American Century since November 1990. The activities of the manager are subject only to directions of the funds' Board of Directors. The manager pays all the expenses of the funds except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the Investor Class of the funds, the manager receives an annual fee at the following rates: o 0.70% of the average net assets of Limited-Term Bond; o 0.75% of the average net assets of Intermediate-Term Bond; and o 0.80% of the average net assets of Benham Bond. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by the aggregate average daily closing value of each 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). CODE OF ETHICS The funds and the manager have adopted a Code of Ethics, which restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the funds' portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri, 64111, acts as transfer agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds and is paid for such services by the manager. Certain recordkeeping and administrative services that would otherwise be performed by the transfer agent may be performed by an insurance company or other entity providing similar services for various retirement plans using shares of the funds as a funding medium, by broker-dealers and financial advisors for their customers investing in shares of American Century or by sponsors of multi mutual fund no- or low-transaction fee programs. The manager or an affiliate may enter into contracts to pay them for such recordkeeping and administrative services out of its unified management fee. Although there is no sales charge levied by the funds, transactions in shares of the funds may be executed by brokers or investment advisors who charge a transaction-based fee or other fee for their services. Such charges may vary among broker-dealers and financial advisors, but in all cases will be retained by the broker-dealer or financial advisor and not remitted to the funds or the investment manager. You should be aware of the fact that these transactions may be made directly with American Century without incurring such fees. 24 Additional Information You Should Know American Century Investments 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the funds' Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by American Century Investment Services, Inc. (the "Distributor"), a registered broker-dealer and an affiliate of the funds' investment manager. The manager pays all expenses for promoting and distributing the Investor Class of fund shares offered by this Prospectus. The Investor Class of shares does not pay any commissions or other fees to the Distributor or to any other broker-dealers or financial intermediaries in connection with the distribution of fund shares. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the funds, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is American Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may be made by mail to that address, or by telephone to 1-800-345-2021 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers three classes of each of the funds offered by this Prospectus: an Investor Class, a Service Class, and an Advisor Class. The shares offered by this Prospectus are Investor Class shares and have no up-front charges, commissions, or 12b-1 fees. The other classes of shares are primarily offered to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Investor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the other classes of shares not offered by this Prospectus, call us at 1-800-345-3533 or contact a sales representative or financial intermediary who offers those classes of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class and (d) each class may have different exchange privileges. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the Prospectus Additional Information You Should Know 25 directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the funds to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the funds' by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the funds to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. 26 Additional Information You Should Know American Century Investments NOTES Notes 27 NOTES 28 Notes American Century Investments NOTES Notes 29 P.O. Box 419200 Kansas City, Missouri 64141-6200 Person-to-person assistance: 1-800-345-2021 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-340-7962 Internet: www.americancentury.com [american century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7769 Recycled PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 BENHAM GROUP(R) Limited-Term Tax-Exempt Fund Intermediate-Term Tax-Exempt Fund Long-Term Tax-Exempt Fund [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. AMERICAN CENTURY INVESTMENTS BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY(R) GROUP MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Limited-Term Tax-Exempt Fund o Intermediate-Term Tax-Exempt Fund o Long-Term Tax-Exempt Fund PROSPECTUS MARCH 1, 1997 Limited-Term Tax-Exempt Fund Intermediate-Term Tax-Exempt Fund Long-Term Tax-Exempt Fund AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load mutual funds covering a variety of investment opportunities. Three of the funds from our Benham Group that invest in tax-exempt fixed income or debt instruments are described in this Prospectus. Their investment objectives are listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. American Century offers investors a full line of no-load funds, investments that have no sales charges or commissions. This Prospectus gives you information about the funds that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: AMERICAN CENTURY INVESTMENTS 4500 Main Street o P.O. Box 419200 Kansas City, Missouri 64141-6200 o 1-800-345-2021 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-634-4113 o In Missouri: 816-753-1865 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVES OF THE FUNDS AMERICAN CENTURY - BENHAM LIMITED-TERM TAX-EXEMPT FUND The Limited-Term Tax-Exempt Fund seeks income generally exempt from federal income taxes. The fund intends to pursue its investment objective by investing in tax-exempt bonds and maintaining a weighted average maturity of three years or less. Effective March 1, 1997, the fund's policy regarding portfolio weighted average maturity will change. As of that date, the weighted average maturity maintained by the fund will be five years or less. You should consider this impending policy change prior to making an investment in this fund. AMERICAN CENTURY - BENHAM INTERMEDIATE-TERM TAX-EXEMPT FUND The Intermediate-Term Tax-Exempt Fund seeks a competitive level of income generally exempt from federal income taxes. The fund intends to pursue its investment objective by investing in tax-exempt bonds and maintaining a weighted average maturity of three to 10 years. AMERICAN CENTURY - BENHAM LONG-TERM TAX-EXEMPT FUND The Long-Term Tax-Exempt Fund seeks a high level of income generally exempt from federal income taxes. The fund intends to pursue its investment objective by investing in longer-term tax-exempt bonds and maintaining a weighted average maturity of 10 years or greater. There is no assurance that the funds will achieve their respective investment objectives. NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objectives American Century Investments TABLE OF CONTENTS Investment Objectives of the Funds ...................................2 Transaction and Operating Expense Table ..............................4 Financial Highlights .................................................5 INFORMATION REGARDING THE FUNDS Investment Policies of the Funds .....................................8 Limited-Term Tax-Exempt Fund, Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund .........................................8 Fundamentals of Fixed Income Investing ...............................9 Tax-Exempt Securities ...............................................10 Other Investment Practices, Their Characteristics and Risks .........10 Portfolio Turnover ...............................................10 Repurchase Agreements ............................................10 Derivative Securities ............................................11 When-Issued Securities ...........................................12 Rule 144A Securities .............................................12 Interest Rate Futures Contracts and Options Thereon ..............12 Performance Advertising .............................................13 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS American Century Investments ........................................15 Investing in American Century .......................................15 How to Open an Account ..............................................15 By Mail ........................................................15 By Wire ........................................................15 By Exchange ....................................................16 In Person ......................................................16 Subsequent Investments ...........................................16 By Mail ........................................................16 By Telephone ...................................................16 By Online Access ...............................................16 By Wire ........................................................16 In Person ......................................................16 Automatic Investment Plan ........................................16 How to Exchange from One Account to Another .........................16 By Mail ........................................................17 By Telephone ...................................................17 By Online Access ...............................................17 How to Redeem Shares ................................................17 By Mail ........................................................17 By Telephone ...................................................17 By Check-A-Month ...............................................17 Other Automatic Redemptions ....................................17 Redemption Proceeds ..............................................17 By Check .......................................................17 By Wire and ACH ................................................17 Redemption of Shares in Low-Balance Accounts .....................17 Signature Guarantee .................................................18 Special Shareholder Services ........................................18 Automated Information Line .....................................18 Online Account Access ..........................................18 CheckWriting ...................................................18 Open Order Service .............................................19 Important Policies Regarding Your Investments .......................19 Reports to Shareholders .............................................20 Employer-Sponsored Retirement Plans and Institutional Accounts .......................................20 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price .........................................................21 When Share Price Is Determined ...................................21 How Share Price Is Determined ....................................21 Where to Find Information About Share Price ......................21 Distributions .......................................................21 Taxes ...............................................................22 Management ..........................................................23 Investment Management ............................................23 Code of Ethics ...................................................24 Transfer and Administrative Services .............................24 Distribution of Fund Shares .........................................24 Further Information About American Century ..........................24 Prospectus Table of Contents 3 TRANSACTION AND OPERATING EXPENSE TABLE Limited-Term Tax-Exempt Fund Intermediate-Term Tax-Exempt Fund Long-Term Tax-Exempt Fund SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases .......................... none Maximum Sales Load Imposed on Reinvested Dividends ............... none Deferred Sales Load .............................................. none Redemption Fee(1) ................................................ none Exchange Fee ..................................................... none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees(2) ............................................... 0.60% 12b-1 Fees ....................................................... none Other Expenses(3) ................................................ 0.00% Total Fund Operating Expenses .................................... 0.60% EXAMPLE: You would pay the following expenses on a 1 year $ 6 $1,000 investment, assuming a 5% annual return and 3 years 19 redemption at the end of each time period: 5 years 34 10 years 75 (1) Redemption proceeds sent by wire are subject to a $10 processing charge. (2) A portion of the management fee may be paid by the funds' manager to unaffiliated third parties who provide recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager. See "Management - Transfer and Administrative Services," page 24. (3) Other expenses, the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year. The purpose of the table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the shares of the funds offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 4 Transaction and Operating Expense Table American Century Investments
FINANCIAL HIGHLIGHTS LIMITED-TERM TAX-EXEMPT FUND The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 1993(1) PER-SHARE DATA Net Asset Value, Beginning of Period ..................... $10.09 $9.95 $10.04 $10.00 ------- ------- ------- ------- Income from Investment Operations Net Investment Income ................................. .43 .44 .36 .21 Net Realized and Unrealized Gain (Loss) on Investment Transactions ............................... (.01) .14 (.09) .04 ------- ------- ------- ------- Total From Investment Operations ...................... .42 .58 .27 .25 ------- ------- ------- ------- Distributions From Net Investment Income ............................ (.43) (.440) (.362) (.214) ------- ------- ------- ------- Net Asset Value, End of Period ........................... $10.08 $10.09 $9.95 $10.04 ======= ======= ======= ======= TOTAL RETURN(2) ....................................... 4.26% 5.95% 2.75% 2.55% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets .................................... .38%(3) -- -- -- Ratio of Net Investment Income to Average Net Assets ................................. 4.28% 4.38% 3.62% 3.09%(4) Portfolio Turnover Rate ............................... 68% 78% 42% 3% Net Assets, End of Period (in thousands) .............. $49,866 $58,837 $60,857 $52,265 (1) March 1, 1993 (inception) through October 31, 1993. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (3) The manager voluntarily waived its management fee through February 29, 1996. In the absence of the waiver, the ratio of operating expenses to average net assets would have been .60%. (4) Annualized.
Prospectus Financial Highlights 5
FINANCIAL HIGHLIGHTS INTERMEDIATE-TERM TAX-EXEMPT FUND The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1) 1989(1) 1988(1) 1987(1)(2) PER-SHARE DATA Net Asset Value, Beginning of Period ........................ $10.45 $10.01 $10.75 $10.27 $10.06 $9.66 $9.67 $9.73 $9.42 $10.00 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income ................... .48 .49 .48 .48 .48 .54 .56 .56 .54 .30 Net Realized and Unrealized Gain (Loss) on Investment Transactions ....... (.03) .52 (.61) .55 .21 .40 (.01) (.06) .31 (.58) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total From Investment Operations ................... .45 1.01 (.13) 1.03 .69 .94 .55 .50 .85 (.28) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income .............. (.48) (.487) (.476) (.476) (.481) (.536) (.560) (.558) (.539) (.300) From Net Realized Gains on Investment Transactions ................. (.07) (.082) (.133) (.078) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ..................... (.55) (.569) (.609) (.554) (.481) (.536) (.560) (.558) (.539) (.300) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period ............. $10.35 $10.45 $10.01 $10.75 $10.27 $10.06 $9.66 $9.67 $9.73 $9.42 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(3) ......................... 4.47% 10.41% (1.25)% 10.25% 7.00% 9.91% 5.89% 5.30% 9.18% (4.34)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ...................... .60% .60% .60% .72% .98%(4) .96%(4) 1.00% 1.00% 1.00% 1.00%(5) Ratio of Net Investment Income to Average Net Assets ................... 4.66% 4.77% 4.59% 4.51% 4.68% 5.40% 5.80% 5.79% 5.57% 4.80%(5) Portfolio Turnover Rate ................. 39% 32% 74% 38% 36% 62% 102% 74% 86% 92%(5) Net Assets, End of Period (in thousands) ................$80,568 $80,248 $81,400 $98,740 $76,745 $45,359 $25,587 $20,616 $14,286 $8,262 (1) The data presented has been restated to give effect to a 10 for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) March 2, 1987 (inception) through October 31, 1987. (3) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Expenses are shown net of management fees waived by the manager for low-balance account fees collected during period. (5) Annualized.
6 Financial Highlights American Century Investments
FINANCIAL HIGHLIGHTS LONG-TERM TAX-EXEMPT FUND The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1) 1989(1) 1988(1) 1987(1)(2) PER-SHARE DATA Net Asset Value, Beginning of Period ........................ $10.54 $9.75 $11.10 $10.36 $10.23 $9.62 $9.84 $9.73 $9.09 $10.00 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income ................... .53 .53 .52 .53 .53 .57 .60 .62 .61 .37 Net Realized and Unrealized Gain (Loss) on Investment Transactions ....... .04 .83 (1.01) .90 .22 .61 (.12) .11 .64 (.91) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total From Investment Operations ................... .57 1.36 (.49) 1.43 .75 1.18 .48 .73 1.25 (.54) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income .............. (.53) (.532) (.519) (.529) (.530) (.572) (.604) (.623) (.609) (.370) From Net Realized Gains on Investment Transactions ................. -- (.044) (.342) (.161) (.088) -- (.094) -- -- -- In Excess of Net Realized Gains ......... -- -- -- (.003) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ..................... (.53) (.576) (.861) (.693) (.618) (.572) (.698) (.623) (.609) (.370) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period ............. $10.58 $10.54 $9.75 $11.10 $10.36 $10.23 $9.62 $9.84 $9.73 $9.09 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(3) ......................... 5.60% 14.45% (4.70)% 14.32% 7.43% 12.54% 5.04% 7.75% 14.15% (8.21)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ...................... .59% .59% .60% .73% .98%(4) .96%(4) 1.00% 1.00% 1.00% 1.00%(5) Ratio of Net Investment Income to Average Net Assets ................... 5.06% 5.24% 5.00% 4.90% 5.07% 5.73% 6.22% 6.36% 6.43% 6.20%(5) Portfolio Turnover Rate ................. 60% 61% 66% 81% 88% 110% 144% 120% 215% 94%(5) Net Assets, End of Period (in thousands) ................$60,772 $57,997 $50,964 $70,757 $61,825 $39,229 $27,862 $20,217 $12,407 $6,426 (1) The data presented has been restated to give effect to a 10 for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) March 2, 1987 (inception) through October 31, 1987. (3) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Expenses are shown net of management fees waived by the manager for low-balance account fees collected during period. (5) Annualized.
Prospectus Financial Highlights 7 INFORMATION REGARDING THE FUNDS INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. LIMITED-TERM TAX-EXEMPT FUND, INTERMEDIATE-TERM TAX-EXEMPT FUND AND LONG-TERM TAX-EXEMPT FUND These funds, which seek to provide investors with income generally exempt from federal income taxes, require a minimum initial investment of $5,000. The three funds differ in the weighted average maturities of their portfolios and accordingly in their degree of risk and level of income. Generally, the longer the weighted average maturity, the higher the yield and the greater the price volatility. Limited-Term Tax-Exempt Fund invests primarily in shorter-term tax-exempt bonds. The fund intends to maintain a weighted average portfolio maturity of five years or less. This fund is designed for investors who can accept some fluctuation in principal in order to earn a higher level of current income than is generally available on tax-exempt money market securities. Intermediate-Term Tax-Exempt Fund invests in tax-exempt bonds and, under normal market conditions, will maintain a weighted average portfolio maturity of three to 10 years. It is designed for investors seeking a higher level of current income than is generally available on shorter-term tax-exempt bonds and money market securities and who are willing to accept a greater degree of fluctuation in principal. Long-Term Tax-Exempt Fund invests in longer-term tax-exempt bonds and, under normal market conditions, will maintain a weighted average portfolio maturity of 10 years or greater. The fund is designed for the investor seeking a higher level of current income and who can accept the relatively high degree of price volatility associated with longer-term bonds. As a fundamental policy, at least 80% of each fund's portfolio will consist of securities whose income is not subject to federal income tax, including the alternative minimum tax. All such securities must be accompanied by an opinion of Counsel to the issuer that the income is not subject to federal income taxes. See "Tax-Exempt Securities," page 10. Under normal market conditions, Limited-Term Tax-Exempt Fund may invest up to 100% of its assets and Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund may invest up to 20% of their assets in shorter-term tax-exempt securities. For temporary defensive purposes, Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund may invest 100% of their assets in such securities and all three funds may invest up to 20% of assets in taxable shorter-term securities. The tax-exempt funds may invest in securities that, at the time of purchase, are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the manager, as follows: short-term notes within the two highest categories [for example, at least MIG-2 by Moody's Investors Services (Moody's) or SP-2 by Standard & Poor's Corporation (S&P)]; bonds within the four highest categories (for example, at least Baa by Moody's or BBB by S&P); other types of securities rated at least P-2 by Moody's or A-2 by S&P. According to Moody's, bonds rated Baa are medium-grade and possess some speculative characteristics. A BBB rating by S&P indicates S&P's belief that a 8 Information Regarding the Funds American Century Investments security exhibits a satisfactory degree of safety and capacity for repayment, but is more vulnerable to adverse economic conditions or changing circumstances. The manager will actively manage each portfolio, adjusting the average maturity as necessary in response to expected changes in interest rates in general and for tax-exempt securities specifically. During periods of rising interest rates, the weighted average maturity of a fund may be moved to the shorter end of its maturity range in order to reduce the effect of bond price declines on the fund's net asset value. Conversely, when prevailing interest rates are falling and bond prices are rising, the weighted average portfolio maturity of a fund may be moved toward the longer end of its maturity range. Tax-exempt securities are issued by states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities. Interest on these securities is exempt from federal income taxes and, in some instances, applicable state or local income taxes. These securities are issued to obtain funds for various public purposes, or for specified privately operated facilities. From time to time, each fund may invest more than 25% of its assets in tax-exempt securities which are related in such a way that an economic, business, or political development or change affecting one such security could also affect the other securities; for example, securities whose issuers are located in the same state. Furthermore, each fund may invest up to 40% of its assets in securities issued on behalf of educational facilities and 40% in securities issued on behalf of qualified health facilities. To the extent that a fund's assets are concentrated in securities payable from revenues on similar facilities, the fund will be subject to the peculiar risks presented by such facilities to a greater extent than it would if the fund's assets were not so concentrated. Such facilities could be adversely affected by, among other things, legislation, regulatory actions, a decline in public and private support and increased competition. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30 yr tr bd 20 yr tax-ex bd 3 mth trea bills 1/92 8% 6% 4% 2/92 8% 6% 4% 3/92 8% 6% 4% 4/92 8% 6% 4% 5/92 8% 6% 4% 6/92 8% 6% 4% 7/92 7% 6% 3% 8/92 7% 6% 3% 9/92 7% 6% 3% 10/92 8% 6% 3% 11/92 8% 6% 3% 12/92 7% 6% 3% 1/93 7% 6% 3% 2/93 7% 5% 3% 3/93 7% 6% 3% 4/93 7% 6% 3% 5/93 7% 6% 3% 6/93 7% 5% 3% 7/93 7% 5% 3% 8/93 6% 5% 3% 9/93 6% 5% 3% 10/93 6% 5% 3% 11/93 6% 5% 3% 12/93 6% 5% 3% 1/94 6% 5% 3% 2/94 7% 5% 3% 3/94 7% 6% 4% 4/94 7% 6% 4% 5/94 7% 6% 4% 6/94 8% 6% 4% 7/94 7% 6% 4% 8/94 7% 6% 5% 9/94 8% 6% 5% 10/94 8% 6% 5% 11/94 8% 7% 6% 12/94 8% 6% 6% 1/95 8% 6% 6% 2/95 7% 6% 6% 3/95 7% 6% 6% 4/95 7% 6% 6% 5/95 7% 6% 6% 6/95 7% 6% 6% 7/95 7% 6% 6% 8/95 7% 6% 5% 9/95 7% 6% 5% 10/95 6% 5% 6% 11/95 6% 5% 5% 12/95 6% 5% 5% 1/96 6% 5% 5% 2/96 6% 5% 5% 3/96 7% 6% 5% 4/96 7% 6% 5% 5/96 7% 6% 5% 6/96 7% 6% 5% 7/96 7% 6% 5% 8/96 7% 6% 5% 9/96 7% 6% 5% 10/96 7% 6% 5% 11/96 6% 6% 5% 12/96 7% 6% BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% 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% YEARS TO MATURITY [bar graph - graph data] LIMITED-TERM TAX-EXEMPT Likely Maturities of Individual Holdings 0-5 months Expected Weighted Average Portfolio Maturity Range 6 mos.-6 years INTERMEDIATE-TERM TAX-EXEMPT Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 3-10 years LONG-TERM TAX-EXEMPT Likely Maturities of Individual Holdings 0-30 years Expected Weighted Average Portfolio Maturity Range 10-20 years Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, Prospectus Information Regarding the Funds 9 to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity.
AUTHORIZED QUALITY RANGES A-1 A-2 A-3 P-1 P-2 P-3 MIG-1 MIG-2 MIG-3 SP-1 SP-2 SP-3 AAA AA A BBB BB B CCC CC C D -------------------------------------------------------------- Limited-Term Tax-Exempt x x x x Intermediate-Term Tax Exempt x x x x Long-Term Tax-Exempt x x x x
In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The maturity of each fund has implications for the degree of price volatility and the yield level to be expected from each. TAX-EXEMPT SECURITIES Historically, interest paid on securities issued by states, cities, counties, school districts and other political subdivisions of the United States has been exempt from federal income taxes. Legislation since 1985, however, affects the tax treatment of certain types of municipal bonds issued after certain dates and, in some cases, subjects the income from certain bonds to differing tax treatment depending on the tax status of its recipient. The tax-exempt funds should be expected to invest some portion of their assets in bonds which, in the hands of some holders, would be subject to the alternative minimum tax, as long as management determines it is in the best interest of shareholders generally to invest in such securities. See "Taxes," page 22. As a prospective investor in tax-exempt securities, you should determine whether your after-tax return is likely to be higher with a taxable or with a tax-exempt security. To determine this, you may use the analysis shown in the following example: Suppose your maximum tax rate is 36% and you want to determine whether you should purchase a 6% tax-exempt yield or a 9% taxable security. 6% 6% ----------------- = ------- = 9.375% taxable yield 1-.36 tax rate .64 Your after-tax return will be higher with the 6% tax-exempt yield if taxable yields are less than 9.375%. In this example, the tax-exempt is more attractive than the 9% taxable yield. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5-7 of this Prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to a particular fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the funds pay directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS While the funds are authorized to invest in repurchase agreements it is not expected that they will regularly make such investments, because the 10 Information Regarding the Funds American Century Investments interest earned on them typically is not tax-exempt. Repurchase agreements could be used, however, if it is deemed in the best interest of the funds' shareholders to invest in securities that are not exempt from federal income taxes. 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 repurchase 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. Since 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. The funds will limit repurchase agreement transactions to securities issued by the U.S. government, 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. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, each of 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 more accurately described as "index/structured" securities. Index/structured securities are derivative securities whose value or performance is linked to other equity securities (such as depository 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. 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 bond whose interest rate is indexed to the return on two-year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), while a security whose underlying value is linked to the price of oil would not be a permissible investment since 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and Prospectus Information Regarding the Funds 11 o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the board will review the manager's policy for investments in derivative securities annually. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time the commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. 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 each security may decline prior to delivery, which could result in a loss to the fund. A separate account for each fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The funds may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the funds' criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since 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 security that is illiquid. In such an event, the fund's manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No fund may invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON The funds may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts. For options sold, a fund will segregate cash or high-quality debt securities equal to the value of securities underlying the option unless the option is otherwise covered. A fund will deposit in a segregated account with its custodian bank high-quality debt obligations in an amount equal to the fluctuating market value of long futures contracts it has purchased, less any margin deposited on its long position. It may hold cash or acquire such debt obligations for the purpose of making these deposits. A fund will purchase or sell futures contracts and options thereon only for the purpose of hedging against changes in the market value of its portfolio 12 Information Regarding the Funds American Century Investments securities or changes in the market value of securities that it may wish to include in its portfolio. A fund will enter into future and option transactions only to the extent that the sum of the amount of margin deposits on its existing futures positions and premiums paid for related options do not exceed 5% of its assets. Since futures contracts and options thereon can replicate movements in the cash markets for the securities in which a fund invests without the large cash investments required for dealing in such markets, they may subject a fund to greater and more volatile risks than might otherwise be the case. The principal risks related to the use of such instruments are (1) the offsetting correlation between movements in the market price of the portfolio investments (held or intended) being hedged and in the price of the futures contract or option may be imperfect; (2) possible lack of a liquid secondary market for closing out futures or option positions; (3) the need for additional portfolio management skills and techniques; and (4) losses due to unanticipated market price movements. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the securities being hedged. Such equal price changes are not always possible because the investment underlying the hedging instrument may not be the same investment that is being hedged. The manager will attempt to create a closely correlated hedge but hedging activity may not be completely successful in eliminating market value fluctuation. The ordinary spreads between prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to distortion. Due to the possibility of distortion, a correct forecast of general interest rate trends by the manager may still not result in a successful transaction. The manager may be incorrect in its expectations as to the extent of various interest rate movements or the time span within which the movements take place. See the Statement of Additional Information for further information about these instruments and their risks. PERFORMANCE ADVERTISING From time to time, the funds may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, yield and tax-equivalent yield. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, a fund's yield may not equal the income paid on your shares or the income reported in a fund's financial statements. A tax-equivalent yield demonstrates the taxable yield necessary to produce an after-tax yield equivalent to that of a fund which invests in exempt obligations. See "Tax-Exempt Securities," page 10, for a description of the method of comparing yields and tax-equivalent yields. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and Prospectus Information Regarding the Funds 13 publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 2 1/2-year CD rates. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. 14 Information Regarding the Funds American Century Investments HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS The funds offered by this Prospectus are a part of the American Century Investments family of mutual funds. Our family provides a full range of investment opportunities, from the aggressive equity growth funds in our Twentieth Century Group, to the fixed income funds in our Benham Group, to the moderate risk and specialty funds in our American Century Group. Please call 1-800-345-2021 for a brochure or prospectuses for the other funds in the American Century Investments family. INVESTING IN AMERICAN CENTURY The following section explains how to invest in American Century funds, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Investor Services Guide that you will receive when you open an account. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan or through a bank, broker-dealer or other financial intermediary, the following sections, as well as the information contained in our Investor Services Guide, may not apply to you. Please read "Employer-Sponsored Retirement Plans and Institutional Accounts," page 20. HOW TO OPEN AN ACCOUNT To open an account, you must complete and sign an application, furnishing your taxpayer identification number. (You must also certify whether you are subject to withholding for failing to report income to the IRS.) Investments received without a certified taxpayer identification number will be returned. The minimum investment is $5,000. The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services Representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to American Century Investments. BY WIRE You may make your initial investment by wiring funds. To do so, call us or mail a completed application and provide your bank with the following information: o RECEIVING BANK AND ROUTING NUMBER: Commerce Bank, N.A. (101000019) o BENEFICIARY (BNF): American Century Services Corporation 4500 Main St., Kansas City, Missouri 64111 o BENEFICIARY ACCOUNT NUMBER (BNF ACCT): 2804918 o REFERENCE FOR BENEFICIARY (RFB): American Century account number into which you are investing. If more than one, leave blank and see Bank to Bank Information below. o ORIGINATOR TO BENEFICIARY (OBI): Name and address of owner of account into which you are investing. o BANK TO BANK INFORMATION (BBI OR FREE FORM TEXT): o Taxpayer identification or Social Security number. o If more than one account, account numbers and amount to be invested in each account. o Current tax year, previous tax year or rollover designation if an IRA. Specify whether IRA, SEP-IRA or SARSEP-IRA. Prospectus How to Invest with American Century Investments 15 BY EXCHANGE Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central Time to get information on opening an account by exchanging from another American Century account. See this page for more information on exchanges. IN PERSON If you prefer to work with a representative in person, please visit one of our Investors Centers, located at: 4500 Main Street Kansas City, Missouri 64111 1665 Charleston Road Mountain View, California 94043 2000 S. Colorado Blvd. Denver, Colorado 80222 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see Automatic Investment Plan, this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the investment slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without an investment slip.) BY TELEPHONE Once your account is open, you may make investments by telephone if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. You may call an Investor Services Representative or use our Automated Information Line. BY ONLINE ACCESS Once your account is open, you may make investments online if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. BY WIRE You may make subsequent investments by wire. Follow the wire transfer instructions on page 15 and indicate your account number. IN PERSON You may make subsequent investments in person at one of our Investors Centers. The locations of our three Investors Centers are listed on this page. AUTOMATIC INVESTMENT PLAN You may elect on your application to make investments automatically by authorizing us to draw on your bank account regularly. Such investments must be at least the equivalent of $50 per month. You also may choose an automatic payroll or government direct deposit. If you are establishing a new account, check the appropriate box under "Automatic Investments" on your application to receive more information. If you would like to add a direct deposit to an existing account, please call one of our Investor Services Representatives. HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER As long as you meet any minimum investment requirements, you may exchange your fund shares to our other funds up to six times per year per account. An exchange request will be processed as of the same day it is received if it is received before the funds' net asset values are calculated, which is one hour prior to the close of the New York Stock Exchange for funds issued by the American Century Target Maturities Trust, and at the close of the Exchange for all of our other funds. See "When Share Price is Determined," page 21. For any single exchange, the shares of each fund being acquired must have a value of at least $100. However, we will allow investors to set up an Automatic Exchange Plan between any two funds in the amount of at least $50 per month. See our Investor Services Guide for further information about exchanges. See "When Share Price is Determined," page 21. 16 How to Invest with American Century Investments American Century Investments BY MAIL You may direct us in writing to exchange your shares from one American Century account to another. For additional information, please see our Investor Services Guide. BY TELEPHONE You can make exchanges over the telephone (either with an Investor Services Representative or using our Automated Information Line -- see page 18) if you have authorized us to accept telephone instructions. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to get the appropriate form. BY ONLINE ACCESS You can make exchanges online if you have authorized us to accept instructions over the Internet. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-2021 to get the appropriate form. HOW TO REDEEM SHARES We will redeem or "buy back" your shares at any time. Redemptions will be made at the next net asset value determined after a complete redemption request is received. Please note that a request to redeem shares in an IRA or 403(b) plan must be accompanied by an executed IRS Form W4-P and a reason for withdrawal as specified by the IRS. BY MAIL Your written instructions to redeem shares may be made either by a redemption form, which we will send you upon request, or by a letter to us. Certain redemptions may require a signature guarantee. Please see "Signature Guarantee," page 18. BY TELEPHONE If you have authorized us to accept telephone instructions, you may redeem your shares by calling an Investor Services Representative. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please call and request our Check-A-Month brochure. OTHER AUTOMATIC REDEMPTIONS If you have at least a $10,000 balance in your account, you may elect to make redemptions automatically by authorizing us to send funds to you or your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Investor Services Guide. BY WIRE AND ACH You may authorize us to transmit redemption proceeds by wire or ACH. These services will be effective 15 days after we receive the authorization. Your bank will usually receive wired funds within 48 hours of transmission. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you of the necessity to bring the value of the shares held in the account up to the minimum. If action is not taken within 90 days of the letter's date, Prospectus How to Invest with American Century Investments 17 the shares held in the account will be redeemed and the proceeds from the redemption will be sent by check to your address of record. We reserve the right to increase the investment minimums. SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee would be required when: o redeeming more than $25,000; o establishing or increasing a Check-A-Month or automatic transfer on an existing account. You can obtain a signature guarantee from a bank or trust company, credit union, broker-dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Investor Services Guide. We reserve the right to require a signature guarantee on any transaction, or to change this policy at any time. SPECIAL SHAREHOLDER SERVICES We offer several service options to make your account easier to manage. These are listed on the account application. Please make note of these options and elect the ones that are appropriate for you. Be aware that the "Full Services" option offers you the most flexibility. You will find more information about each of these service options in our Investor Services Guide. Our special shareholder services include: AUTOMATED INFORMATION LINE We offer an Automated Information Line, 24 hours a day, seven days a week, at 1-800-345-8765. By calling the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated Information Line to make investments into your accounts (if we have your bank information on file) and obtain your share balance, value and most recent transactions. If you have authorized us to accept telephone instructions, you also may exchange shares from one fund to another via the Automated Information Line. Redemption instructions cannot be given via the Automated Information Line. ONLINE ACCOUNT ACCESS You may contact us 24 hours a day, seven days a week, at www.americancentury.com to access your funds' daily share prices, receive updates on major market indexes and view historical performance of your funds. If you select "Full Services" on your application, you can use your personal access code and Social Security number to view your account balances and account activity, make subsequent investments from your bank account or exchange shares from one fund to another. CHECKWRITING We offer CheckWriting as a service option for Limited-Term Tax-Exempt accounts. CheckWriting allows you to redeem shares in your account by writing a draft ("check") against your account balance. (Shares held in certificate form may not be redeemed by check.) There is no limit on the number of checks you can write, but each one must be for at least $100. When you write a check, you will continue to receive dividends on all shares until your check is presented for payment to our clearing bank. If you redeem all shares in your account by check, any accrued distributions on the redeemed shares will be paid to you in cash on the next monthly distribution date. If you want to add CheckWriting to an existing Limited-Term Tax-Exempt account, contact us by phone or mail for an appropriate form. For a new account, you may elect CheckWriting on your purchase application by choosing the "Full Services" option. CheckWriting is not available for any account held in an IRA or 403(b) plan. CheckWriting redemptions may only be made on checks provided by us. Currently, there is no charge for checks or for the CheckWriting service. We will return checks drawn on insufficient funds or on funds from investments made by any means other than by wire within the previous 15 days. Neither the company nor our clearing bank will be 18 How to Invest with American Century Investments American Century Investments liable for any loss or expenses associated with returned checks. Your account may be assessed a $15 service charge for checks drawn on insufficient funds. A stop payment may be ordered on a check written against your account. We will use reasonable efforts to stop a payment, but we cannot guarantee that we will be able to do so. If we are successful in fulfilling a stop-payment order, your account may be assessed a $15 fee. OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central Time are effective the same day, and orders or cancellations received after 2 p.m. Central Time are effective the next business day. IMPORTANT POLICIES REGARDING YOUR INVESTMENTS Every account is subject to policies that could affect your investment. Please refer to the Investor Services Guide for further information about the policies discussed below, as well as further detail about the services we offer. (1) We reserve the right for any reason to suspend the offering of shares for a period of time, or to reject any specific purchase order (including purchases by exchange). Additionally, purchases may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. (2) We reserve the right to make changes to any stated investment requirements, including those that relate to purchases, transfers and redemptions. In addition, we may also alter, add to or terminate any investor services and privileges. Any changes may affect all shareholders or only certain series or classes of shareholders. (3) Shares being acquired must be qualified for sale in your state of residence. (4) Transactions requesting a specific price and date, other than open orders, will be refused. Once you have mailed or otherwise transmitted your transaction instructions to us, they may not be modified or canceled. (5) If a transaction request is made by a corporation, partnership, trust, fiduciary, agent or unincorporated association, we will require evidence satisfactory to us of the authority of the individual making the request. (6) We have established procedures designed to assure the authenticity of instructions received by telephone. These procedures include requesting personal identification from callers, recording telephone calls, and providing written confirmations of telephone transactions. These procedures are designed to protect shareholders from unauthorized or fraudulent instructions. If we do not employ reasonable procedures to confirm the genuineness of instructions, then we may be liable for losses due to unauthorized or fraudulent instructions. The company, its transfer agent and investment advisor will not be responsible for any loss due to instructions they reasonably believe are genuine. (7) All signatures should be exactly as the name appears in the registration. If the owner's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. Prospectus How to Invest with American Century Investments 19 (8) Unusual stock market conditions have in the past resulted in an increase in the number of shareholder telephone calls. If you experience difficulty in reaching us during such periods, you may send your transaction instructions by mail, express mail or courier service, or you may visit one of our Investors Centers. You may also use our Automated Information Line if you have requested and received an access code and are not attempting to redeem shares. (9) If you fail to provide us with the correct certified taxpayer identification number, we may reduce any redemption proceeds by $50 to cover the penalty the IRS will impose on us for failure to report your correct taxpayer identification number on information reports. (10) We will perform special inquiries on shareholder accounts. A research fee of $15 per hour may be applied. REPORTS TO SHAREHOLDERS At the end of each calendar quarter, we will send you a consolidated statement that summarizes all of your American Century holdings, as well as an individual statement for each fund you own that reflects all year-to-date activity in your account. You may request a statement of your account activity at any time. With the exception of most automatic transactions, each time you invest, redeem, transfer or exchange shares, we will send you a confirmation of the transaction. See the Investor Services Guide for more detail. Carefully review all the information relating to transactions on your statements and confirmations to ensure that your instructions were acted on properly. Please notify us immediately in writing if there is an error. If you fail to provide notification of an error with reasonable promptness, i.e., within 30 days of non-automatic transactions or within 30 days of the date of your consolidated quarterly statement, in the case of automatic transactions, we will deem you to have ratified the transaction. No later than January 31 of each year, we will send you reports that you may use in completing your U.S. income tax return. See the Investor Services Guide for more information. Each year, we will send you an annual and a semiannual report relating to your fund, each of which are incorporated herein by reference. The annual report includes audited financial statements and a list of portfolio securities as of the fiscal year end. The semiannual report includes unaudited financial statements for the first six months of the fiscal year, as well as a list of portfolio securities at the end of the period. You also will receive an updated prospectus at least once each year. Please read these materials carefully, as they will help you understand your fund. EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS Information contained in our Investor Services Guide pertains to shareholders who invest directly with American Century rather than through an employer-sponsored retirement plan or through a financial intermediary. If you own or are considering purchasing fund shares through an employer-sponsored retirement plan, your ability to purchase shares of the funds, exchange them for shares of other American Century funds, and redeem them will depend on the terms of your plan. If you own or are considering purchasing fund shares through a bank, broker-dealer, insurance company or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Service Representatives by calling 1-800-345-3533 to request information about our funds and services, to obtain a current prospectus or to get answers to any questions about our funds that you are unable to obtain through your plan administrator or financial intermediary. 20 How to Invest with American Century Investments American Century Investments ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of a fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined at the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central Time. The net asset values for the Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after we receive your investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares of a fund received by us or one of our agents before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined on, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which the net asset value of the fund is determined. Investments by telephone pursuant to your prior authorization to us to draw on your bank account are considered received at the time of your telephone call. Investment and transaction instructions received by us on any business day by mail prior to the time as of which the net asset value of the fund is determined, will receive that day's price. Investments and instructions received after that time will receive the price determined on the next business day. If you invest in fund shares through an employer-sponsored retirement plan or other financial intermediary, it is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangement with the funds or the funds' distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of each fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the funds are published in leading newspapers daily. Net asset values may also be obtained by calling us or by accessing our Web site (www.americancentury.com). DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month, except for year-end distributions, which will be paid on the last business day of the year. Prospectus Additional Information You Should Know 21 You will begin to participate in the distributions the day after your purchase is effective. See "When Share Price is Determined," this page. If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code and Regulations, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held up to 15 days. Distribution checks normally are mailed within seven days after the record date. Please consult our Investor Services Guide for further information regarding your distribution options. TAXES Each of the funds has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. Dividends representing income derived from tax-exempt bonds generally retain the bonds' tax-exempt character in a shareholder's hands. Distributions which represent short-term capital gains are taxable as ordinary income. Distributions from net long-term capital gains are taxable, as long-term capital gains regardless of the length of time the shares on which such distributions are paid have been held by the shareholder. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions of capital gains are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a capital gain distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, we will send you a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. The tax-exempt funds anticipate that substantially all of the dividends to be paid by the funds will be exempt from federal income taxes to an individual unless, due to that person's own tax situation, he or she is subject to the alternative minimum tax. In that case, it is likely that a portion of the dividends will be taxable to that shareholder, while remaining tax-exempt in the hands of most other shareholders. The funds will advise shareholders of the percentage, if any, of the dividends not exempt from federal income tax, and the percentage, if any, subject to the individual alternative minimum tax should a shareholder be subject to it. If you have not complied with certain provisions of the Internal Revenue Code and Regulations, we are required by federal law to withhold and remit to the IRS 31% of reportable payments (which may include dividends, capital gains distributions and redemptions). Those regulations require you to certify that the Social Security number or tax identification number you provide is correct and that you are not subject to 31% withholding for previous under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of a fund (including redemptions 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. 22 Additional Information You Should Know American Century Investments Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of The Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the funds. Acting pursuant to an investment management agreement entered into with the funds, American Century Investment Management, Inc. serves as the investment manager of the funds. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. The manager supervises and manages the investment portfolio of each fund and directs the purchase and sale of their investment securities. It utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios and the funds' asset mix as they deem appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the teams may also adjust portfolio holdings of the funds or of sectors of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this Prospectus and their work experience for the last five years are as follows: COLLEEN M. DENZLER, Senior Municipal Portfolio Manager, joined the manager in January 1996 and is a member of the team that manages the funds and eight other Benham tax-exempt funds. Prior to joining the manager, Ms. Denzler was a portfolio manager with the Calvert Group for 10 years, specializing in state tax-exempt portfolios. Ms. Denzler is a Chartered Financial Analyst and is a member of the Association for Investment Management and Research (AIMR) and The Washington Society of Investment Analysts. G. DAVID MACEWEN joined American Century in 1991 as a Senior Municipal Portfolio Manager, and is a member of the teams that manage the Long-Term Tax-Exempt Fund and five other Benham tax-exempt funds. Prior to joining the manager, Mr. MacEwen was Vice President and Municipal Portfolio Manager with Provident Institutional Management Corporation, Wilmington, Delaware. JOEL SILVA joined American Century in 1989, serving first as a customer service representative, then moving to a position as a municipal bond trader. As a Municipal Portfolio Manager, Mr. Silva is a member of the teams that manage six Benham tax-exempt funds, including the Limited-Term, Intermediate-Term and Long-Term Tax-Exempt funds. The activities of the manager are subject only to directions of the funds' Board of Directors. The manager pays all the expenses of the funds except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the funds, the manager receives an annual fee of 0.60% of each of the funds. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by the aggregate average daily closing value of each 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). Prospectus Additional Information You Should Know 23 CODE OF ETHICS The funds and the manager have adopted a Code of Ethics, which restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the funds' portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds and is paid for such services by the manager. Certain recordkeeping and administrative services that would otherwise be performed by the transfer agent may be performed by an insurance company or other entity providing similar services for various retirement plans using shares of the funds as a funding medium, by broker-dealers and financial advisors for their customers investing in shares of American Century or by sponsors of multi mutual fund no- or low-transaction fee programs. The manager or an affiliate may enter into contracts to pay them for such recordkeeping and administrative services out of its unified management fee. Although there is no sales charge levied by the funds, transactions in shares of the funds may be executed by brokers or investment advisors who charge a transaction-based fee or other fee for their services. Such charges may vary among broker-dealers and financial advisors, but in all cases will be retained by the broker-dealer or financial advisor and not remitted to the funds or the investment manager. You should be aware of the fact that these transactions may be made directly with American Century without incurring such fees. 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the funds' Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by American Century Investment Services, Inc. (the "Distributor"), a registered broker-dealer and an affiliate of the funds' investment manager. The manager pays all expenses for promoting and distributing the funds. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the funds, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is American Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may be made by mail to that address, or by telephone to 1-800-345-2021 (international calls: 816-531-5575). American Century Mutual Funds issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value 24 Additional Information You Should Know American Century Invesments applicable to such share on all questions, except those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the funds to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the funds' by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the funds to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. Prospectus Additional Information You Should Know 25 P.O. Box 419200 Kansas City, Missouri 64141-6200 Person-to-person assistance: 1-800-345-2021 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-340-7962 Internet: www.americancentury.com [american century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7719 recycled PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 TWENTIETH CENTURY(R) GROUP New Opportunities [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. American Century Investments Benham Group(R) American Century Group Twentieth Century Group MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS NEW OPPORTUNITIES PROSPECTUS MARCH 1, 1997 NEW OPPORTUNITIES AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load mutual funds covering a variety of investment opportunities. One of the funds from our Twentieth Century Group that seeks capital growth is described in this Prospectus. The investment objective is listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. The fund is only available for purchase by participants in the American Century Priority Investors Program and employees of the affiliated companies comprising the American Century family of funds. The minimum initial investment for Priority Investors in this fund is $10,000; the maximum investment is $500,000. The manager intends to close the fund to new investors when the fund reaches $400,000,000 in net assets. SHARES OF THE FUND REDEEMED OR EXCHANGED WITHIN 5 YEARS OF THEIR PURCHASE ARE SUBJECT TO A REDEMPTION FEE OF 2% OF THE VALUE OF THE SHARES REDEEMED OR EXCHANGED. THIS REDEMPTION FEE IS RETAINED BY THE FUND. This Prospectus gives you information about the fund that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: American Century Investments 4500 Main Street o P.O. Box 419287 Kansas City, Missouri 64141-6287 o 1-800-345-8810 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-634-4113 o In Missouri: 816-753-1865 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVE OF THE FUND TWENTIETH CENTURY NEW OPPORTUNITIES FUND New Opportunities Fund seeks capital growth. It pursues its investment objective by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. There is no assurance that the fund will achieve its investment objective. NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objective of the Fund American Century Investments TABLE OF CONTENTS Investment Objective of the Fund............................................2 Transaction and Operating Expense Table.....................................4 Financial Highlights........................................................5 INFORMATION REGARDING THE FUND A Long-Term Investment......................................................6 Investment Policies of the Fund.............................................6 Investment Approach....................................................6 Investments in Smaller Companies.......................................6 Other Investment Practices, Their Characteristics and Risks..........................................6 Foreign Securities.....................................................6 Forward Currency Exchange Contracts....................................7 Portfolio Turnover.....................................................8 Repurchase Agreements..................................................8 Derivative Securities..................................................8 Portfolio Lending......................................................9 When-Issued Securities.................................................9 Rule 144A Securities...................................................9 Short Sales...........................................................10 Performance Advertising....................................................10 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS American Century Investments...............................................11 Investing in American Century..............................................11 A Warning to Short-Term Investors..........................................11 How to Open an Account.....................................................11 By Mail...........................................................11 By Wire...........................................................11 By Exchange.......................................................12 In Person.........................................................12 Subsequent Investments................................................12 By Mail...........................................................12 By Telephone......................................................12 By Online Access..................................................12 By Wire...........................................................12 In Person.........................................................12 Automatic Investment Plan.............................................12 How to Exchange from One Account to Another................................13 By Mail...........................................................13 By Telephone......................................................13 By Online Access..................................................13 How to Redeem Shares.......................................................13 By Mail...........................................................13 By Telephone......................................................13 By Check-A-Month..................................................13 Other Automatic Redemptions.......................................13 Redemption Proceeds...................................................14 By Check..........................................................14 By Wire and ACH...................................................14 Special Requirements for Large Redemptions............................14 Redemption of Shares in Low-Balance Accounts..........................14 Signature Guarantee........................................................14 Special Shareholder Services...............................................15 Automated Information Line........................................15 Online Account Access.............................................15 Open Order Service................................................15 Tax-Qualified Retirement Plans....................................15 Important Policies Regarding Your Investments..............................16 Reports to Shareholders....................................................16 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price................................................................18 When Share Price Is Determined........................................18 How Share Price Is Determined.........................................18 Where to Find Information About Share Price...........................19 Distributions..............................................................19 Taxes ..................................................................19 Tax-Deferred Accounts.................................................19 Taxable Accounts......................................................19 Management.................................................................20 Investment Management.................................................20 Code of Ethics........................................................21 Transfer and Administrative Services..................................21 Distribution of Fund Shares................................................22 Further Information About American Century.................................22 Prospectus Table of Contents 3 TRANSACTION AND OPERATING EXPENSE TABLE New Opportunities SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases................................ none Maximum Sales Load Imposed on Reinvested Dividends..................... none Deferred Sales Load.................................................... none Redemption Fee(1)...................................................... 2%(2) Exchange Fee........................................................... none(2) ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees........................................................ 1.5% 12b-1 Fees............................................................. none Other Expenses(3)...................................................... 0.00% Total Fund Operating Expenses.......................................... 1.5% EXAMPLE: You would pay the following expenses on a 1 year $ 36 $1,000 investment, assuming a 5% annual return and 3 years 69 redemption at the end of each time period(2): You would pay the following expenses on the 1 year $ 15 same investment, assuming no redemption: 3 years 47 (1) Redemption proceeds sent by wire are subject to a $10 processing fee. (2) Shares of the fund redeemed or exchanged within 5 years of their purchase are subject to a redemption fee of 2% of the value of the shares redeemed or exchanged. This redemption fee which is retained by the fund, is intended to minimize the impact that shareholder short-term investment behavior has on fund performance and hence, on the other shareholders of the fund. See "A Warning for Short-Term Investors," page 10. (3) Other expenses, which includes the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, are expected to be less than 0.01 of 1% of average net assets for the most recent fiscal year.
The purpose of the table is to help you understand the various costs and expenses that you, as an investor in the fund, will bear directly or indirectly. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 4 Transaction and Operating Expense Table American Century Investments FINANCIAL HIGHLIGHTS NEW OPPORTUNITIES The Financial Highlights table below sets forth certain information concerning the historic investment results of the fund pursuant to an undertaking made by the fund at the time of its initial registration with the SEC. The financial data included in the table which is unaudited, has been derived from the financial statements contained in the Statement of Additional Information. The information presented is for a share outstanding throughout the period ended January 31, 1997. 1997(1) PER-SHARE DATA Net Asset Value, Beginning of Period.................................... $5.00 ------- Income from Investment Operations Net Realized and Unrealized (Loss) on Investment Transactions...... (.04) ------- Net Asset Value, End of Period.......................................... $4.96 ======= Total Return(2)......................................................... (.80%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets(3).................... 1.50% Ratio of Net Investment Income to Average Net Assets(3)................. .94% Portfolio Turnover Rate................................................. 9% Average Commission Paid per Investment Security Traded.................. $.026 Net Assets, End of Period (in thousands)................................$103,338 (1) December 26, 1996 (Inception) through January 31, 1997 (Unaudited). (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (3) Annualized. Prospectus Financial Highlights 5 INFORMATION REGARDING THE FUND A LONG-TERM INVESTMENT An investment in the New Opportunities fund should be considered as a long-term investment. The manager has adopted a number of policies regarding investments in the fund to help ensure that prospective shareholders are willing to make a long-term commitment to the fund before investing. These policies are described under "A Warning for Short-term Investors", page 11. Those prospective investors who do not want to, or are not able to, commit to leave their investment in the fund for at least 5 years should not invest in the fund. INVESTMENT POLICIES OF THE FUND New Opportunities has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH New Opportunities seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (primarily relating to accelerating earnings and revenues) and have, in the opinion of the manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the fund intends to stay fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the fund's actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of its assets committed to equity and equity equivalent investments. INVESTMENTS IN SMALLER COMPANIES New Opportunities presently intends to invest primarily in the equity securities of smaller companies (although it can be expected that, as the fund gets larger, it will begin to invest in medium size and larger companies). These smaller companies may present greater opportunities for capital appreciation, but may also involve greater risks than large, mature issuers. Such companies may have limited product lines, markets or financial resources, and their securities may trade less frequently and in more limited volume than the securities of larger companies. In addition, available information regarding these smaller companies may be less available and, when available, may be incomplete or inaccurate. The securities of such companies may also be more likely to be delisted from trading on their primary exchange. As a result, the securities of smaller companies may experience significantly more price volatility and less liquidity than securities of larger companies, and any resulting volatility and limited liquidity will impact the net asset value of the fund. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or 6 Information Regarding the Funds American Century Investments quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The fund may invest in common stocks, convertible securities, preferred stocks, bonds, notes and other debt securities of foreign issuers, and debt securities of foreign governments and their agencies. The fund will limit its purchase of debt securities to investment grade obligations. Investments in foreign securities may present certain risks, including those resulting from fluctuations in currency exchange rates, future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund may be denominated in foreign currencies. Other securities, such as DRs, may be denominated in U.S. dollars, but have a value that is dependent on the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolio may be affected by changes in the exchange rates between foreign currencies and the U.S. dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the U.S. dollar may be a factor in the overall performance of the fund. To protect against adverse movements in exchange rates between currencies, the fund may, for hedging purposes only, enter into forward currency exchange contracts. A forward currency exchange contract obligates the fund to purchase or sell a specific currency at a future date at a specific price. The fund may elect to enter into a forward currency exchange contract with respect to a specific purchase or sale of a security, or with respect to the fund's portfolio positions generally. By entering into a forward currency exchange contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the fund can "lock in" an exchange rate between the trade and settlement dates for that purchase or sale. This practice is sometimes referred to as "transaction hedging." The fund may enter into transaction hedging contracts with respect to all or a substantial portion of its foreign securities trades. When the manager believes that a particular currency may decline in value compared to the U.S. dollar, the fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward currency exchange contract, the fund, when required, will instruct its custodian bank to segregate cash or liquid high-grade securities in a separate account in an amount sufficient to cover its obligation under the contract. Those assets will be valued at market daily, and if the value of the segregated securities declines, additional cash or securities will be added so that the value of the account is not less than the amount of the fund's commitment. At any given time, no more than 10% of the fund's assets will be committed to a segregated account in connection with portfolio hedging transactions. Predicting the relative future values of currencies is very difficult, and there is no assurance that any attempt to protect the fund against adverse currency movements through the use of forward currency exchange contracts will be successful. In addition, the use of forward currency exchange contracts tends to limit the potential gains that might result from a positive change in the relationships between the foreign currency and the U.S. dollar. Prospectus Information Regarding the Funds 7 PORTFOLIO TURNOVER Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by the fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS The fund 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 fund. 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 repurchase 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. Since 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. The fund will limit repurchase agreement transactions to securities issued by the U.S. government, 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 fund's Board of Directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES The fund 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 more accurately described 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. The fund may not 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 fund 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; 8 Information Regarding the Funds American Century Investments o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, the fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occur 15 to 45 days after the commitment to purchase. 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. A separate account for the fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since the secondary market for such securities is limited to certain qualified institutional investors, the liquidity of such securities may be limited accordingly and the fund may, from time to time, hold a Rule 144A security that is illiquid. In such an event, the fund's manager will consider appropriate remedies to minimize the effect on the fund's liquidity. The fund Prospectus Information Regarding the Funds 9 may not invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). SHORT SALES The fund may engage in short sales if, at the time of the short sale, the fund owns or has the right to acquire an equal amount of the security being sold short at no additional cost. These transactions allow the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The fund may make a short sale 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 and for purposes of satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which the fund may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. 10 Information Regarding the Funds American Century Investments HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS The New Opportunities Fund is a part of the American Century Investments family of mutual funds. Our family provides a full range of investment opportunities, from the aggressive equity growth funds in our Twentieth Century Group, to the fixed income funds in our Benham Group, to the moderate risk and specialty funds in our American Century Group. Please call 1-800-345-8810 for a brochure or prospectuses for the other funds in the American Century Investments family. INVESTING IN AMERICAN CENTURY The following section explains how to invest in American Century funds, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Investor Services Guide that you will receive when you open an account. A WARNING TO SHORT-TERM INVESTORS In order to protect the fund's performance potential, it is the desire of the manager that only investors that intend to leave their money in the fund for the long term, i.e., for more than five years, actually invest in the fund. Two policies have been adopted to highlight for potential investors that an investment in the fund should be viewed as a long-term commitment. First, the minimum initial investment for the fund is $10,000. Second, shares that are redeemed or exchanged within 5 years of their purchase will be subject to a redemption fee of 2% of the value of the shares redeemed or exchanged. This fee will be retained by the fund to help minimize the impact such redemptions and exchanges have on fund performance and, hence, on the other shareholders of the fund. BECAUSE OF THE SIGNIFICANT NEGATIVE IMPACT THAT THE FEE WILL HAVE ON REDEMPTIONS OR EXCHANGES MADE WITHIN FIVE YEARS OF PURCHASE, THOSE PROSPECTIVE INVESTORS WHO DO NOT WANT TO, OR ARE NOT ABLE TO, COMMIT TO LEAVE THEIR INVESTMENT IN THE FUND FOR AT LEAST FIVE YEARS SHOULD NOT INVEST IN THE FUND. HOW TO OPEN AN ACCOUNT Shares of the fund are only available for purchase by participants in our Priority Investors Program and employees of the affiliated companies comprising the American Century family of funds. To open an account, you must complete and sign an application, furnishing your taxpayer identification number. (You must also certify whether you are subject to withholding for failing to report income to the IRS.) Investments received without a certified taxpayer identification number will be returned. The minimum initial investment for Priority Investors in this fund is $10,000; the maximum aggregate investment in the fund is $500,000. Any increase in value as a result of share price appreciation and distributions from the fund that are reinvested in the fund do not count against this $500,000 maximum. The manager currently intends to close the fund to new investors when the fund reaches $400,000,000 in net assets. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to American Century Investments. BY WIRE You may make your initial investment by wiring funds. To do so, call us or mail a completed application and provide your bank with the following information: o RECEIVING BANK AND ROUTING NUMBER: Commerce Bank, N.A. (101000019) Prospectus How to Invest with American Century Investments 11 o BENEFICIARY (BNF): American Century Services Corporation 4500 Main St., Kansas City, Missouri 64111 o BENEFICIARY ACCOUNT NUMBER (BNF ACCT): 2804918 o REFERENCE FOR BENEFICIARY (RFB): American Century account number into which you are investing. If more than one, leave blank and see Bank to Bank Information below. o ORIGINATOR TO BENEFICIARY (OBI): Name and address of owner of account into which you are investing. o BANK TO BANK INFORMATION (BBI OR FREE FORM TEXT): o Taxpayer identification or Social Security number. o If more than one account, account numbers and amount to be invested in each account. o Current tax year, previous tax year or rollover designation if an IRA. Specify whether IRA, SEP-IRA or SARSEP-IRA. BY EXCHANGE Call 1-800-345-8810 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another American Century account. See page 12 for more information on exchanges. IN PERSON If you prefer to work with a representative in person, please visit one of our Investors Centers, located at: 4500 Main Street Kansas City, Missouri 64111 1665 Charleston Road Mountain View, California 94043 2000 S. Colorado Blvd. Denver, Colorado 80222 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see Automatic Investment Plan, this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the investment slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without an investment slip.) BY TELEPHONE Once your account is open, you may make investments by telephone if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. You may call an Investor Services Representative or use our Automated Information Line. BY ONLINE ACCESS Once your account is open, you may make investments online if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. BY WIRE You may make subsequent investments by wire. Follow the wire transfer instructions on page 10 and indicate your account number. IN PERSON You may make subsequent investments in person at one of our Investors Centers. The locations of our three Investors Centers are listed on this page. AUTOMATIC INVESTMENT PLAN You may elect on your application to make investments automatically by authorizing us to draw on your bank account regularly. Such investments must be at least the equivalent of $50 per month. You also may choose an automatic payroll or government direct deposit. If you are establishing a new account, check the appropriate box under "Automatic Investments" on your application to receive more information. If you would like to add a direct deposit to an existing account, please call one of our Investor Services Representatives. 12 How to Invest with American Century Investments American Century Investments HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER As long as you meet any minimum investment requirements, you may exchange your fund shares to our other funds up to six times per year per account. An exchange request will be processed as of the same day it is received, if it is received before the fund's net asset values are calculated, which is one hour prior to the close of the New York Stock Exchange for funds issued by the American Century Target Maturities Trust, and at the close of the Exchange for all of our other funds. See "When Share Price is Determined," page 18. For any single exchange, the shares of each fund being acquired must have a value of at least $100. However, we will allow investors to set up an Automatic Exchange Plan between any two funds in the amount of at least $50 per month. See our Investor Services Guide for further information about exchanges. EXCHANGES OF SHARES MADE WITHIN 5 YEARS OF THEIR PURCHASE WILL BE SUBJECT TO A REDEMPTION FEE OF 2% OF THE VALUE OF THE SHARES EXCHANGED. SEE "A WARNING TO SHORT-TERM INVESTORS," PAGE 11. If, in any 90-day period, the total of your exchanges and your redemptions from any one account exceeds the lesser of $250,000 or 1% of the fund's assets, further exchanges will be subject to special requirements to comply with our policy on large redemptions. See "Special Requirements for Large Redemptions," page 14. BY MAIL You may direct us in writing to exchange your shares from one American Century account to another. For additional information, please see our Investor Services Guide. BY TELEPHONE You can make exchanges over the telephone (either with an Investor Services Representative or using our Automated Information Line -- see page 15) if you have authorized us to accept telephone instructions. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-8810 to get the appropriate form. BY ONLINE ACCESS You can make exchanges online if you have authorized us to accept instructions over the Internet. You can authorize this by selecting "Full Services" on your application or by calling us at 1-800-345-8810 to get the appropriate form. HOW TO REDEEM SHARES We will redeem or "buy back" your shares at any time. Redemptions will be made at the next net asset value determined after a complete redemption request is received. For large redemptions, please read "Special Requirements for Large Redemptions," page 14. REDEMPTION OF SHARES MADE WITHIN 5 YEARS OF THEIR PURCHASE WILL BE SUBJECT TO A REDEMPTION FEE OF 2% OF THE VALUE OF THE SHARES REDEEMED. SEE "A WARNING TO SHORT-TERM INVESTORS," PAGE 11. Please note that a request to redeem shares in an IRA or 403(b) plan must be accompanied by an executed IRS Form W4-P and a reason for withdrawal as specified by the IRS. BY MAIL Your written instructions to redeem shares may be made either by a redemption form, which we will send you upon request, or by a letter to us. Certain redemptions may require a signature guarantee. Please see "Signature Guarantee," page 14. BY TELEPHONE If you have authorized us to accept telephone instructions, you may redeem your shares by calling an Investor Services Representative. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan or request a brochure, please call an Investor Services Representative. OTHER AUTOMATIC REDEMPTIONS If you have at least a $10,000 balance in your account, you may elect to make redemptions automatically by authorizing us to send funds to your account Prospectus How to Invest with American Century Investments 13 at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Investor Services Guide. BY WIRE AND ACH You may authorize us to transmit redemption proceeds by wire or ACH. These services will be effective 15 days after we receive the authorization. Your bank will usually receive wired funds within 48 hours of transmission. Funds transferred by ACH may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS We have elected to be governed by Rule 18f-1 under the Investment Company Act, which obligates each fund make certain redemptions in cash. This requirement to pay redemptions in cash applies to situations where one shareholder redeems, during any 90-day period, up to the lesser of $250,000 or 1% of the assets of the fund. Although redemptions in excess of this limitation will also normally be paid in cash, we reserve the right under unusual circumstances to honor these redemptions by making payment in whole or in part in readily marketable securities (a "redemption-in-kind"). If payment is made in securities, the securities will be selected by the fund, will be valued in the same manner as they are in computing the fund's net asset value and will be provided without prior notice. If your redemption would exceed this limit and you would like to avoid being paid in securities, please provide us with an unconditional instruction to redeem at least 15 days prior to the date on which the redemption transaction is to occur. The instruction must specify the dollar amount or number of shares to be redeemed and the date of the transaction. This minimizes the effect of the redemption on the fund and its remaining shareholders. Despite its right to redeem fund shares through a redemption-in-kind, we do not expect to exercise this option unless the fund has an unusually low level of cash to meet redemptions and/or is experiencing unusually strong demands for its cash. Such a demand might be caused, for example, by extreme market conditions that result in an abnormally high level of redemption requests concentrated in a short period of time. Absent these or similar circumstances, we expect redemptions in excess of $250,000 to be paid in cash in any fund with assets of more than $50 million if total redemptions from any one account in any 90-day period do not exceed one-half of 1% of the total assets of the fund. REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you of the necessity to bring the value of the shares held in the account up to the minimum. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and the proceeds from the redemption will be sent by check to your address of record. We reserve the right to increase the investment minimums. SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee would be required when: o redeeming more than $25,000; or 14 How to Invest with American Century Investments American Century Investments o establishing or increasing a Check-A-Month or automatic transfer on an existing account. You can obtain a signature guarantee from a bank or trust company, credit union, broker-dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Investor Services Guide. We reserve the right to require a signature guarantee on any transaction, or to change this policy at any time. SPECIAL SHAREHOLDER SERVICES We offer several service options to make your account easier to manage. These are listed on the account application. Please make note of these options and elect the ones that are appropriate for you. Be aware that the "Full Services" option offers you the most flexibility. You will find more information about each of these service options in our Investor Services Guide. Our special shareholder services include: AUTOMATED INFORMATION LINE We offer an Automated Information Line, 24 hours a day, seven days a week, at 1-800-345-8765. By calling the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated Information Line to make investments into your accounts (if we have your bank information on file) and obtain your share balance, value and most recent transactions. If you have authorized us to accept telephone instructions, you also may exchange shares from one fund to another via the Automated Information Line. Redemption instructions cannot be given via the Automated Information Line. ONLINE ACCOUNT ACCESS You may contact us 24 hours a day, seven days a week, at www.americancentury.com to access your funds' daily share prices, receive updates on major market indices and view historical performance of your funds. If you select "Full Services" on your application, you can use your personal access code and Social Security number to view your account balances and account activity, make subsequent investments from your bank account or exchange shares from one fund to another. OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central time are effective the same day, and orders or cancellations received after 2 p.m. Central time are effective the next business day. TAX-QUALIFIED RETIREMENT PLANS The fund is available for your tax-deferred retirement plan. Call or write us and request the appropriate forms for: o Individual Retirement Accounts (IRAs); or o 403(b) plans. You can also transfer your tax-deferred plan to us from another company or custodian. Call or write us for a Request to Transfer form. Prospectus How to Invest with American Century Investments 15 IMPORTANT POLICIES REGARDING YOUR INVESTMENTS Every account is subject to policies that could affect your investment. Please refer to the Investor Services Guide for further information about the policies discussed below, as well as further detail about the services we offer. (1) We reserve the right for any reason to suspend the offering of shares for a period of time, or to reject any specific purchase order (including purchases by exchange). Additionally, purchases may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. (2) We reserve the right to make changes to any stated investment requirements, including those that relate to purchases, transfers and redemptions. In addition, we may also alter, add to or terminate any investor services and privileges. Any changes may affect all shareholders or only certain series or classes of shareholders. In particular, the manager has established different minimum investment amounts for the employees of its affiliated companies, and may change those amounts from time to time. (3) Shares being acquired must be qualified for sale in your state of residence. (4) Transactions requesting a specific price and date, other than open orders, will be refused. Once you have mailed or otherwise transmitted your transaction instructions to us, they may not be modified or canceled. (5) If a transaction request is made by a corporation, partnership, trust, fiduciary, agent or unincorporated association, we will require evidence satisfactory to us of the authority of the individual making the request. (6) We have established procedures designed to assure the authenticity of instructions received by telephone. These procedures include requesting personal identification from callers, recording telephone calls, and providing written confirmations of telephone transactions. These procedures are designed to protect shareholders from unauthorized or fraudulent instructions. If we do not employ reasonable procedures to confirm the genuineness of instructions, then we may be liable for losses due to unauthorized or fraudulent instructions. The company, its transfer agent and investment advisor will not be responsible for any loss due to instructions they reasonably believe are genuine. (7) All signatures should be exactly as the name appears in the registration. If the owner's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. (8) Unusual stock market conditions have in the past resulted in an increase in the number of shareholder telephone calls. If you experience difficulty in reaching us during such periods, you may send your transaction instructions by mail, express mail or courier service, or you may visit one of our Investors Centers. You may also use our Automated Information Line if you have requested and received an access code and are not attempting to redeem shares. (9) If you fail to provide us with the correct certified taxpayer identification number, we may reduce any redemption proceeds by $50 to cover the penalty the IRS will impose on us for failure to report your correct taxpayer identification number on information reports. (10) We will perform special inquiries on shareholder accounts. A research fee of $15 per hour may be applied. REPORTS TO SHAREHOLDERS At the end of each calendar quarter, we will send you a consolidated statement that summarizes all of your American Century holdings, as well as an individual statement for each fund you own that reflects all year-to-date activity in your account. You may request a statement of your account activity at any time. With the exception of most automatic transactions, each time you invest, redeem, transfer or exchange shares, we will send you a confirmation of the transaction. See the Investor Services Guide for more detail. Carefully review all the information relating to transactions on your statements and confirmations to ensure that your instructions were acted on properly. Please notify us immediately in writing if there is an error. If you fail to provide notification of an error 16 How to Invest with American Century Investments American Century Investments with reasonable promptness, i.e., within 30 days of non-automatic transactions or within 30 days of the date of your consolidated quarterly statement, in the case of automatic transactions, we will deem you to have ratified the transaction. No later than January 31 of each year, we will send you reports that you may use in completing your U.S. income tax return. See the Investor Services Guide for more information. Each year, we will send you an annual and a semiannual report relating to your fund. The annual report includes audited financial statements and a list of portfolio securities as of the fiscal year end. The semiannual report includes unaudited financial statements for the first six months of the fiscal year, as well as a list of portfolio securities at the end of the period. You also will receive an updated prospectus at least once each year. Please read these materials carefully, as they will help you understand your fund. Prospectus How to Invest with American Century Investments 17 ADDITIONAL INORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined as of the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after we receive your investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or one of our agents before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined as of, the close of the Exchange on, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which the net asset value of the fund is determined. Investments by telephone pursuant to your prior authorization to us to draw on a bank account are considered received at the time of your telephone call. Investment and transaction instructions received by us on any business day by mail prior to the time as of which the net asset value of the fund is determined, will receive that day's price. Investments and instructions received after that time will receive the price determined on the next business day. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. 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 converted to dollars at the prevailing foreign exchange rate. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed at various times before the close of business on each day that the New York Stock Exchange is open. If an event were to occur after the value of a security was established but before the net asset value per share was determined that was likely to materially change the net asset value, then that security would be valued at fair value as determined 18 Additional Information You Should Know American Century Investments in accordance with procedures adopted by the Board of Directors. Trading of these securities in foreign markets may not take place on every New York Stock Exchange business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the New York Stock Exchange is not open and on which a fund's net asset value is not calculated. Therefore, such calculation does 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 fund's portfolio may be affected on days when shares of the fund may not be purchased or redeemed. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of New Opportunities are published in leading newspapers daily. The net asset value may also be obtained by calling us or by accessing our Web site (www.americancentury.com). DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains, if any, are declared and paid annually on or before December 31, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our Investor Services Guide for further information regarding your distribution options. A distribution on shares of the fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are included in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. See "Taxes," this page. TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the fund will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS 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. Distributions from net long-term capital gains are taxable as long-term capital gains regardless of the length of time you have held the shares on which such distributions are paid. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Dividends and interest received by the 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 gen- Prospectus Additional Information You Should Know 19 erally do not impose taxes on capital gains in respect of investments by non-resident investors. The foreign taxes paid by the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter 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 fund shareholders 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. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code and Regulations, we are required by federal law to withhold and remit to the IRS 31% of reportable payments (which may include dividends, capital gains distributions and redemptions). Those regulations require you to certify that the Social Security number or tax identification number you provide is correct and that you are not subject to 31% withholding for previous under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of the 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of the Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the fund. Acting pursuant to an investment management agreement entered into with the 20 Additional Information You Should Know American Century Investments fund, American Century Investment Management, Inc. serves as the investment manager of the fund. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC will be providing investment management services to funds managed by the manager, while certain employees of the manager will be providing investment management services to funds managed by BMC. The manager supervises and manages the investment portfolios of the fund and directs the purchase and sale of its investment securities. It utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the fund's portfolios as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing New Opportunities Fund and their work experience for the last five years are as follows: GLENN A. FOGLE, Vice President and Portfolio Manager, joined American Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. JOHN D. SEITZER, Portfolio Manager, joined American Century in June 1993 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Seitzer attended Indiana University from August 1991 to June 1993, where he obtained his MBA degree. The activities of the manager are subject only to directions of the fund's Board of Directors. The manager pays all the expenses of the fund except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the fund, the manager receives an annual fee of 1.5% of the average net assets the fund. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product 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). CODE OF ETHICS The fund and the manager have adopted a Code of Ethics that restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the fund's portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund, and is paid for such services by the manager. Although there is no sales charge levied by the fund, transactions in shares of the fund may be executed by brokers or investment advisors who charge a transaction-based fee or other fee for their services. Such charges may vary among broker-dealers and financial advisors, but in all cases will be retained Prospectus Additional Information You Should Know 21 by the broker-dealer or financial advisor and not remitted to the fund or the investment manager. You should be aware of the fact that these transactions may be made directly with American Century without incurring such fees. 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the fund's Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by American Century Investment Services, Inc., a registered broker-dealer and an affiliate of the fund's investment manager. The manager pays all expenses for promoting sales of, and distributing the fund. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the fund, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is American Century Tower, 4500 Main Street, P.O. Box 419287, Kansas City, Missouri 64141-6287. All inquiries may be made by mail to that address, or by phone to 1-800-345-8810 (international calls: 816-531-5575). New Opportunities, which is first being offered by this Prospectus, is one of 17 series of $.01 par value shares issued by American Century Mutual Funds, Inc. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except for those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the fund to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. 22 Additional Information You Should Know American Century Investments NOTES Notes 23 NOTES 24 Notes American Century Investments NOTES Notes 25 P.O. Box 419287 Kansas City, Missouri 64141-6287 Person-to-person assistance: 1-800-345-8810 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-531-5689 Internet: www.americancentury.com [american century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7807 Recycled PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 TWENTIETH CENTURY(R) GROUP Select Heritage Growth Ultra Vista ADVISOR CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. American Century Investments Benham Group(R) American Century Group Twentieth Century Group MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Select o Heritage o Growth Ultra o Vista PROSPECTUS MARCH 1, 1997 Select o Heritage o Growth Ultra o Vista ADVISOR CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load and low-load mutual funds covering a variety of investment opportunities. Five of the funds from our Twentieth Century Group that invest primarily in equity securities are described in this Prospectus. Their investment objectives are listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. Each fund's shares offered in this Prospectus (the Advisor Class shares) are sold at their net asset value with no sales charges or commissions. The Advisor Class shares are subject to Rule 12b-1 shareholder services and distribution fees as described in this Prospectus. The Advisor Class shares are intended for purchase by participants in employer-sponsored retirement or savings plans and for persons purchasing shares through broker-dealers, banks, insurance companies and other financial intermediaries that provide various administrative and distribution services. This Prospectus gives you information about the funds that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: American Century Investments 4500 Main Street o P.O. Box 419385 Kansas City, Missouri 64141-6385 o 1-800-345-3533 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 o In Missouri: 816-753-0700 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVES OF THE FUNDS AMERICAN CENTURY - TWENTIETH CENTURY SELECT FUND AMERICAN CENTURY - TWENTIETH CENTURY HERITAGE FUND The Select and Heritage funds seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks of companies that are considered by management to have better-than-average prospects for appreciation. As a matter of fundamental policy, 80% of the assets of Select and Heritage must be invested in securities of companies that have a record of paying dividends or have committed themselves to the payment of regular dividends, or otherwise produce income. AMERICAN CENTURY - TWENTIETH CENTURY GROWTH FUND AMERICAN CENTURY - TWENTIETH CENTURY ULTRA FUND AMERICAN CENTURY - TWENTIETH CENTURY VISTA FUND The Growth, Ultra and Vista funds seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. There is no assurance that the funds will achieve their respective investment objectives. NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objectives American Century Investments TABLE OF CONTENTS Investment Objectives of the Funds.............................2 Transaction and Operating Expense Table........................4 Financial Highlights...........................................5 Performance Information of Other Class.........................7 INFORMATION REGARDING THE FUNDS Investment Policies of the Funds...............................12 Growth Equity Funds.......................................12 Select and Heritage ......................................12 Growth, Ultra and Vista ..................................12 Other Investment Practices, Their Characteristics and Risks...................................................13 Foreign Securities........................................13 Forward Currency Exchange Contracts.......................13 Portfolio Turnover.............................................14 Repurchase Agreements.....................................14 Derivative Securities.....................................15 Portfolio Lending.........................................15 When-Issued Securities....................................16 Rule 144A Securities......................................16 Short Sales...............................................16 Performance Advertising........................................16 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS How to Purchase and Sell American Century Funds...............................................18 How to Exchange Your Investment from One American Century Fund to Another............................18 How to Redeem Shares...........................................18 Special Requirements for Large Redemptions................18 Telephone Services.............................................19 Investors Line............................................19 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price....................................................20 When Share Price Is Determined............................20 How Share Price Is Determined.............................20 Where to Find Information About Share Price...............21 Distributions..................................................21 Taxes..........................................................21 Tax-Deferred Accounts.....................................21 Taxable Accounts..........................................21 Management.....................................................23 Investment Management.....................................23 Code of Ethics............................................24 Transfer and Administrative Services......................24 Distribution of Fund Shares....................................24 Service and Distribution Fees..................................25 Further Information About American Century.....................25 Prospectus Table of Contents 3 TRANSACTION AND OPERATING EXPENSE TABLE Select, Heritage, Growth, Ultra, Vista SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases.................................none Maximum Sales Load Imposed on Reinvested Dividends......................none Deferred Sales Load.....................................................none Redemption Fee..........................................................none Exchange Fee............................................................none ANNUAL FUND OPERATING EXPENSES: (as a percentage of net assets) Management Fees........................................................0.75% 12b-1 Fees(1)..........................................................0.50% Other Expenses(2). ....................................................0.00% Total Fund Operating Expenses. ........................................1.25% EXAMPLE You would pay the following expenses on a 1 year $ 13 $1,000 investment, assuming a 5% annual return and 3 years 40 redemption at the end of each time period: 5 years 68 10 years 150 (1) The 12b-1 fee is designed to permit investors to purchase Advisor Class shares through broker-dealers, banks, insurance companies and other financial intermediaries. A portion of the fee is used to compensate them for ongoing recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager, and a portion is used to compensate them for distribution and other shareholder services. See "Service and Distribution Fees," page 25. (2) Other expenses, which include the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year. The purpose of this table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of the funds offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Advisor Class shares. The funds offer three other classes of shares, one of which is primarily made available to retail investors and two that are primarily made available to institutional investors. The other classes have different fee structures than the Advisor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for those classes. For additional information about the various classes, see "Further Information About American Century," page 25. 4 Transaction and Operating Expense Table American Century Investments
FINANCIAL HIGHLIGHTS ULTRA The Advisor Class of the fund commenced operations on October 2, 1996. Performance information of the original class of shares, which commenced operations on November 2, 1981, is presented on page 10. The Financial Highlights for the period presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the funds' annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the period ended October 31, 1996. 1996(1) PER-SHARE DATA Net Asset Value, Beginning of Period.................................................$29.55 Income from Investment Operations Net Investment (Loss)...............................................................(.02)(2) Net Realized and Unrealized (Loss) on Investment Transactions.......................(.01) ------------ Total from Investment Operations....................................................(.03) ------------ Net Asset Value, End of Period.......................................................$29.52 ============ Total Return(3).....................................................................(.10)% - ------------------ RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets....................................1.25%(4) Ratio of Net Investment (Loss) to Average Net Assets.................................(.8)%(4) Portfolio Turnover Rate...................................................................87% Average Commission Paid per Investment Security Traded..................................$.035 Net Assets, End of Period (in millions)...................................................$13 (1) October 2, 1996 (Commencement of sale of the Advisor Class) through October 31, 1996. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Annualized.
Prospectus Financial Highlights 5
FINANCIAL HIGHLIGHTS VISTA The Advisor Class of the fund commenced operations on October 2, 1996. Performance information of the original class of shares, which commenced operations on November 25, 1983, is presented on page 11. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the funds' annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the period ended October 31, 1996. 1996(1) PER-SHARE DATA Net Asset Value, Beginning of Period.................................................$16.87 Income from Investment Operations Net Investment (Loss)...............................................................(.02)(2) Net Realized and Unrealized (Loss) on Investment Transactions......................(1.18) ------------ Total from Investment Operations...................................................(1.20) ------------ Net Asset Value, End of Period.......................................................$15.67 ============ Total Return(3)....................................................................(7.11)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets......................................1.25%(4) Ratio of Net Investment (Loss) to Average Net Assets..................................(1.2)%(4) Portfolio Turnover Rate...................................................................91% Average Commission Paid per Investment Security Traded..................................$.028 Net Assets, End of Period (in millions)....................................................$6 (1) October 2, 1996 (Commencement of sale of the Advisor Class) through October 31, 1996. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Annualized.
6 Financial Highlights American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS SELECT The Advisor Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's original class of shares, which was redesignated the "Investor Class" of shares, effective September 3, 1996. The Investor Class shares have a total expense ratio that is 0.25% lower than the Advisor Class. Had the Advisor Class been in existence for the time periods presented, that class's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the funds' annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ......................... $39.52 $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income .................. .20(1) .33(1) .40 .46 .53 .63 .62 1.10 .64 .33 Net Realized and Unrealized Gain (Loss) on Investment Transactions ...... 6.73 4.68 (3.59) 7.94 .34 8.17 (1.29) 7.74 1.37 .80 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total From Investment Operations .................. 6.93 5.01 (3.19) 8.40 .87 8.80 (.67) 8.84 2.01 1.13 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............. (.27) (.281) (.432) (.495) (.653) (.652) (1.116) (.707) (.481) (.380) From Net Realized Gains on Investment Transactions ................ (4.66) (2.750) (4.466) (1.313) (1.823) (1.551) -- -- (6.367) (3.462) In Excess of Net Realized Gains ........ -- (.125) -- (.016) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions .................... (4.93) (3.156) (4.898) (1.824) (2.476) (2.203) (1.116) (.707) (6.848) (3.842) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year .............. $41.52 $39.52 $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 ======= ====== ====== ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ........................ 19.76% 15.02% (7.37)% 22.20% 1.76% 27.05% (2.03)% 32.59% 7.31% 3.47% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets .................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income to Average Net Assets .................. .5% .9% 1.0% 1.1% 1.4% 1.7% 1.8% 3.4% 2.2% 1.1% Portfolio Turnover Rate ................ 105% 106% 126% 82% 95% 84% 83% 93% 140% 123% Average Commission Paid per Investment Security Traded ............. $.041 $.046 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) .................. $4,039 $4,008 $4,278 $5,160 $4,534 $4,163 $2,953 $2,721 $2,367 $2,417 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 7
PERFORMANCE INFORMATION OF OTHER CLASS HERITAGE The Advisor Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's original class of shares, which was redesignated the "Investor Class" of shares, effective September 3, 1996. The Investor Class shares have a total expense ratio that is 0.25% lower than the Advisor Class. Had the Advisor Class been in existence for the fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the funds' annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988(1) PER-SHARE DATA Net Asset Value, Beginning of Period ....................... $11.75 $10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 $5.00 ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income .................. --(2) .05(2) .07 .07 .10 .11 .10 .08 .06 Net Realized and Unrealized Gain (Loss) on Investment Transactions ...... 1.15 1.96 (.21) 2.43 .72 2.04 (.94) 1.93 1.16 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ....... 1.15 2.01 (.14) 2.50 .82 2.15 (.84) 2.01 1.22 ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............. (.05) (.033) (.068) (.093) (.113) (.110) (.065) (.066) (.013) From Net Realized Gains on Investment Transactions ................ (.61) (.514) (.500) (.679) -- -- (.691) -- -- In Excess of Net Realized Gains ........ -- (.030) (.006) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions .................... (.66) (.577) (.574) (.772) (.113) (.110) (.756) (.066) (.013) ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period ............ $12.24 $11.75 $10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(3) ........................ 10.44% 21.04% (1.13)% 28.64% 9.65% 33.25% (11.62)% 32.65% 25.75% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets .................. .99% .99% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(4) Ratio of Net Investment Income to Average Net Assets .................. -- .5% .7% .7% 1.1% 1.5% 1.6% 1.3% 1.4%(4) Portfolio Turnover Rate ................ 122% 121% 136% 116% 119% 146% 127% 159% 130%(4) Average Commission Paid per Investment Security Traded ............. $.042 $.042 --(5) --(5) --(5) --(5) --(5) --(5) --(5) Net Assets, End of Period (in millions) ................ $1,083 $1,008 $897 $702 $369 $269 $199 $117 $55 (1) November 10, 1987 (inception) through October 31, 1988 (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total return for periods less than one year are not annualized. (4) Annualized. (5) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
8 Financial Highlights American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS GROWTH The Advisor Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's original class of shares, which was redesignated the "Investor Class" of shares, effective September 3, 1996. The Investor Class shares have a total expense ratio that is 0.25% lower than the Advisor Class. Had the Advisor Class been in existence for the fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the funds' annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ........................ $23.88 $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income (Loss) .......... (.01)(1) .08(1) .06 .06 (.02) .04 .09 .08 .30 .01 Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... 1.47 4.08 .48 1.94 1.35 8.47 (2.05) 5.14 .13 1.30 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ...... 1.46 4.16 .54 2.00 1.33 8.51 (1.96) 5.22 .43 1.31 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............ (.07) (.051) (.056) -- (.013) (.111) (.079) (.320) (.046) (.086) From Net Realized Gains on Investment Transactions ............ (2.98) (3.183) (2.764) (.353) -- (.891) (.592) -- (3.460) (5.076) In Excess of Net Realized Gains ....... (.08) (.040) (.002) (.013) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ................... (3.13) (3.274) (2.822) (.366) (.013) (1.002) (.671) (.320) (3.506) (5.162) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ............. $22.21 $23.88 $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ....................... 8.18% 22.31% 2.66% 8.48% 5.96% 60.64% (11.72)% 42.74% 3.18% 9.32% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets .......... (.1)% .4% .3% .2% (.1)% .2% .6% .5% 2.4% .2% Portfolio Turnover Rate ............... 122% 141% 100% 94% 53% 69% 118% 98% 143% 114% Average Commission Paid per Investment Security Traded ............ $.0360 $.040 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) ................. $4,765 $5,130 $4,363 $4,641 $4,472 $3,193 $1,697 $1,597 $1,229 $1,188 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 9
PERFORMANCE INFORMATION OF OTHER CLASS ULTRA The original class of shares of Ultra were designated the "Investor Class" effective September 3, 1996. The financial information in the following table reflects the performance of the fund's Investor Class of shares for the last ten fiscal years. Investor Class shares have a total expense ratio that is 0.25% lower than the Advisor Class shares offered by this Prospectus. Had the Advisor Class shares been in existence for the fund for the time periods presented, the performance results for that class would be lower as a result of the additional expense. The performance information for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for an Investor Class share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ........................ $28.03 $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income (Loss) ......... (.05)(1) (.07)(1) (.03) (.09) (.05) (.03) (.03) .19 (.02) (.07) Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... 2.84 7.58 (.42) 6.24 (.02) 7.86 (.73) 2.58 1.38 (.22) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ...... 2.79 7.51 (.45) 6.15 (.07) 7.83 (.76) 2.77 1.36 (.29) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............ -- -- -- -- -- -- (.196) -- -- (.007) From Net Realized Gains on Investment Transactions ............... (1.19) (.645) -- -- -- (.028) (.947) -- (3.258) -- In Excess of Net Realized Gains ....... (.11) -- -- -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ................... (1.30) (.645) -- -- -- (.028) (1.143) -- (3.258) (.007) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ............. $29.52 $28.03 $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ....................... 10.79% 36.89% (2.08)% 39.78% (.45)% 101.51% (9.02)% 40.37% 19.52% (3.23)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets .......... (.2)% (.3)% (.1)% (.6)% (.4)% (.5)% (.3)% 2.2% (.3)% (.5)% Portfolio Turnover Rate ............... 87% 87% 78% 53% 59% 42% 141% 132% 140% 137% Average Commission Paid per Investment Security Traded ............ $.0350 $.033 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) ................. $18,266 $14,376 $10,344 $8,037 $4,275 $2,148 $330 $347 $258 $236 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
10 Financial Highlights American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS VISTA The original class of shares of Vista were designated the "Investor Class" effective September 3, 1996. The financial information in the following table reflects the performance of the fund's Investor Class of shares for the last ten fiscal years. Investor Class shares have a total expense ratio that is 0.25% lower than the Advisor Class shares offered by this Prospectus. Had the Advisor Class shares been in existence for the fund for the time periods presented, the performance results for that class would be lower as a result of the additional expense. The performance information for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for an Investor Class share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ........................ $15.73 $10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income (Loss) .......... (.11)(1) (.08)(1) (.08) (.07) (.04) (.02) (.01) (.03) .01 (.05) Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... 1.09 4.90 .45 1.95 .52 4.27 (1.76) 2.87 .63 (.45) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ...... .98 4.82 .37 1.88 .48 4.25 (1.77) 2.84 .64 (.50) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............ -- -- -- -- -- -- -- (.012) -- -- From Net Realized Gains on Investment Transactions ............ (1.02) (.030) (1.663) (.641) -- -- (.693) -- (.462) (.651) In Excess of Net Realized Gains ....... (.01) -- (.012) (.006) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ................... (1.03) (.030) (1.675) (.647) -- -- (.693) (.012) (.462) (.651) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ............. $15.68 $15.73 $10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ....................... 6.96% 44.20% 4.16% 17.71% 4.55% 67.67% (22.17)% 48.19% 11.41% (7.70)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. .99% .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets .......... (.7)% (.6)% (.8)% (.6)% (.4)% (.3)% (.1)% (.4)% .2% (.7)% Portfolio Turnover Rate ............... 91% 89% 111% 133% 87% 92% 103% 125% 145% 123% Average Commission Paid per Investment Security Traded ............ $.028 $.033 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) ................. $2,276 $1,676 $792 $847 $830 $622 $341 $264 $206 $187 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 11 INFORMATION REGARDING THE FUNDS INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. GROWTH EQUITY FUNDS All of the funds offered by this Prospectus seek capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the funds' manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the funds fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the funds' actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of its assets committed to equity and equity equivalent investments. The funds may purchase securities only of companies that have a record of at least three years of continuous operation. SELECT AND HERITAGE Securities of companies chosen for the Select and Heritage funds are chosen primarily for their growth potential. Additionally, as a matter of fundamental policy, 80% of the assets of Select and Heritage must be invested in securities of companies that have a record of paying dividends, or have committed themselves to the payment of regular dividends, or otherwise produce income. The remaining 20% of fund assets may be invested in any otherwise permissible securities that the manager believes will contribute to the funds' stated investment objectives. The income payments of equity securities are only a secondary consideration; therefore, the income return that Select and Heritage provide may not be significant. Otherwise, Select and Heritage follow the same investment techniques described below for Growth, Ultra and Vista. Since Select is one of our larger funds and Heritage is substantially smaller, Select will invest in shares of larger companies with larger share trading volume, and Heritage will tend to invest in smaller companies with smaller share trading volume. However, the two funds are not mutually exclusive, and a given security may be owned by both funds. For the reasons stated in the next section, it should be expected that Heritage will be more volatile and subject to greater short-term risk and long-term opportunity than Select. Because of its size, and because it invests primarily in securities that pay dividends or are committed to the payment of dividends, Select may be expected to be the least volatile of the funds described in this Prospectus. GROWTH, ULTRA AND VISTA Management selects for the portfolios of the Growth, Ultra and Vista funds, securities of companies whose earnings and revenue trends meet management's standards of selection. Growth generally invests in large, established companies. Ultra generally invests in medium to large size companies, while Vista invests in medium-sized and smaller companies. As of February 1, 1997, the size of the companies (as reflected by their capitalizations) held by the funds was as follows: 12 Information Regarding the Funds American Century Investments Median Capitalization of Companies Held - ------------------------------------------------------------------ Growth $11,638,755,000 Ultra $10,795,469,000 Vista $ 1,069,608,000 - ------------------------------------------------------------------ The median capitalization of the companies in a given fund may change over time. In addition, the criteria outlined above are not mutually exclusive, and a given security may be owned by more than one of the funds. The size of companies in which a fund invests tends to give each fund its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure, which could readily be absorbed by a large company, can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that funds investing in smaller companies would be more volatile than funds investing in larger companies. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES Each of the funds may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The funds may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. Subject to their individual investment objectives and policies, the funds may invest in common stocks, convertible securities, preferred stocks, bonds, notes and other debt securities of foreign issuers, and debt securities of foreign governments and their agencies. The funds will limit their purchase of debt securities to investment grade obligations. Investments in foreign securities may present certain risks, including those resulting from fluctuations in currency exchange rates, future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the funds may be denominated in foreign currencies. Other securities, such as DRs, may be denominated in U.S. dollars, but have a value that is dependent on the performance of a foreign security, as valued in the currency of its home country. As a result, the value of a fund's portfolio may be affected by changes in the exchange rates between foreign currencies and the U.S. dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the U.S. dollar may be a factor in the overall performance of a fund. To protect against adverse movements in exchange rates between currencies, the funds may, for hedging purposes only, enter into forward currency exchange contracts. A forward currency exchange contract obligates a fund to purchase or sell a specific currency at a future date at a specific price. A fund may elect to enter into a forward currency exchange contract with respect to a specific purchase or sale of a security, or with respect to the fund's portfolio positions generally. By entering into a forward currency exchange contract with respect to the specific purchase or sale of a security denominated in a foreign currency, a fund can "lock in" an exchange rate between the trade and settlement dates for that purchase or sale. This practice is sometimes referred to as "transaction Prospectus Information Regarding the Funds 13 hedging." Each fund may enter into transaction hedging contracts with respect to all or a substantial portion of its foreign securities trades. When the manager believes that a particular currency may decline in value compared to the U.S. dollar, a fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." A fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. Each fund will make use of portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that a fund will enter into portfolio hedges much less frequently than transaction hedges. If a fund enters into a forward currency exchange contract, the fund, when required, will instruct its custodian bank to segregate cash or liquid high-grade securities in a separate account in an amount sufficient to cover its obligation under the contract. Those assets will be valued at market daily, and if the value of the segregated securities declines, additional cash or securities will be added so that the value of the account is not less than the amount of the fund's commitment. At any given time, no more than 10% of a fund's assets will be committed to a segregated account in connection with portfolio hedging transactions. Predicting the relative future values of currencies is very difficult, and there is no assurance that any attempt to protect a fund against adverse currency movements through the use of forward currency exchange contracts will be successful. In addition, the use of forward currency exchange contracts tends to limit the potential gains that might result from a positive change in the relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The portfolio turnover rates of the funds are shown in the financial information on pages 5-11 of this Prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to a fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the funds pay directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund 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 that fund. 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 repurchase 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. Since 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. The funds will limit repurchase agreement transactions to securities issued by the U.S. government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities 14 Information Regarding the Funds American Century Investments 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. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, each of 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 more accurately described 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. 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 since 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the Board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, each fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this Prospectus Information Regarding the Funds 15 paragraph is a fundamental policy that may be changed only by a vote of a majority of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time the commitment to purchase is made. Delivery of and payment for these securities typically occur 15 to 45 days after the commitment to purchase. 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. A separate account for each fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The funds may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the funds' criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since 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 security that is illiquid. In such an event, the funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No fund may invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). SHORT SALES Each fund may engage in short sales if, at the time of the short sale, the fund owns or has the right to acquire an equal amount of the security being sold short at no additional cost. These transactions allow a fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. A fund may make a short sale 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 and for purposes of satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code and Regulations. PERFORMANCE ADVERTISING From time to time, the funds may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, and yield. Performance data may be quoted separately for the Advisor Class and for the other classes offered by the funds. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that 16 Information Regarding the Funds American Century Investments would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, a fund's yield may not equal the income paid on its shares or the income reported in the fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. Prospectus Information Regarding the Funds 17 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS The following section explains how to purchase, exchange and redeem Advisor Class shares of the funds offered by this Prospectus. HOW TO PURCHASE AND SELL AMERICAN CENTURY FUNDS One or more of the funds offered by this Prospectus is available as an investment option under your employer-sponsored retirement or savings plan or through or in connection with a program, product or service offered by a financial intermediary, such as a bank, broker-dealer or insurance company. Since all records of your share ownership are maintained by your plan sponsor, plan recordkeeper, or other financial intermediary, all orders to purchase, exchange and redeem shares must be made through your employer or other financial intermediary, as applicable. If you are purchasing through a retirement or savings plan, the administrator of your plan or your employee benefits office can provide you with information on how to participate in your plan and how to select American Century funds as an investment option. If you are purchasing through a financial intermediary, you should contact your service representative at the financial intermediary for information about how to select American Century funds. If you have questions about a fund, see "Investment Policies of the Funds," page 12, or call one of our Institutional Service Representatives at 1-800-345-3533. Orders to purchase shares are effective on the day we receive payment. See "When Share Price is Determined," page 20. We may discontinue offering shares generally in the funds (including any class of shares of a fund) or in any particular state without notice to shareholders. HOW TO EXCHANGE FROM ONE AMERICAN CENTURY FUND TO ANOTHER Your plan or program may permit you to exchange your investment in the shares of a fund for shares of another fund in our family. See your plan administrator, employee benefits office or financial intermediary for details on the rules in your plan governing exchanges. Exchanges are made at the respective net asset values, next computed after receipt of the exchange instruction by us. If in any 90-day period, the total of the exchanges and redemptions from the account of any one plan participant or financial intermediary client exceeds the lesser of $250,000 or 1% of a fund's assets, further exchanges may be subject to special requirements to comply with our policy on large equity fund redemptions. See "Special Requirements for Large Redemptions," this page. HOW TO REDEEM SHARES Subject to any restrictions imposed by your employer's plan or financial intermediary's program, you can sell ("redeem") your shares through the plan or financial intermediary at their net asset value. Your plan administrator, trustee, or financial intermediary or other designated person must provide us with redemption instructions. The shares will be redeemed at the net asset value next computed after receipt of the instructions in good order. See "When Share Price Is Determined," page 20. If you have any questions about how to redeem, contact your plan administrator, employee benefits office, or service representative at your financial intermediary, as applicable. SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS We have elected to be governed by Rule 18f-1 under the Investment Company Act, which obligates each fund to redeem shares in cash, with respect to any one participant account during any 90-day period, up to the lesser of $250,000 or 1% of the assets of the fund. Although redemptions in excess of this limitation will also normally be paid in cash, we reserve the right to honor these redemptions by making payment in whole or in part in readily marketable securities (a "redemption-in-kind"). If payment is made in securities, the securities will be selected by the fund, will be valued in the same manner as they are in computing the fund's net asset value and will 18 How to Invest with American Century Investments American Century Investments be provided to the redeeming plan participant or financial intermediary in lieu of cash without prior notice. If you expect to make a large redemption and would like to avoid any possibility of being paid in securities, you may do so by providing 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. Receipt of your instruction 15 days prior to the transaction provides the fund with sufficient time to raise the cash in an orderly manner to pay the redemption and thereby minimizes the effect of the redemption on the fund and its remaining shareholders. Despite the funds' right to redeem fund shares through a redemption-in-kind, we do not expect to exercise this option unless a fund has an unusually low level of cash to meet redemptions and/or is experiencing unusually strong demands for its cash. Such a demand might be caused, for example, by extreme market conditions that result in an abnormally high level of redemption requests concentrated in a short period of time. Absent these or similar circumstances, we expect redemptions in excess of $250,000 to be paid in cash in any fund with assets of more than $50 million if total redemptions from any one account in any 90-day period do not exceed one-half of 1% of the total assets of the fund. TELEPHONE SERVICES INVESTORS LINE To request information about our funds and a current prospectus, or get answers to any questions that you may have about the funds and the services we offer, call one of our Institutional Service Representatives at 1-800-345-3533. Prospectus How to Invest with American Century Investments 19 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of a fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined at the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for the Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or one of our agents before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined on, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which the net asset value is determined. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements with the funds or the funds' distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of each fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. 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 exchanged to dollars at the prevailing foreign exchange rate. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed at various times before the close of business on each day that the New York Stock Exchange is open. If an event were to occur after the value of a security was established but before the net asset value per share was determined that was likely to materially change the net asset value, then that security would be valued at fair value as determined in accordance with procedures adopted by the Board of Directors. 20 Additional Information You Should Know American Century Investments Trading of these securities in foreign markets may not take place on every New York Stock Exchange business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the New York Stock Exchange is not open and on which a fund's net asset value is not calculated. Therefore, such calculation does not take place contemporaneously with the determination of the prices of many of the portfolio securities used in such calculation and the value of a fund's portfolio may be affected on days when shares of the fund may not be purchased or redeemed. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the Investor Class of the funds are published in leading newspapers daily. Because the total expense ratio for the Advisor Class shares is 0.25% higher than the Investor Class, their net asset values will be lower than the Investor Class. The net asset value of the Advisor Class of each fund may be obtained by calling us. DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains if any, are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions from investment income and from net profits realized on the sale of securities, if any, will be declared annually on or before December 31. THE OBJECTIVE OF THESE FUNDS IS CAPITAL APPRECIATION AND NOT THE PRODUCTION OF DISTRIBUTIONS. YOU SHOULD MEASURE THE SUCCESS OF YOUR INVESTMENT BY THE VALUE OF YOUR INVESTMENT AT ANY GIVEN TIME AND NOT BY THE DISTRIBUTIONS YOU RECEIVE. Participants in employer-sponsored retirement or savings plan must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. A distribution on shares of a fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are included in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. See "Taxes," this page. TAXES The funds have elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income tax. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS 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. Distributions from net long-term Prospectus Additional Information You Should Know 21 capital gains are taxable as long-term capital gains regardless of the length of time you have held the shares on which such distributions are paid. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital 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 of investments by non-resident investors. The foreign taxes paid by a fund will reduce its dividends. If more than 50% of the value of a fund's total assets at the end of each quarter 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 fund shareholders 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. If a fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code and Regulations, either we or your financial intermediary is required by federal law to withhold and remit to the IRS 31% of reportable payments (which may include dividends, capital gains distributions and redemptions). Those regulations require you to certify that the Social Security number or tax identification number you provide is correct and that you are not subject to 31% withholding for previous under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of a fund (including redemption made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize gain or loss in an amount equal to the difference between the basis of the shares and the amount received. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders 22 Additional Information You Should Know American Century Investments have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of the Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the funds. Acting pursuant to an investment management agreement entered into with the funds, American Century Investment Management, Inc. serves as the investment manager of the funds. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolios of each fund and directs the purchase and sale of its investment securities. It utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios as they deem appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this prospectus and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined American Century in 1981. He is a member of the teams that manage Growth and Ultra. CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined Twentieth Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined American Century's equity investment efforts. He is a member of the team that manages Select. GLENN A. FOGLE, Vice President and Portfolio Manager, joined American Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. He is a member of the team that manages Vista. NANCY B. PRIAL, Vice President and Portfolio Manager, joined American Century in February 1994 as a Portfolio Manager. For more than four years prior to joining American Century, Ms. Prial served as Senior Vice President and Portfolio Manager at Frontier Capital Management Company, Boston, Massachusetts. She is a member of the team that manages Heritage. KEVIN M. LEWIS, Portfolio Manager, joined American Century in October 1995. Prior to that he served as a Portfolio Manager for Virtus Capital Management, Richmond, Virginia, from January 1995 to October 1995. Prior to that, he was a Portfolio Manager for Signet Trust Company, Richmond, Virginia. Mr. Lewis is a member of the team that manages Heritage. JOHN D. SEITZER, Portfolio Manager, joined American Century in June 1993 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Seitzer attended Indiana University from August 1991 to June 1993, where he obtained his MBA degree. Mr. Seitzer is a member of the team that manages Vista. BRUCE A. WIMBERLY, Portfolio Manager, joined American Century in September 1994 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Wimberly attended Kellogg Graduate School of Management, Northwestern University from August 1992 to August Prospectus Additional Information You Should Know 23 1994, where he obtained his MBA degree. Prior to that he served as a Research Analyst for Frontier Capital Management Company, Boston, Massachusetts. Mr. Wimberly is a member of the team that manages Ultra. JEAN LEDFORD, Vice President and Portfolio Manager, joined American Century in January 1997 as a Portfolio Manager. Prior to joining American Century, Ms. Ledford worked for the State of Wisconsin Investment Board as an Investment Director from 1994 to 1996 and as an Assistant Investment Director from 1983 to 1994. Ms. Ledford is a member of the team that manages Select. The activities of the manager are subject only to directions of the funds' Board of Directors. The manager pays all the expenses of the funds except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the Advisor Class of the funds, the manager receives an annual fee of 0.75% of the average net assets of each of the funds. On the first business day of each month, each series of shares pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product 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). CODE OF ETHICS The funds and the manager have adopted a Code of Ethics that restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the funds' portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds, and is paid for such services by the manager. 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the funds' Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by American Century Investment Services, Inc., a registered broker-dealer and an affiliate of the manager. As agent for the funds and the manager, the distributor enters into contracts with various banks, broker-dealers, insurance companies and other financial intermediaries with respect to the sale of the funds' shares and/or the use of the funds' shares in various financial services. The manager (or an affiliate) pays all expenses incurred in promoting sales of, and distributing, the Advisor Class and in securing such services out of the Rule 12b-1 fees described in the section that follows. SERVICE AND DISTRIBUTION FEES Rule 12b-1 adopted by the Securities and Exchange Commission ("SEC") under the Investment Company Act permits investment companies that adopt a written plan to pay certain expenses associated with the distribution of their shares. Pursuant to that rule, the 24 Additional Information You Should Know American Century Investments funds' Board of Directors and the initial shareholder of the funds' Advisor Class shares have approved and entered into a Master Distribution and Shareholder Services Plan (the "Plan") with the Distributor. Pursuant to the Plan, each fund pays the manager a shareholder services fee and a distribution fee, each equal to 0.25% (for a total of 0.50%) per annum of the average daily net assets of the shares of the fund's Advisor Class. The shareholder services fee is paid for the purpose of paying the costs of securing certain shareholder and administrative services, and the distribution fee is paid for the purpose of paying the costs of providing various distribution services. All or a portion of such fees are paid by the manager to the banks, broker-dealers, insurance companies or other financial intermediaries through which such shares are made available. The Plan has been adopted and will be administered in accordance with the requirements of Rule 12b-1 under the Investment Company Act. For additional information about the Plan and its terms, see "Master Distribution and Shareholder Services Plan" in the Statement of Additional Information. Fees paid pursuant to the Plan may be paid for shareholder services and the maintenance of accounts and therefore may constitute "service fees" for purposes of applicable rules of the National Association of Securities Dealers. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the funds, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is American Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers four classes of each of the funds offered by this Prospectus: an Investor Class, an Institutional Class, a Service Class, and the Advisor Class. The shares offered by this Prospectus are Advisor Class shares. The Investor Class is primarily made available to retail investors. The Institutional Class and Service Class are primarily offered to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Advisor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the Investor Class of shares, call one of our Investor Services Representatives at 1-800-345-2021. For information concerning the Institutional or Service Classes of shares, call one of our Institutional Service Representatives at 1-800-345-3533 or contact a sales representative or financial intermediary who offers those classes of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class, (d) each class may have different exchange privileges, and (e) the Institutional Class may provide for automatic conversion from that class into shares of another class of the same fund. Prospectus Additional Information You Should Know 25 Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except for those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the funds to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the funds' by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request a fund to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. 26 Additional Information You Should Know American Century Investments NOTES Notes 27 NOTES 28 Notes NOTES Notes 29 P.O. Box 419385 Kansas City, Missouri 64141-6385 Person-to-person assistance: 1-800-345-3533 or 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 or 816-753-0700 Fax: 816-340-4655 Internet: www.americancentury.com [american century logo] American Century(sm) 9702 [recycled logo] SH-BKT-7805 Recycled PROSPECTUS [american century company logo] American Century (sm) MARCH 1, 1997 AMERICAN CENTURY GROUP BALANCED ADVISOR CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. AMERICAN CENTURY INVESTMENTS Benham Group(R) American Century Group Twentieth Century(R) Group MONEY MARKET FUNDS ASSET ALLOCATION & GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Balanced PROSPECTUS MARCH 1, 1997 BALANCED ADVISOR CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load and low-load mutual funds covering a variety of investment opportunities. One of the funds that seeks capital growth and current income is described in this Prospectus. Its investment objective is listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. The fund shares offered in this Prospectus (the Advisor Class shares) are sold at its net asset value with no sales charges or commissions. The Advisor Class shares are subject to Rule 12b-1 shareholder services and distribution fees as described in this Prospectus. The Advisor Class shares are intended for purchase by participants in employer-sponsored retirement or savings plans and for persons purchasing shares through broker-dealers, banks, insurance companies and other financial intermediaries that provide various administrative and distribution services. This Prospectus gives you information about the fund that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: American Century Investments 4500 Main Street o P.O. Box 419385 Kansas City, Missouri 64141-6385 o 1-800-345-3533 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 o In Missouri: 816-753-0700 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVE OF THE FUND AMERICAN CENTURY BALANCED FUND The Balanced fund seeks capital growth and current income. It is management's intention to maintain approximately 60% of the fund's assets in common stocks that are considered by management to have better-than-average prospects for appreciation and the remainder in bonds and other fixed income securities. There is no assurance that the fund will achieve its investment objective. NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objective American Century Investments TABLE OF CONTENTS Investment Objective of the Fund....................2 Transaction and Operating Expense Table.............4 Performance Information of Other Class..............5 INFORMATION REGARDING THE FUND Investment Policies of the Fund.....................6 Investment Approach............................6 Equity Investments.............................6 Fixed Income Investments.......................6 Other Investment Practices, Their Characteristics and Risks........................................7 Foreign Securities.............................7 Forward Currency Exchange Contracts............7 Portfolio Turnover.............................8 Repurchase Agreements..........................8 Derivative Securities..........................9 Portfolio Lending..............................9 When-Issued Securities.........................9 Rule 144A Securities..........................10 Short Sales...................................10 Performance Advertising............................10 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS How to Purchase and Sell American Century Funds...................................12 How to Exchange from One American Century Fund to Another.................................12 How to Redeem Shares...............................12 Special Requirements for Large Redemptions....12 Telephone Services.................................13 Investors Line................................13 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price........................................14 When Share Price Is Determined................14 How Share Price Is Determined.................14 Where to Find Information About Share Price...15 Distributions......................................15 Taxes..............................................15 Tax-Deferred Accounts.........................15 Taxable Accounts..............................15 Management.........................................17 Investment Management.........................17 Code of Ethics................................17 Transfer and Administrative Services..........18 Distribution of Fund Shares........................18 Service and Distribution Fees.................18 Further Information About American Century.........18 Prospectus Table of Contents 3 TRANSACTION AND OPERATING EXPENSE TABLE Balanced SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases....................... none Maximum Sales Load Imposed on Reinvested Dividends............ none Deferred Sales Load........................................... none Redemption Fee................................................ none Exchange Fee.................................................. none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees............................................... 0.75% 12b-1 Fees(1)................................................. 0.50% Other Expenses(2)............................................. 0.00% Total Fund Operating Expenses................................. 1.25% EXAMPLE: You would pay the following expenses on a 1 year $ 13 $1,000 investment, assuming a 5% annual return and 3 years 40 redemption at the end of each time period: 5 years 68 10 years 150 (1) The 12b-1 fee is designed to permit investors to purchase Advisor Class shares through broker-dealers, banks, insurance companies and other financial intermediaries. A portion of the fee is used to compensate them for ongoing recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager, and a portion is used to compensate them for distribution and other shareholder services. See "Service and Distribution Fees," page 18. (2) Other expenses, which include the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year. The purpose of this table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of Balanced offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this prospectus are Advisor Class shares. The fund offers three other classes of shares, one of which is primarily made available to retail investors and two that are primarily made available to institutional investors. The other classes have different fee structures than the Advisor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for those classes. For additional information about the various classes, see "Further Information About American Century," page 18. 4 Transaction and Operating Expense Table American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS BALANCED The Advisor Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.25% lower than the Advisor Class. Had the Advisor Class been in existence for the fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 1993 1992 1991 1990 1989 1988(1) PER-SHARE DATA Net Asset Value, Beginning of Period.....$17.70 $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 $10.22 ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income..................44(2) .48(2) .42 .38 .33 .38 .41 .37 .01 Net Realized and Unrealized Gain (Loss) on Investment Transactions......... 1.88 2.03 (.58) 1.62 (.23) 4.22 (.62) 1.71 (.10) ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations...... 2.32 2.51 (.16) 2.00 .10 4.60 (.21) 2.08 (.09) ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income............ (.46) (.475) (.416) (.375) (.322) (.384) (.417) (.372) -- From Net Realized Gains on Investment Transactions.........(1.01) (.274) -- -- -- -- (.320) -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions...................(1.47) (.749) (.416) (.375) (.322) (.384) (.737) (.372) -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period...........$18.55 $17.70 $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(3).......................14.04% 16.36% (.93)% 13.64% .63% 42.92% (2.10)% 20.94% (.88)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets................. .99% .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(4) Ratio of Net Investment Income to Average Net Assets....... 2.5% 2.9% 2.7% 2.4% 2.4% 3.1% 3.8% 4.2% 4.4%(4) Portfolio Turnover Rate............... 130% 85% 94% 95% 100% 116% 104% 171% 99%(4) Average Commission Paid per Investment Security Traded......... $.040 $.039 --(5) --(5) --(5) --(5) --(5) --(5) --(5) Net Assets, End of Period (in millions) .................... $879 $816 $704 $706 $654 $255 $66 $30 $3 (1) October 20, 1988 (inception) through October 31, 1988. (2) Computed using average shares outstanding throughout the period. (3) Total returns for periods less than one year are not annualized. Total return assumes reinvestment of dividends and capital gains distributions, if any. (4) Annualized. (5) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 5 INFORMATION REGARDING THE FUND INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH The manager intends to invest approximately 60% of the fund's assets in equity securities, while the remainder will be invested in bonds and other fixed income securities. A description of the investment style for each class of investment follows. EQUITY INVESTMENTS With the equity portion of the Balanced portfolio, the manager seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the equity portion of Balanced fully invested in these securities regardless of the movement of stock prices generally. The fund may purchase securities only of companies that have a record of at least three years continuous operation. The manager selects, for the equity portion of the portfolio, securities of companies whose earnings and revenue trends meet management's standards of selection. The size of the companies in which a fund invests tends to give it its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that the volatility of the fund will be impacted by the size of companies in which it invests. FIXED INCOME INVESTMENTS The manager intends to maintain approximately 40% of the fund's assets in fixed income securities with a minimum of 25% of that amount in fixed income senior securities. The fixed income securities in the fund will be chosen based on their level of income production and price stability. The fund may invest in a diversified portfolio of debt and other fixed-rate securities payable in United States currency. These may include obligations of the United States government, its agencies and instrumentalities; corporate securities (bonds, notes, preferreds and convertible issues), and sovereign government, municipal, mortgage-backed and other asset-backed securities. There are no maturity restrictions on the fixed income securities in which the fund invests. Under normal market conditions the weighted average portfolio maturity for the fixed income portfolio will be in the three- to 10-year range. 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. It is the manager's intention to invest the fund's fixed income holdings in high-grade securities. At least 80% of fixed income assets will be invested in 6 Information Regarding the Fund American Century Investments securities which at the time of purchase are rated within the three highest categories by a nationally recognized statistical rating organization [at least A by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corp. (S&P)]. The remaining portion of the fixed income assets may be invested in issues in the fourth highest category (Baa by Moody's or BBB by S&P), or, if not rated, are of equivalent investment quality as determined by the manager and which, in the opinion of the manager, can contribute meaningfully to the fund's results without compromising its objectives. Such issues might include a lower-rated issue where research suggests the likelihood of a rating increase; or a convertible issue of a company deemed attractive by the equity management team. According to Moody's, bonds rated Baa are medium-grade and possess some speculative characteristics. A BBB rating by S&P indicates S&P's belief that a security exhibits a satisfactory degree of safety and capacity for repayment, but is more vulnerable to adverse economic conditions or changing circumstances. See "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The fund may invest in common stocks, convertible securities, preferred stocks, bonds, notes and other debt securities of foreign issuers, and debt securities of foreign governments and their agencies. The fund will limit its purchase of debt securities to investment-grade obligations. Investments in foreign securities may present certain risks, including those resulting from fluctuations in currency exchange rates, future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund may be denominated in foreign currencies. Other securities, such as DRs, may be denominated in U.S. dollars, but have a value that is dependent on the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolio may be affected by changes in the exchange rates between foreign currencies and the U.S. dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the U.S. dollar may be a factor in the overall performance of the fund. To protect against adverse movements in exchange rates between currencies, the fund may, for hedging purposes only, enter into forward currency exchange contracts. A forward currency exchange contract obligates the fund to purchase or sell a specific currency at a future date at a specific price. The fund may elect to enter into a forward currency exchange contract with respect to a specific purchase or sale of a security, or with respect to the fund's portfolio positions generally. By entering into a forward currency exchange contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the fund can "lock in" an exchange rate between the trade and settlement dates for that purchase or sale. This practice is sometimes referred to as "transaction hedging." The fund may enter into transaction hedging contracts with respect to all or a substantial portion of its foreign securities trades. Prospectus Information Regarding the Fund 7 When the manager believes that a particular currency may decline in value compared to the U.S. dollar, the fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward currency exchange contract, the fund, when required, will instruct its custodian bank to segregate cash or liquid high-grade securities in a separate account in an amount sufficient to cover its obligation under the contract. Those assets will be valued at market daily, and if the value of the segregated securities declines, additional cash or securities will be added so that the value of the account is not less than the amount of the fund's commitment. At any given time, no more than 10% of the fund's assets will be committed to a segregated account in connection with portfolio hedging transactions. Predicting the relative future values of currencies is very difficult, and there is no assurance that any attempt to protect the fund against adverse currency movements through the use of forward currency exchange contracts will be successful. In addition, the use of forward currency exchange contracts tends to limit the potential gains that might result from a positive change in the relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The portfolio turnover rate of the fund is shown in the financial information on page 5 of this Prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by the fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS The fund 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 fund. 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 repurchase 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. Since 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. The fund will limit repurchase agreement transactions to securities issued by the U.S. government, 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 fund's Board of Directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. 8 Information Regarding the Fund American Century Investments DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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 more accurately described 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. The fund may not 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 since 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the Board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, the fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of the fund's shareholders. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the Prospectus Information Regarding the Fund 9 time the commitment to purchase is made. Delivery of and payment for these securities typically occur 15 to 45 days after the commitment to purchase. 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. A separate account for the fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the Board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the Board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The Board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since the secondary market for such securities is limited to certain qualified institutional investors, the liquidity of such securities may be limited accordingly and the fund may, from time to time, hold a Rule 144A security that is illiquid. In such an event, the fund's manager will consider appropriate remedies to minimize the effect on the fund's liquidity. The fund may not invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). SHORT SALES The fund may engage in short sales if, at the time of the short sale, the fund owns or has the right to acquire an equal amount of the security being sold short at no additional cost. These transactions allow the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The fund may make a short sale 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 and for purposes of satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return, average annual total return, and yield. Performance data may be quoted separately for the Advisor Class and the other classes offered by the fund. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on 10 Information Regarding the Fund American Century Investments the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. Prospectus Information Regarding the Fund 11 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS The following section explains how to purchase, exchange and redeem Advisor Class shares of the fund offered by this Prospectus. HOW TO PURCHASE AND SELL AMERICAN CENTURY FUNDS The Balanced Fund is available as an investment option under your employer-sponsored retirement or savings plan or through or in connection with a program, product or service offered by a financial intermediary, such as a bank, broker-dealer or insurance company. Since all records of your share ownership are maintained by your plan sponsor, plan recordkeeper, or other financial intermediary, all orders to purchase, exchange and redeem shares must be made through your employer or other financial intermediary, as applicable. If you are purchasing through a retirement or savings plan, the administrator of your plan or your employee benefits office can provide you with information on how to participate in your plan and how to select American Century funds as an investment option. If you are purchasing through a financial intermediary, you should contact your service representative at the financial intermediary for information about how to select American Century funds. If you have questions about the fund, see "Investment Policies of the Fund," page 6, or call one of our Institutional Service Representatives at 1-800-345-3533. Orders to purchase shares are effective on the day we receive payment. See "When Share Price is Determined," page 14. We may discontinue offering shares generally in the fund (including any class of shares of the fund) or in any particular state without notice to shareholders. HOW TO EXCHANGE FROM ONE AMERICAN CENTURY FUND TO ANOTHER Your plan or program may permit you to exchange your investment in the shares of the fund for shares of another fund in our family. See your plan administrator, employee benefits office or financial intermediary for details on the rules in your plan governing exchanges. Exchanges are made at the respective net asset values, next computed after receipt of the exchange instruction by us. If in any 90-day period, the total of the exchanges and redemptions from the account of any one plan participant or financial intermediary client exceeds the lesser of $250,000 or 1% of a fund's assets, further exchanges may be subject to special requirements to comply with our policy on large equity fund redemptions. See "Special Requirements for Large Redemptions," this page. HOW TO REDEEM SHARES Subject to any restrictions imposed by your employer's plan or financial intermediary's program, you can sell ("redeem") your shares through the plan or financial intermediary at their net asset value. Your plan administrator, trustee, or financial intermediary or other designated person must provide us with redemption instructions. The shares will be redeemed at the net asset value next computed after receipt of the instructions in good order. See "When Share Price Is Determined," page 14. If you have any questions about how to redeem, contact your plan administrator, employee benefits office, or service representative at your financial intermediary, as applicable. SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS We have elected to be governed by Rule18f-1 under the Investment Company Act, which obligates the fund to redeem shares in cash, with respect to any one participant account during any 90-day period, up to the lesser of $250,000 or 1% of the assets of the fund. Although redemptions in excess of this limitation will also normally be paid in cash, we reserve the 12 How to Invest with American Century Investments American Century Investments right to honor these redemptions by making payment in whole or in part in readily marketable securities (a "redemption-in-kind"). If payment is made in securities, the securities will be selected by the fund, will be valued in the same manner as they are in computing the fund's net asset value and will be provided to the redeeming plan participant or financial intermediary in lieu of cash without prior notice. If you expect to make a large redemption and would like to avoid any possibility of being paid in securities, you may do so by providing 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. Receipt of your instruction 15 days prior to the transaction provides the fund with sufficient time to raise the cash in an orderly manner to pay the redemption and thereby minimizes the effect of the redemption on the fund and its remaining shareholders. Despite its right to redeem fund shares through a redemption-in-kind, we do not expect to exercise this option unless the fund has an unusually low level of cash to meet redemptions and/or is experiencing unusually strong demands for its cash. Such a demand might be caused, for example, by extreme market conditions that result in an abnormally high level of redemption requests concentrated in a short period of time. Absent these or similar circumstances, we expect redemptions in excess of $250,000 to be paid in cash in any fund with assets of more than $50 million if total redemptions from any one account in any 90-day period do not exceed one-half of 1% of the total assets of the fund. TELEPHONE SERVICES INVESTORS LINE To request information about our funds and a current prospectus, or get answers to any questions that you may have about the funds and the services we offer, call one of our Institutional Service Representatives at 1-800-345-3533. Prospectus How to Invest with American Century Investments 13 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined as of the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for the Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares of a fund received by us or our agents before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined as of, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before time as of which the net asset value of the fund is determined. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the fund's transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangements with the fund or the fund's distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of the fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. 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 exchanged to dollars at the prevailing foreign exchange rate. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed at various times before the close of business on each day that the New York Stock Exchange is open. If an event were to occur after the value of a security was established but before the net asset value per share was determined that was likely to materially change the net asset value, then that security would be valued at fair value as determined in accordance with procedures adopted by the Board of Directors. 14 Additional Information You Should Know American Century Investments Trading of these securities in foreign markets may not take place on every New York Stock Exchange business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the New York Stock Exchange is not open and on which the fund's net asset value is not calculated. Therefore, such calculation does 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 fund's portfolio may be affected on days when shares of the fund may not be purchased or redeemed. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset value of the Investor Class of the fund is published in leading newspapers daily. Because the total expense ratio for the Advisor Class shares is 0.25% higher than the Investor Class, their net asset values will be lower than the Investor Class. The net asset value of the Advisor Class may be obtained by calling us. DISTRIBUTIONS Distributions from net investment income are declared and paid quarterly. Distributions from net realized securities gains, if any, are declared and paid once a year, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distribution made shortly after a purchase by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. A distribution on shares of the fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are included in the value of your shares, when they are distributed, the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. See "Taxes," this page. TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the fund will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS 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. Distributions from net long-term capital gains are taxable as long-term capital gains regardless of the length of time you have held the shares on which such distributions are paid. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Prospectus Additional Information You Should Know 15 Dividends and interest received by the 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 of investments by non-resident investors. The foreign taxes paid by the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter 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 fund shareholders 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. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code, either we or your financial intermediary is required by federal law to withhold and remit to the IRS 31% of reportable payments (which may include dividends, capital gains distributions and redemptions). Those regulations require you to certify that the Social Security number or tax identification number you provide is correct and that you are not subject to 31% withholding for previous under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of the fund (including redemptions 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of the Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. 16 Additional Information You Should Know American Century Investments MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the fund. Acting pursuant to an investment advisory agreement entered into with the fund, American Century Investment Management, Inc. serves as the investment manager of the fund. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolio of the fund and directs the purchase and sale of its investment securities. It utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the portfolio as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing Balanced and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined American Century in 1981. He is a member of the team that manages the equity portion of Balanced. BRUCE A. WIMBERLY, Portfolio Manager, joined American Century in September 1994 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Wimberly attended Kellogg Graduate School of Management, Northwestern University from August 1992 to August 1994, where he obtained his MBA degree. Prior to that he served as a Research Analyst for Frontier Capital Management Company, Boston, Massachusetts. Mr. Wimberly is a member of the team that manages the equity portion of Balanced. NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined American Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. He is a member of the team that manages the fixed income portion of Balanced. JEFFREY L. HOUSTON, Portfolio Manager, has worked for American Century since November 1990. He is a member of the team that manages the fixed income portion of Balanced. The activities of the manager are subject only to directions of the fund's Board of Directors. The manager pays all the expenses of the fund except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the Advisor Class of the fund, the manager receives an annual fee of 0.75% of the average net assets of the fund. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product 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). CODE OF ETHICS The fund and the manager have adopted a Code of Ethics that restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the fund's portfolio obtain preclearance before executing personal trades. Prospectus Additional Information You Should Know 17 With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund, and is paid for such services by the manager. 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 manager. The manager and the transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the fund's Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by American Century Investment Services, Inc., a registered broker-dealer and an affiliate of the manager. As agent for the fund and the manager, the distributor enters into contracts with various banks, broker-dealers, insurance companies and other financial intermediaries with respect to the sale of the fund's shares and/or the use of the fund's shares in various financial services. The manager (or an affiliate) pays all expenses incurred in promoting sales of, and distributing, the Advisor Class and in securing such services out of the Rule 12b-1 fees described in the section that follows. SERVICE AND DISTRIBUTION FEES Rule 12b-1 adopted by the Securities and Exchange Commission ("SEC") under the Investment Company Act permits investment companies that adopt a written plan to pay certain expenses associated with the distribution of their shares. Pursuant to that rule, the fund's Board of Directors and the initial shareholder of the fund's Advisor Class shares have approved and adopted a Master Distribution and Shareholder Services Plan (the "Plan"). Pursuant to the Plan, the fund pays the manager a shareholder services fee and a distribution fee, each equal to 0.25% (for a total of 0.50%) per annum of the average daily net assets of the shares of the fund's Advisor Class. The shareholder services fee is paid for the purpose of paying the costs of securing certain shareholder and administrative services, and the distribution fee is paid for the purpose of paying the costs of providing various distribution services. All or a portion of such fees are paid by the manager to the banks, broker-dealers, insurance companies or other financial intermediaries through which such shares are made available. The Plan has been adopted and will be administered in accordance with the requirements of Rule 12b-1 under the Investment Company Act. For additional information about the Plan and its terms, see "Master Distribution and Shareholder Services Plan" in the Statement of Additional Information. Fees paid pursuant to the Plan may be paid for shareholder services and the maintenance of accounts and therefore may constitute "service fees" for purposes of applicable rules of the National Association of Securities Dealers. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the fund, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is American Century Tower, 4500 Main Street, P.O. Box 419385, 18 Additional Information You Should Know American Century Investments Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by telephone to 1-800-345-3533 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers four classes of the fund offered by this Prospectus: an Investor Class, an Institutional Class, a Service Class, and the Advisor Class. The shares offered by this Prospectus are Advisor Class shares. The Investor Class is primarily made available to retail investors. The Institutional Class and Service Class are primarily offered to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Advisor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the Investor Class of shares, call one of our Investor Services Representatives at 1-800-345-2021. For information concerning the Institutional or Service classes of shares, call one of our Institutional Service Representatives at 1-800-345-3533 or contact a sales representative or financial intermediary who offers those classes of shares. Except as described below, all classes of shares of the fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class, (d) each class may have different exchange privileges, and (e) the Institutional Class may provide for automatic conversion from that class into the Investor Class of the fund. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except for those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the fund to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. Prospectus Additional Information You Should Know 19 NOTES 20 Notes American Century Investments NOTES Notes 21 P.O. Box 419385 Kansas City, Missouri 64141-6385 Person-to-person assistance: 1-800-345-3533 or 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 or 816-753-0700 Fax: 816-340-4655 Internet: www.americancentury.com [american century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7775 Recycled PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 BENHAM GROUP(R) Cash Reserve ADVISOR CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs. American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. AMERICAN CENTURY INVESTMENTS BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY(R) GROUP MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Cash Reserve PROSPECTUS MARCH 1, 1997 Cash Reserve ADVISOR CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load and low-load mutual funds covering a variety of investment opportunities. One of the money market funds from our Benham Group is described in this Prospectus. Its investment objective is listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. The fund shares offered by this Prospectus (the Advisor Class shares) are sold at their net asset value with no sales charges or commissions. The Advisor Class shares are subject to Rule 12b-1 shareholder services and distribution fees as described in this Prospectus. The Advisor Class shares are intended for purchase by participants in employer-sponsored retirement or savings plans and for persons purchasing shares through broker-dealers, banks, insurance companies and other financial intermediaries that provide various administrative and distribution services. This Prospectus gives you information about the fund that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: AMERICAN CENTURY INVESTMENTS 4500 Main Street o P.O. Box 419385 Kansas City, Missouri 64141-6385 o 1-800-345-3533 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 o In Missouri: 816-753-0700 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVE OF THE FUND AMERICAN CENTURY - BENHAM CASH RESERVE FUND Cash Reserve is a money market fund which seeks to obtain maximum current income consistent with the preservation of principal and maintenance of liquidity. The fund intends to pursue its investment objective by investing substantially all of its assets in a portfolio of money market instruments and maintaining a weighted average maturity of not more than 90 days. INVESTMENTS IN THE FUND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT OR ANY OTHER AGENCY. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A $1.00 SHARE PRICE. There is no assurance that the fund will achieve its investment objective. NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objective American Century Investments TABLE OF CONTENTS Investment Objective of the Fund .....................................2 Transaction and Operating Expense Table ..............................4 Performance Information of Other Class ...............................5 INFORMATION REGARDING THE FUND Investment Policies of the Fund ......................................6 Cash Reserve ......................................................6 Other Investment Practices, Their Characteristics and Risks ..........6 Repurchase Agreements .............................................6 Derivative Securities .............................................7 Portfolio Lending .................................................7 Foreign Securities ................................................8 When-Issued Securities ............................................8 Rule 144A Securities ..............................................8 Performance Advertising ..............................................8 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS How to Purchase and Sell American Century Funds .....................10 How to Exchange From One American Century Fund to Another ...........10 How to Redeem Shares ................................................10 Telephone Services ..................................................10 Investors Line ...................................................10 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price .........................................................11 When Share Price Is Determined ...................................11 How Share Price Is Determined ....................................11 Where to Find Yield Information ..................................11 Distributions .......................................................11 Taxes ...............................................................12 Tax-Deferred Accounts ............................................12 Taxable Accounts .................................................12 Management ..........................................................12 Investment Management ............................................12 Code of Ethics ...................................................13 Transfer and Administrative Services .............................13 Distribution of Fund Shares .........................................13 Service and Distribution Fees ....................................14 Further Information About American Century ..........................14 Prospectus Table of Contents 3 TRANSACTION AND OPERATING EXPENSE TABLE Cash Reserve SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases ............................. none Maximum Sales Load Imposed on Reinvested Dividends .................. none Deferred Sales Load ................................................. none Redemption Fee ...................................................... none Exchange Fee ........................................................ none ANNUAL FUND OPERATING EXPENSES: (as a percentage of net assets) Management Fees ..................................................... 0.45% 12b-1 Fees(1) ....................................................... 0.50% Other Expenses(2) ................................................... 0.00% Total Fund Operating Expenses ....................................... 0.95% EXAMPLE You would pay the following expenses on a 1 year $ 10 $1,000 investment, assuming a 5% annual return and 3 years 30 redemption at the end of each time period: 5 years 52 10 years 116 (1) The 12b-1 fee is designed to permit investors to purchase Advisor Class shares through broker-dealers, banks, insurance companies and other financial intermediaries. A portion of the fee is used to compensate them for ongoing recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager, and a portion is used to compensate them for distribution and other shareholder services. See "Service and Distribution Fees," page 14. (2) Other expenses, which include the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year. The purpose of this table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of Cash Reserve offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Advisor Class shares. The fund offers two other classes of shares, one of which is primarily made available to retail investors and one that is primarily made available to institutional investors. The other classes have different fee structures than the Advisor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for those classes. For additional information about the various classes, see "Further Information About American Century," page 14. 4 Transaction and Operating Expense Table American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS CASH RESERVE The Advisor Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.25% lower than the Advisor Class. Had the Advisor Class been in existence for the fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1) 1989(1) 1988(1) 1987(1) PER-SHARE DATA Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income .05 .05 .03 .02 .04 .06 .07 .08 .07 .06 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income (.05) (.052) (.032) (.023) (.037) (.058) (.074) (.083) (.065) (.056) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) 4.99% 5.38% 3.21% 2.30% 3.74% 5.95% 7.67% 8.66% 6.73% 5.75% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets .70% .70% .80% 1.00% .98%(3) .97%(3) 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income to Average Net Assets 4.88% 5.27% 3.18% 2.30% 3.62% 5.75% 7.40% 8.35% 6.52% 5.80% Net Assets, End of Year (in millions) $1,347 $1,470 $1,299 $1,256 $1,488 $1,236 $954 $639 $489 $448 (1) The data presented has been restated to give effect to a 100 for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Expenses are shown net of management fees waived by the manager for low-balance account fees collected during period.
Prospectus Financial Highlights 5 INFORMATION REGARDING THE FUND INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. CASH RESERVE Cash Reserve seeks to obtain a level of current income consistent with preservation of capital and maintenance of liquidity. Cash Reserve is designed for investors who want income and no fluctuation in their principal. Cash Reserve expects, but cannot guarantee, that it will maintain a constant share price of $1.00. The fund follows industry-standard guidelines on the quality and maturity of its investments, purchasing only securities having remaining maturities of not more than 13 months and by maintaining a weighted average portfolio maturity of not more than 90 days. Cash Reserve invests substantially all of its assets in a diversified portfolio of U.S. dollar denominated high quality money market instruments, consisting of: (1) Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities (2) Commercial Paper (3) Certificates of Deposit and Euro Dollar Certificates of Deposit (4) Bankers' Acceptances (5) Short-term notes, bonds, debentures, or other debt instruments (6) Repurchase agreements 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 which at the time of purchase have a short-term rating of A-1 by Standard & Poor's Corporation ("S&P") or P-1 by Moody's Investors Services ("Moody's"), or if they have no short-term rating are issued or guaranteed by an entity having a long-term rating of at least AA by S&P or Aa by Moody's. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. REPURCHASE AGREEMENTS The fund 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 fund. 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 repurchase 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. Since 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 disposi- 6 Information Regarding the Fund American Century Investments tion of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The fund will limit repurchase agreement transactions to securities issued by the U.S. government, 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 fund's Board of Directors. The fund may invest in repurchase agreements with respect to any security in which the fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. The fund will not invest more than 10% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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 more accurately described 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. The fund may not invest in a derivative security unless the reference index or the instrument to which it relates is an eligible investment for the fund. 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the Board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, the fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned Prospectus Information Regarding the Fund 7 securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, including foreign governments, when these securities meet its standards of selection. Securities of foreign issuers may trade in the U.S. or foreign securities markets. The fund will limit its purchase of debt securities to U.S. dollar denominated obligations. Such securities will be primarily from developed markets. Investments in foreign securities may present certain risks, including those resulting from future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time the commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. 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 each security may decline prior to delivery, which could result in a loss to the fund. A separate account for the fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since the secondary market for such securities is limited to certain qualified institutional investors, the liquidity of such securities may be limited accordingly and the fund may, from time to time, hold a Rule 144A security that is illiquid. In such an event, the fund's manager will consider appropriate remedies to minimize the effect on the fund's liquidity. The fund may not invest more than 10% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, yield and effective yield. Performance data may be quoted separately for the Advisor Class and for the other classes offered by the fund. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, 8 Information Regarding the Fund American Century Investments over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. In the case of Cash Reserve, yield is calculated by measuring the income generated by an investment in the fund over a seven-day period (net of fund expenses). This income is then "annualized." That is, the amount of income generated by the investment over the seven-day period is assumed to be generated over each similar period each week throughout a full year and is shown as a percentage of the investment. The "effective yield" is calculated in a similar manner but, when annualized, the income earned by the investment is assumed to be reinvested. The effective yield will be slightly higher than the yield because of the compounding effect of the assumed reinvestment. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 2 1/2-year CD rates. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. Prospectus Information Regarding the Fund 9 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS The following section explains how to purchase, exchange and redeem Advisor Class shares of the Cash Reserve Fund offered by this Prospectus. HOW TO PURCHASE AND SELL AMERICAN CENTURY FUNDS The fund offered by this Prospectus is available as an investment option under your employer-sponsored retirement or savings plan or through or in connection with a program, product or service offered by a financial intermediary, such as a bank, broker-dealer or insurance company. Since all records of your share ownership are maintained by your plan sponsor, plan recordkeeper, or other financial intermediary, all orders to purchase, exchange and redeem shares must be made through your employer or other financial intermediary, as applicable. If you are purchasing through a retirement or savings plan, the administrator of your plan or your employee benefits office can provide you with information on how to participate in your plan and how to select American Century funds as an investment option. If you are purchasing through a financial intermediary, you should contact your service representative at the financial intermediary for information about how to select American Century funds. If you have questions about the fund, see "Investment Policies of the Fund," page 6, or call one of our Institutional Service Representatives at 1-800-345-3533. Orders to purchase shares are effective on the day we receive payment. See "When Share Price is Determined," page 11. We may discontinue offering shares generally in the fund (including any class of shares of the fund) or in any particular state without notice to shareholders. HOW TO EXCHANGE FROM ONE AMERICAN CENTURY FUND TO ANOTHER Your plan or program may permit you to exchange your investment in the shares of the fund for shares of another fund in our family. See your plan administrator, employee benefits office or financial intermediary for details on the rules in your plan governing exchanges. HOW TO REDEEM SHARES Subject to any restrictions imposed by your employer's plan or financial intermediary's program, you can sell ("redeem") your shares through the plan or financial intermediary at their net asset value. Your plan administrator, trustee, or financial intermediary or other designated person must provide us with redemption instructions. The shares will be redeemed at the net asset value next computed after receipt of the instructions in good order. See "When Share Price Is Determined," page 11. If you have any questions about how to redeem, contact your plan administrator, employee benefits office, or service representative at your financial intermediary, as applicable. TELEPHONE SERVICES INVESTORS LINE To request information about our funds and a current prospectus, or get answers to any questions that you may have about the funds and the services we offer, call one of our Institutional Service Representatives at 1-800-345-3533. 10 How To Invest With American Century Investments American Century Investments ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except the American Century Target Maturities Trust, net asset value is determined at the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares of a fund received by us or one of our agents before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined as of, the close of the Exchange on the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which net asset value of the fund is determined. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the fund's transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangements with the fund or the fund's distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The securities held by the fund are valued on the basis of amortized cost. This method involves initially valuing a security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium paid at the time of the purchase, rather than determining the security's market value from day to day. WHERE TO FIND YIELD INFORMATION The yield of the Investor Class of Cash Reserve is published weekly in leading financial publications and daily in many local newspapers. Because the total expense ratio for the Advisor Class shares is 0.25% higher than the Investor Class shares, the yield will be lower than the Investor Class. Yield information of the Advisor Class may be obtained by calling us. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income plus net realized gains on portfolio securities is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month, except for year-end distributions which will be paid on the last business day of the year. You will begin to participate in the distributions the day after your purchase is effective. See "When Share Price is Determined," above. If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. Cash Reserve does not expect to realize any long-term capital gains, and accordingly, does not expect to pay any capital gains distributions. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held Prospectus Additional Information You Should Know 11 up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 59 1/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the fund will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals from the plan. TAXABLE ACCOUNTS 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, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable as long-term capital gains regardless of the length of time the shares on which such distributions are paid have been held by the shareholder. Distributions are taxable to you regardless of whether they are taken in cash or reinvested. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also 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. If you have not complied with certain provisions of the Internal Revenue Code and Regulations, either we 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. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the fund. Acting pursuant to an investment management agreement entered into with the fund, American Century Investment Management, Inc. serves as the investment manager of the fund. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri, 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the 12 Additional Information You Should Know American Century Investments manager, while certain employees provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolio of the fund and directs the purchase and sale of its investment securities. It utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the portfolio and the asset mix as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund or of sectors of the fund as necessary between team meetings. The portfolio manager members of the teams managing the fund described in this Prospectus and their work experience for the last five years are as follows: ROBERT V. GAHAGAN, Vice President and Portfolio Manager, has worked for American Century since May 1983. He became a Portfolio Manager in December 1991. Prior to that he served as Assistant Portfolio Manager. AMY O'DONNELL joined American Century in 1988, becoming a member of its portfolio department in 1988. In 1992 she assumed her current position as a portfolio manager of three American Century funds. The activities of the manager are subject only to directions of the fund's Board of Directors. The manager pays all the expenses of the fund except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the fund, the manager receives an annual fee of 0.45% of the average net assets of Cash Reserve. On the first business day of each month, the fund pays a management fee to the manager 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 the 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). CODE OF ETHICS The fund and the manager have adopted a Code of Ethics, which restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the fund's portfolios obtain preclearance before executing personal trades. With respect to portfolio managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage the fund. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri, 64111, acts as transfer agent and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund and is paid for such services by the manager. 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the fund's Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by American Century Investment Services, Inc., a registered broker-dealer and an affiliate of the fund's investment manager. As agent for the fund and the manager, the distributor enters into contracts with various banks, broker-dealers, insurance companies and other financial intermediaries with respect to the sale of the fund's shares and/or the use of the fund's shares in Prospectus Additional Information You Should Know 13 various financial services. The manager (or an affiliate) pays all expenses incurred in promoting sales of, and distributing, the Advisor Class and in securing such services out of the Rule 12b-1 fees described in the section that follows. SERVICE AND DISTRIBUTION FEES Rule 12b-1 adopted by the Securities and Exchange Commission ("SEC") under the Investment Company Act permits investment companies that adopt a written plan to pay certain expenses associated with the distribution of their shares. Pursuant to that rule, the fund's Board of Directors and the initial shareholder of the fund's Advisor Class shares have approved and adopted a Master Distribution and Shareholder Services Plan (the "Plan") with the manager. Pursuant to the Plan, the fund pays the manager services fee and a distribution fee, each equal to 0.25% (for a total of 0.50%) per annum of the average daily net assets of the shares of the fund's Advisor Class. The shareholder services fee is paid for the purpose of paying the costs of securing certain shareholder and administrative services, and the distribution fee is paid for the purpose of paying the costs of providing various distribution services. All or a portion of such fees are paid by the the manager to the banks, broker-dealers, insurance companies or other financial intermediaries through which such shares are made available. The Plan has been adopted and will be administered in accordance with the requirements of Rule 12b-1 under the Investment Company Act. For additional information about the Plan and its terms, see "Master Distribution and Shareholder Services Plan" in the Statement of Additional Information. Fees paid pursuant to the Plan may be paid for shareholder services and the maintenance of accounts and therefore may constitute "service fees" for purposes of applicable rules of the National Association of Securities Dealers. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the fund, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is American Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by telephone to 1-800-345-3533 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers three classes of the fund offered by this Prospectus: an Investor Class, a Service Class, and the Advisor Class. The shares offered by this Prospectus are Advisor Class shares. The Investor Class is primarily made available to retail investors. The Service Class is primarily offered to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Advisor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the Investor Class of shares, call one of our Investor Services Representatives at 1-800-345-2021. For information concerning the Service Class of shares, call one of our Institutional Service Representatives at 1-800-345-3533 or contact a sales representative or financial intermediary who offers that class of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses 14 Additional Information You Should Know American Century Investments specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class, and (d) each class may have different exchange privileges. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the fund to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund to hold a special meeting of shareholders. The manager will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. Prospectus Additional Information You Should Know 15 NOTES 16 Notes NOTES Notes 17 P.O. Box 419385 Kansas City, Missouri 64141-6385 Person-to-person assistance: 1-800-345-3533 or 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 or 816-753-0700 Fax: 816-340-4655 Internet: www.americancentury.com [american century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7767 Recycled PROSPECTUS [american century] American Century(sm) MARCH 1, 1997 Benham Group(R) Short-Term Government Fund Intermediate-Term Government Fund ADVISOR CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. American Century Investments Benham Group(R) American Century Group Twentieth Century(R) Group MONEY MARKET FUNDS ASSET ALLOCATION & GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Short-Term Government Fund Intermediate-Term Government Fund PROSPECTUS MARCH 1, 1997 Short-Term Government Fund Intermediate-Term Government Fund ADVISOR CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load and low-load mutual funds covering a variety of investment opportunities. Two of the funds from our Benham Group that invest primarily in debt instruments of the U.S. government and its agencies are described in this Prospectus. Their investment objectives are listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. Each fund's shares offered in this Prospectus (the Advisor Class shares) are sold at their net asset value with no sales charges or commissions. The Advisor Class shares are subject to Rule 12b-1 shareholder services and distribution fees as described in this Prospectus. The Advisor Class shares are intended for purchase by participants in employer-sponsored retirement or savings plans and for persons purchasing shares through broker-dealers, banks, insurance companies and other financial intermediaries that provide various administrative and distribution services. This Prospectus gives you information about the funds that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: American Century Investments 4500 Main Street o P.O. Box 419385 Kansas City, Missouri 64141-6385 o 1-800-345-3533 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 o In Missouri: 816-753-0700 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVES OF THE FUNDS AMERICAN CENTURY -- BENHAM SHORT-TERM GOVERNMENT FUND The Short-Term Government Fund seeks a competitive level of income. The fund intends to pursue its investment objective by investing in securities of the U.S. government and its agencies and maintaining a weighted average maturity of three years or less. AMERICAN CENTURY -- BENHAM INTERMEDIATE-TERM GOVERNMENT FUND The Intermediate-Term Government Fund seeks a competitive level of income. The fund intends to pursue its investment objective by investing in securities of the U.S. government and its agencies and maintaining a weighted average maturity of three to 10 years. There is no assurance that the funds will achieve their respective investment objectives. NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objectives American Century Investments TABLE OF CONTENTS Investment Objectives of the Funds....................................2 Transaction and Operating Expense Table...............................4 Performance Information of Other Class................................5 INFORMATION REGARDING THE FUNDS Investment Policies of the Funds......................................7 Short-Term Government Fund and Intermediate-Term Government Fund................................7 Fundamentals of Fixed Income Investing................................8 Other Investment Practices, Their Characteristics and Risks..........................................................9 Portfolio Turnover.................................................9 Repurchase Agreements..............................................9 Derivative Securities..............................................9 Portfolio Lending.................................................10 When-Issued Securities............................................10 Performance Advertising..............................................11 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS How to Purchase and Sell American Century Funds.....................................................12 How to Exchange from One American Century Fund to Another..................................12 How to Redeem Shares.................................................12 Telephone Services...................................................12 Investors Line....................................................12 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price..........................................................13 When Share Price Is Determined....................................13 How Share Price Is Determined.....................................13 Where to Find Information About Share Price.......................13 Distributions........................................................13 Taxes................................................................14 Tax-Deferred Accounts.............................................14 Taxable Accounts..................................................14 Management...........................................................15 Investment Management.............................................15 Code of Ethics....................................................16 Transfer and Administrative Services..............................16 Distribution of Fund Shares..........................................16 Service and Distribution Fees.....................................16 Further Information About American Century...........................17 Prospectus Table of Contents 3
TRANSACTION AND OPERATING EXPENSE TABLE Intermediate-Term Short-Term Government Fund Government Fund SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases.....................................................none none Maximum Sales Load Imposed on Reinvested Dividends..........................................none none Deferred Sales Load.........................................................................none none Redemption Fee..............................................................................none none Exchange Fee................................................................................none none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees............................................................................0.50% 0.45% 12b-1 Fees(1)..............................................................................0.50% 0.50% Other Expenses(2)..........................................................................0.00% 0.00% Total Fund Operating Expenses..............................................................1.00% 0.95% EXAMPLE You would pay the following expenses on a 1 year $10 $10 $1,000 investment, assuming a 5% annual return and 3 years 32 30 redemption at the end of each time period: 5 years 55 52 10 years 122 116 (1) The 12b-1 fee is designed to permit investors to purchase Advisor Class shares through broker-dealers, banks, insurance companies and other financial intermediaries. A portion of the fee is used to compensate them for ongoing recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager, and a portion is used to compensate them for distribution and other shareholder services. See "Distribution of Fund Shares," page 16. (2) Other expenses, which include the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year.
The purpose of the table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of the funds offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Advisor Class shares. The funds offer two other classes of shares, one of which is primarily made available to retail investors and one that is primarily made available to institutional investors. The other classes have different fee structures than the Advisor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for those classes. For additional information about the various classes, see "Further Information About American Century," page 17. 4 Transaction and Operating Expense Table American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS SHORT-TERM GOVERNMENT FUND The Advisor Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.25% lower than the Advisor Class. Had the Advisor Class been in existence for the fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1) 1989(1) 1988(1) 1987(1) PER-SHARE DATA Net Asset Value, Beginning of Period....................$9.51 $9.27 $9.67 $9.61 $9.41 $9.08 $9.32 $9.42 $9.55 $10.16 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Income from Investment Operations Net Investment Income .................51 .52 .40 .36 .44 .63 .79 .84 .81 .79 Net Realized and Unrealized Gain (Loss) on Investment Transactions..............(.04) .24 (.40) .06 .20 .33 (.24) (.10) (.13) (.49) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Income from Investment Operations..................47 .76 -- .42 .64 .96 .55 .74 .68 .30 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income...........(.51) (.519) (.402) (.36) (.441) (.635) (.789) (.843) (.815) (.792) From Net Realized Gains on Investment Transactions...........-- -- -- -- -- -- -- -- -- (.122) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions..................(.51) (.519) (.402) (.36) (.441) (.635) (.789) (.843) (.815) (.914) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period.........$9.47 $9.51 $9.27 $9.67 $9.61 $9.41 $9.08 $9.32 $9.42 $9.55 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Total Return(2)......................5.09% 8.42% .07% 4.45% 6.85% 10.99% 6.28% 8.36% 7.44% 3.14% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets.................70% .70% .81% 1.00% .99%(3) .99%(3) 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income to Average Net Assets...............5.39% 5.53% 4.17% 3.73% 4.62% 6.88% 8.64% 9.10% 8.60% 8.10% Portfolio Turnover Rate..............246% 128% 470% 413% 391% 779% 620% 567% 578% 468% Net Assets, End of Period (in thousands).........$349,772 $391,331 $396,753 $511,981 $569,430$534,515 $455,536 $443,475 $440,380$335,601 (1) The data presented has been restated to give effect to a 10 for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Expenses are shown net of management fees waived by the manager for low-balance account fees collected during period.
Prospectus Financial Highlights 5
PERFORMANCE INFORMATION OF OTHER CLASS INTERMEDIATE-TERM GOVERNMENT FUND The Advisor Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.25% lower than the Advisor Class. Had the Advisor Class been in existence for the fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994(1) PER-SHARE DATA Net Asset Value, Beginning of Period.............................. $10.04 $9.55 $10.00 -------- -------- -------- Income from Investment Operations Net Investment Income ......................................... .54 .58 .34 Net Realized and Unrealized Gain (Loss) ....................... (.14) .49 (.45) -------- -------- -------- Total from Investment Operations............................... .40 1.07 (.11) -------- -------- -------- Distributions From Net Investment Income..................................... (.54) (.583) (.343) From Net Realized Gain on Investment Transactions.............. (.06) -- -- -------- -------- -------- Total Distributions............................................ (.60) (.583) (.343) -------- -------- -------- Net Asset Value, End of Period.................................... $9.84 $10.04 $9.55 ======== ======== ======== Total Return(2)................................................ 4.12% 11.58% (1.01%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets.............. .74% .74% .75%(3) Ratio of Net Investment Income to Average Net Assets........... 5.50% 5.99% 5.43%(3) Portfolio Turnover Rate........................................ 112% 137% 205% Net Assets, End of Period (in thousands)....................... $24,422 $21,981 $6,280 (1) March 1, 1994 (inception) through October 31, 1994. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for less than one year are not annualized. (3) Annualized.
6 Financial Highlights American Century Investments INFORMATION REGARDING THE FUNDS INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. SHORT-TERM GOVERNMENT FUND AND INTERMEDIATE-TERM GOVERNMENT FUND These funds seek to provide a competitive level of income and limited price volatility by investing in securities of the U.S. government and its agencies, securities that are considered to be of the highest credit quality. The two funds differ in the weighted average maturities of their portfolios and accordingly, in their degree of risk and level of income. Generally, the longer the weighted average maturity of a fund's portfolio, the higher the yield and the greater the price volatility. The Short-Term Government Fund will maintain a weighted average portfolio maturity of three years or less. The fund is designed for investors who can accept some fluctuation in principal in order to earn a higher level of current income than is generally available from money market securities, but who do not want as much price volatility as is inherent in longer-term securities. The Intermediate-Term Government Fund will maintain a weighted average portfolio maturity of three to 10 years. The fund is designed for investors seeking a higher level of current income than is generally available from shorter-term government securities and who are willing to accept a greater degree of price fluctuation. The market value of the securities in which the Short-Term Government Fund and Intermediate-Term Government Fund invest will fluctuate, and accordingly, the value of your shares will vary from day to day. See "Fundamentals of Fixed Income Investing," page 8. Both funds 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 that are established under an act of Congress. 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. 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 Prospectus Information Regarding the Funds 7 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 manager will 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 manager makes assumptions regarding prepayments on underlying mortgages. In a rising interest rate environment, those prepayments generally decrease, and may decrease below the rate of prepayment assumed by the manager 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. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30-YEAR 20-YEAR 3-MONTH TREASURY TAX-EXEMPT TREASURY BONDS BONDS BILLS 1/92 8% 6% 4% 2/92 8% 6% 4% 3/92 8% 6% 4% 4/92 8% 6% 4% 5/92 8% 6% 4% 6/92 8% 6% 4% 7/92 7% 6% 3% 8/92 7% 6% 3% 9/92 7% 6% 3% 10/92 8% 6% 3% 11/92 8% 6% 3% 12/92 7% 6% 3% 1/93 7% 6% 3% 2/93 7% 5% 3% 3/93 7% 6% 3% 4/93 7% 6% 3% 5/93 7% 6% 3% 6/93 7% 5% 3% 7/93 7% 5% 3% 8/93 6% 5% 3% 9/93 6% 5% 3% 10/93 6% 5% 3% 11/93 6% 5% 3% 12/93 6% 5% 3% 1/94 6% 5% 3% 2/94 7% 5% 3% 3/94 7% 6% 4% 4/94 7% 6% 4% 5/94 7% 6% 4% 6/94 8% 6% 4% 7/94 7% 6% 4% 8/94 7% 6% 5% 9/94 8% 6% 5% 10/94 8% 6% 5% 11/94 8% 7% 6% 12/94 8% 6% 6% 1/95 8% 6% 6% 2/95 7% 6% 6% 3/95 7% 6% 6% 4/95 7% 6% 6% 5/95 7% 6% 6% 6/95 7% 6% 6% 7/95 7% 6% 6% 8/95 7% 6% 5% 9/95 7% 6% 5% 10/95 6% 5% 6% 11/95 6% 5% 5% 12/95 6% 5% 5% 1/96 6% 5% 5% 2/96 6% 5% 5% 3/96 7% 6% 5% 4/96 7% 6% 5% 5/96 7% 6% 5% 6/96 7% 6% 5% 7/96 7% 6% 5% 8/96 7% 6% 5% 9/96 7% 6% 5% 10/96 7% 6% 5% 11/96 6% 6% 5% 12/96 7% 6% 5% BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% 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% YEARS TO MATURITY [bar graph data] SHORT-TERM GOVERNMENT FUND Likely Maturities of Individual Holdings 0-8 years Expected Weighted Average Portfolio Maturity Range 6 mos.-5 years INTERMEDIATE-TERM GOVERNMENT FUND Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 5-10 years Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. 8 Information Regarding the Funds American Century Investments AUTHORIZED QUALITY RANGES A-1 A-2 A-3 P-1 P-2 P-3 MIG-1MIG-2 MIG-3 SP-1 SP-2 SP-3 AAA AA A BBB BB B CCC CC C D Short-Term Government Fund x Intermediate-Term Government Fund x In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The portfolio maturity of each fund has implications for the degree of price volatility and the yield level to be expected from each. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The portfolio turnover rates of the funds are shown in the financial information on pages 5 and 6 of this Prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to a fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the funds pay directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund 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 that fund. 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 repurchase 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. Since 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. The funds will limit repurchase agreement transactions to securities issued by the U.S. government, 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. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, each of 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 more accurately described as "index/structured" securities. Index/structured securities are derivative securities Prospectus Information Regarding the Funds 9 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. 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 bond whose interest rate is indexed to the return on two-year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), while a security whose underlying value is linked to the price of oil would not be a permissible investment since 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the Board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, each fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time the commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. 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 each security may decline prior to delivery, which 10 Information Regarding the Funds American Century Investments could result in a loss to the fund. A separate account for each fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. PERFORMANCE ADVERTISING From time to time, the funds may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, and yield. Performance data may be quoted separately for the Advisor Class and for the other classes offered by the funds. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, a fund's yield may not equal the income paid on your shares or the income reported in a fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 21/2-year CD rates. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. Prospectus Information Regarding the Funds 11 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS The following section explains how to purchase, exchange and redeem Advisor Class shares of the funds offered by this Prospectus. HOW TO PURCHASE AND SELL AMERICAN CENTURY FUNDS One or more of the funds offered by this Prospectus is available as an investment option under your employer-sponsored retirement or savings plan or through or in connection with a program, product or service offered by a financial intermediary, such as a bank, broker-dealer or an insurance company. Since all records of your share ownership are maintained by your plan sponsor, plan recordkeeper, or other financial intermediary, all orders to purchase, exchange and redeem shares must be made through your employer or other financial intermediary, as applicable. If you are purchasing through a retirement or savings plan, the administrator of your plan or your employee benefits office can provide you with information on how to participate in your plan and how to select American Century funds as an investment option. If you are purchasing through a financial intermediary, you should contact your service representative at the financial intermediary for information about how to select American Century funds. If you have questions about a fund, see "Investment Policies of the Funds," page 7, or call one of our Institutional Service Representatives at 1-800-345-3533. Orders to purchase shares are effective on the day we receive payment. See "When Share Price is Determined," page 13. We may discontinue offering shares generally in the funds (including any class of shares of a fund) or in any particular state without notice to shareholders. HOW TO EXCHANGE FROM ONE AMERICAN CENTURY FUND TO ANOTHER Your plan or program may permit you to exchange your investment in the shares of a fund for shares of another fund in our family. See your plan administrator, employee benefits office or financial intermediary for details on the rules in your plan governing exchanges. HOW TO REDEEM SHARES Subject to any restrictions imposed by your employer's plan or financial intermediary's program, you can sell ("redeem") your shares through the plan or financial intermediary at their net asset value. Your plan administrator, trustee, or financial intermediary or other designated person must provide us with redemption instructions. The shares will be redeemed at the net asset value next computed after receipt of the instructions in good order. See "When Share Price Is Determined," page 13. If you have any questions about how to redeem, contact your plan administrator, employee benefits office, or service representative at your financial intermediary, as applicable. TELEPHONE SERVICES INVESTORS LINE To request information about our funds and a current prospectus, or get answers to any questions that you may have about the funds and the services we offer, call one of our Institutional Service Representatives at 1-800-345-3533. 12 How to Invest with American Century Investments American Century Investments ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of a fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except the funds issued by the American Century Target Maturities Trust, net asset value is determined at the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset value for the Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after we receive your investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares of a fund received by us or our agent before the time as of which the net asset value of the fund is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined on the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which the net asset value of the fund is determined. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements with the funds or the funds' distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of each fund, except as otherwise noted, 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. 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. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the Investor Class of the funds are published in leading newspapers daily. Because the total expense ratio for the Advisor Class shares is 0.25% higher than the Investor Class, their net asset values will be lower than the Investor Class. Net asset value of the Advisor Class of the funds may be obtained by calling us. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month, except for year-end distributions, which will be paid on the last business day of the year. You will begin to participate in the distributions the day after your purchase is effective. See "When Share Price is Determined," this page. If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner Prospectus Additional Information You Should Know 13 consistent with the provisions of the Investment Company Act. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If Advisor Class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals from the plan. TAXABLE ACCOUNTS If Advisor Class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable as long-term capital gains, regardless of the length of time the shares on which such distributions are paid have been held by the shareholder. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. The funds will advise shareholders of the percentage, if any, of the dividends not exempt from federal income tax. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code, either we 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 14 Additional Information You Should Know American Century Investments under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of a fund (including redemptions 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of The Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the funds. Acting pursuant to an investment management agreement entered into with the funds, American Century Investment Management, Inc. serves as the manager of the funds. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolios of each fund and directs the purchase and sale of their investment securities. It utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the funds' portfolios and the funds' asset mix as it deems appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the funds or of sectors of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this Prospectus and their work experience for the last five years are as follows: C. CASEY COLTON, Portfolio Manager, joined BMC in 1990 as a Municipal Analyst. He was promoted to his current position in 1995. Mr. Colton is a Chartered Financial Analyst (CFA). He is a member of the team that manages the Intermediate-Term Government Fund. ROBERT V. GAHAGAN, Vice President and Portfolio Manager, has worked for American Century since May 1983. He became a Portfolio Manager in December 1991. Prior to that he served as Assistant Portfolio Manager. He is a member of the team that manages the Short-Term Government Fund. NEWLIN RANKIN, Portfolio Manager, joined BMC in 1994. He is a member of the team that manages the Short-Term Government Fund. Prior to joining BMC, Mr. Rankin was an Assistant Vice-President at Wells Fargo Bank from 1991 to 1993. The activities of the manager are subject only to directions of the funds' Board of Directors. The manager pays all the expenses of the funds except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the funds, the manager receives an annual fee at the following rates: o 0.45% of the average net assets of Short-Term Government; and o 0.50% of the average net assets of Intermediate-Term Government. Prospectus Additional Information You Should Know 15 On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by the aggregate average daily closing value of each 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). CODE OF ETHICS The funds and the manager have adopted a Code of Ethics that restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the funds' portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds, and is paid for such services by the manager. 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the funds' Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by American Century Investment Services, Inc., a registered broker-dealer and an affiliate of the manager. As agent for the funds and the manager, the distributor enters into contracts with various banks, broker-dealers, insurance companies and other financial intermediaries with respect to the sale of the funds' shares and/or the use of the funds' shares in various financial services. The manager (or an affiliate) pays all expenses incurred in promoting sales of, and distributing, the Advisor Class and in securing such services out of the Rule 12b-1 fees described in the section that follows. SERVICE AND DISTRIBUTION FEES Rule 12b-1 adopted by the Securities and Exchange Commission ("SEC") under the Investment Company Act permits investment companies that adopt a written plan to pay certain expenses associated with the distribution of their shares. Pursuant to that rule, the funds' Board of Directors and the initial shareholder of the funds' Advisor Class shares have approved and adopted a Master Distribution and Shareholder Services Plan (the "Plan"). Pursuant to the Plan, each fund pays the manager a shareholder services fee and a distribution fee, each equal to 0.25% (for a total of 0.50%) per annum of the average daily net assets of the shares of the fund's Advisor Class. The shareholder services fee is paid for the purpose of paying the costs of securing certain shareholder and administrative services, and the distribution fee is paid for the purpose of paying the costs of providing various distribution services. All or a portion of such fees are paid by the manager to the banks, broker-dealers, insurance companies or other financial intermediaries through which such shares are made available. The Plan has been adopted and will be administered in accordance with the requirements of Rule 12b-1 under the Investment Company Act. For additional information about the Plan and its terms, see "Master Distribution and Shareholder Services Plan" in the Statement of Additional Information. Fees paid pursuant to the Plan may be paid for shareholder services and the maintenance of accounts and therefore may constitute "service fees" for purposes of applicable rules of the National Association of Securities Dealers. 16 Additional Information You Should Know American Century Investments FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the funds, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is American Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by telephone to 1-800-345-3533 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers three classes of each of the funds offered by this Prospectus: an Investor Class, a Service Class, and an Advisor Class. The shares offered by this Prospectus are Advisor Class shares. The Investor Class is primarily made available to retail investors. The Service Class is primarily made available to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Advisor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For information concerning the Investor Class of shares, call one of our Investor Services Representatives at 1-800-345-2021. For information concerning the Service Class of shares, call one of our Institutional Service Representatives at 1-800-345-3533 or contact a sales representative or financial intermediary who offers the Service Class of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class, and (d) each class may have different exchange privileges. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the funds to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the funds' bylaws, the holders of shares representing at least 10% of the votes entitled to be cast may request the funds to hold a special meeting of shareholders. The manager will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. Prospectus Additional Information You Should Know 17 P.O. Box 419385 Kansas City, Missouri 64141-6385 Person-to-person assistance: 1-800-345-3533 or 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 or 816-753-0700 Fax: 816-340-4655 Internet: www.americancentury.com [american century logo] American Century(sm) 9702 [recycled logo] SH-BKT-7771 Recycled PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 BENHAM GROUP(R) Limited-Term Bond Intermediate-Term Bond Benham Bond ADVISOR CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. AMERICAN CENTURY INVESTMENTS BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY(R) GROUP MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Limited-Term Bond Intermediate-Term Bond Benham Bond PROSPECTUS MARCH 1, 1997 Limited-Term Bond Intermediate-Term Bond o Benham Bond ADVISOR CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc., is a part of American Century Investments, a family of funds that includes nearly 70 no-load and low-load mutual funds covering a variety of investment opportunities. Three of the funds from our Benham Group that invest primarily in fixed income or debt instruments are described in this Prospectus. Their investment objectives are listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. Each fund's shares offered in this Prospectus (the Advisor Class shares) are sold at their net asset value with no sales charges or commissions. The Advisor Class shares are subject to Rule 12b-1 shareholder services and distribution fees as described in this Prospectus. The Advisor Class shares are intended for purchase by participants in employer-sponsored retirement or savings plans and for persons purchasing shares through broker-dealers, banks, insurance companies and other financial intermediaries that provide various administrative and distribution services. This Prospectus gives you information about the funds that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: AMERICAN CENTURY INVESTMENTS 4500 Main Street o P.O. Box 419385 Kansas City, Missouri 64141-6385 o 1-800-345-3533 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 o In Missouri: 816-753-0700 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVES OF THE FUNDS AMERICAN CENTURY - BENHAM LIMITED-TERM BOND FUND The Limited-Term Bond Fund seeks income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of five years or less. AMERICAN CENTURY - BENHAM INTERMEDIATE-TERM BOND FUND The Intermediate-Term Bond Fund seeks a competitive level of income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of three to 10 years. AMERICAN CENTURY - BENHAM BOND FUND The Benham Bond Fund seeks a high level of income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of 10 years or greater. Effective March 1, 1997 the fund's policy regarding portfolio weighted average will change. As of that date, there will be no weighted average portfolio maturity requirement for the fund, although it is expected that the fund will invest primarily in intermediate and long-term bonds. You should consider this impending policy change prior to making an investment in the fund. There is no assurance that the funds will achieve their respective investment objectives. NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objectives American Century Investments TABLE OF CONTENTS Investment Objectives of the Funds ...................................2 Transaction and Operating Expense Table ..............................4 Performance Information of Other Class................................5 INFORMATION REGARDING THE FUNDS Investment Policies of the Funds .....................................8 Limited-Term Bond, Intermediate-Term Bond and Benham Bond ................................................8 Fundamentals of Fixed Income Investing ..............................10 Other Investment Practices, Their Characteristics and Risks ........................................................10 Portfolio Turnover ...............................................10 Repurchase Agreements ............................................11 Derivative Securities ............................................11 Portfolio Lending ................................................12 Foreign Securities ...............................................12 When-Issued Securities ...........................................12 Rule 144A Securities .............................................12 Interest Rate Futures Contracts and Options Thereon ...............................................13 Performance Advertising ..........................................14 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS How to Purchase and Sell American Century Funds ....................................................15 How to Exchange from One American Century Fund to Another ..................................................15 How to Redeem Shares ................................................15 Telephone Services ..................................................15 Investors Line ...................................................15 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price .........................................................16 When Share Price Is Determined ...................................16 How Share Price Is Determined ....................................16 Where to Find Information About Share Price ......................17 Distributions .......................................................17 Taxes ...............................................................17 Tax-Deferred Accounts ............................................17 Taxable Accounts .................................................17 Management ..........................................................18 Investment Management ............................................18 Code of Ethics ...................................................19 Transfer and Administrative Services .............................19 Distribution of Fund Shares .........................................19 Service and Distribution Fees ....................................19 Further Information About American Century ..........................20 Prospectus Table of Contents 3
TRANSACTION AND OPERATING EXPENSE TABLE Benham Intermediate-Term Limited-Term Bond Bond Bond SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases ................................. none none none Maximum Sales Load Imposed on Reinvested Dividends ...................... none none none Deferred Sales Load ..................................................... none none none Redemption Fee .......................................................... none none none Exchange Fee ............................................................ none none none ANNUAL FUND OPERATING EXPENSES: (as a percentage of net assets) Management Fees ......................................................... 0.55% 0.50% 0.45% 12b-1 Fees(1) ........................................................... 0.50% 0.50% 0.50% Other Expenses(2) ....................................................... 0.00% 0.00% 0.00% Total Fund Operating Expenses ........................................... 1.05% 1.00% 0.95% EXAMPLE You would pay the following expenses on a 1 year $11 $10 $10 $1,000 investment, assuming a 5% annual return and 3 years 33 32 30 redemption at the end of each time period: 5 years 58 55 52 10 years 128 122 116 (1) The 12b-1 fee is designed to permit investors to purchase Advisor Class shares through broker-dealers, banks, insurance companies and other financial intermediaries. A portion of the fee is used to compensate them for ongoing recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager, and a portion is used to compensate them for distribution and other shareholder services. See "Service and Distribution Fees," page 19. (2) Other expenses, which include the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year.
The purpose of the table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of the American Century funds offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Advisor Class shares. The funds offer two other classes of shares, one of which is primarily made available to retail investors and one that is primarily made available to institutional investors. The other classes have different fee structures than the Advisor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for those classes. For additional information about the various classes, see "Further Information About American Century," page 20. 4 Transaction and Operating Expense Table American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS LIMITED-TERM BOND The Advisor Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.25% lower than the Advisor Class. Had the Advisor Class been in existence for the fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994(1) PER-SHARE DATA Net Asset Value, Beginning of Period .................................. $9.96 $9.68 $10.00 ------- ------- ------- Income from Investment Operations Net Investment Income .............................................. .56 .56 .31 Net Realized and Unrealized Gain (Loss) on Investment Transactions ............................................ (.03) .28 (.32) ------- ------- ------- Total from Investment Operations ................................... .53 .84 (.01) ------- ------- ------- Distributions From Net Investment Income ......................................... (.56) (.557) (.312) ------- ------- ------- Net Asset Value, End of Period ........................................ $9.93 $9.96 $9.68 ======= ======= ======= TOTAL RETURN(2) .................................................... 5.48% 8.89% (.08%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets .................. .68% .69% .70%(3) Ratio of Net Investment Income to Average Net Assets ............... 5.63% 5.70% 4.79%(3) Portfolio Turnover Rate ............................................ 121% 116% 48% Net Assets, End of Period (in thousands) ........................... $8,092 $7,193 $4,375 (1) March 1, 1994 (inception) through October 31, 1994. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (3) Annualized.
Prospectus Financial Highlights 5
PERFORMANCE INFORMATION OF OTHER CLASS INTERMEDIATE-TERM BOND The Advisor Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.25% lower than the Advisor Class. Had the Advisor Class been in existence for the fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994(1) PER-SHARE DATA Net Asset Value, Beginning of Period ................................... $10.07 $9.53 $10.00 ------- ------- ------- Income from Investment Operations Net Investment Income ............................................... .58 .59 .34 Net Realized and Unrealized Gain (Loss) on Investment Transactions ............................................. (.06) .54 (.47) ------- ------- ------- Total from Investment Operations .................................... .52 1.13 (.13) ------- ------- ------- Distributions From Net Investment Income .......................................... (.58) (.587) (.337) From Net Realized Gains on Investment Transactions .................. (.10) -- -- ------- ------- ------- Total Distributions ................................................. (.68) (.587) (.337) ------- ------- ------- Net Asset Value, End of Period ......................................... $9.91 $10.07 $9.53 ======= ======= ======= TOTAL RETURN(2) ..................................................... 5.36% 12.19% (1.24%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................... .74% .74% .75%(3) Ratio of Net Investment Income to Average Net Assets ................ 5.90% 6.05% 5.23%(3) Portfolio Turnover Rate ............................................. 87% 133% 48% Net Assets, End of Period (in thousands) ............................ $15,626 $12,827 $4,262 (1) March 1, 1994 (inception) through October 31, 1994. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (3) Annualized.
6 Financial Highlights American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS BENHAM BOND(1) The Advisor Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.25% lower than the Advisor Class. Had the Advisor Class been in existence for the fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1) 1989(1) 1988(1) 1987(1)(2) PER-SHARE DATA Net Asset Value, Beginning of Period .... $9.78 $8.91 $10.21 $9.92 $9.56 $8.90 $9.54 $9.18 $8.96 $10.00 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Income from Investment Operations Net Investment Income ................ .60 .61 .58 .66 .63 .75 .80 .82 .84 .48 Net Realized and Unrealized Gain (Loss) on Investment Transactions .... (.14) .87 (1.12) 1.88 .35 .66 (.64) .36 .23 (1.05) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations ..... .46 1.48 (.54) 2.54 .98 1.41 .16 1.18 1.07 (.57) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income ........... (.60) (.611) (.576) (.662) (.622) (.746) (.796) (.819) (.836) (.475) From Net Realized Gain on Investment Transactions .............. (.01) -- (.186) (1.587) -- -- (.006) -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions .................. (.61) (.611) (.762) (2.249) (.622) (.746) (.802) (.819) (.836) (.475) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period .......... $9.63 $9.78 $8.91 $10.21 $9.92 $9.56 $8.90 $9.54 $9.19 $8.96 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) ...................... 4.91% 17.16% (5.47%) 11.81% 10.40% 16.44% 1.93% 13.51% 12.31% (8.63%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................ .79% .78% .88% 1.00% .98%(4) .96(4) 1.00% 1.00% 1.00% 1.00%(5) Ratio of Net Investment Income to Average Net Assets ................ 6.18% 6.53% 6.07% 6.54% 6.30% 8.06% 8.81% 8.83% 9.15% 8.10%(5) Portfolio Turnover Rate .............. 100% 105% 78% 113% 186% 219% 98% 216% 280% 146%(5) Net Assets, End of Period (in thousands) ................$142,567 $149,223 $121,012 $172,120 $154,031 $114,342 $77,270 $62,302 $25,788 $9,403 (1) The data presented has been restated to give effect to a 10 for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) March 2, 1987 (inception) through October 31, 1987. (3) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Expenses are shown net of management fees waived by the manager for low-balance account fees collected during period. (5) Annualized.
Prospectus Financial Highlights 7 INFORMATION REGARDING THE FUNDS INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. LIMITED-TERM BOND, INTERMEDIATE-TERM BOND AND BENHAM BOND These funds seek to provide investors with income through investments in bonds and other debt instruments. The three funds differ in the weighted average maturities of their portfolios and accordingly in their degree of risk and level of income. Generally, the longer the weighted average maturity, the higher the yield and the greater the price volatility. Limited-Term Bond will invest primarily in investment grade corporate securities and other debt instruments and will maintain, under normal market conditions, a weighted average maturity of five years or less. The fund is designed for investors seeking a competitive level of current income with limited price volatility. Intermediate-Term Bond will invest primarily in investment grade corporate securities and other debt instruments and will maintain, under normal market conditions, a weighted average maturity of three to 10 years. The fund is designed for investors seeking a higher level of current income than is generally available from shorter-term corporate and government securities and who are willing to accept a greater degree of price fluctuation. Benham Bond will invest primarily in investment grade corporate bonds and other debt instruments and until March 1, 1997, will maintain, under normal market conditions, a weighted average portfolio maturity of 10 years or greater. Effective March 1, 1997, the fund's policy regarding portfolio weighted average maturity will change. As of that date, there will be no weighted average portfolio maturity requirement, although it is expected that the fund will probably invest in intermediate and long-term bonds. You should consider this impending policy change prior to making an investment in the fund. The fund is designed for investors whose primary goal is a level of current income higher than is generally provided by money market or short- and intermediate-term securities and who can accept the generally greater price volatility associated with longer-term bonds. The value of the shares of all three of these funds will vary from day to day. See "Fundamentals of Fixed Income Investing," page 10. Under normal market conditions, each fund will maintain at least 65% of the value of its total assets in investment grade bonds and other debt instruments. Under normal market conditions, each of the funds may invest up to 35% of its assets, and for temporary defensive purposes, up to 100% of its assets, in short-term money market instruments. The manager will actively manage the portfolios, adjusting the weighted average portfolio maturities as necessary in response to expected changes in interest rates. During periods of rising interest rates, the weighted average maturity of a fund may be moved to the shorter end of its maturity range 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 are rising, the weighted average portfolio maturity may be moved toward the longer end of its maturity range. To achieve their objectives, the funds may invest in diversified portfolios of high- and medium-grade debt 8 Information Regarding the Funds American Century Investments securities payable in United States currency. The funds may invest in securities which at the time of purchase are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the manager, as follows: short-term notes within the two highest categories, e.g., at least MIG-2 by Moody's Investor Services ("Moody's") or SP-2 by Standard and Poor's Corporation ("S&P"); corporate, sovereign government, and municipal bonds within the four highest categories (for example, at least Baa by Moody's or BBB by S&P); securities of the United States government and its agencies and instrumentalities (described below); other types of securities rated at least P-2 by Moody's or A-2 by S&P. According to Moody's, bonds rated Baa are medium-grade and possess some speculative characteristics. A BBB rating by S&P indicates S&Ps belief that a security exhibits a satisfactory degree of safety and capacity for repayment, but is more vulnerable to adverse economic conditions or changing circumstances. The government securities in which the funds may invest include: (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 United States government that are established under an act of Congress. 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. Mortgage-related securities in which the funds may invest include collateralized mortgage obligations ("CMOs") issued by a United States 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 United States 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 manager 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 manager makes assumptions regarding prepayments on underlying mortgages. In a rising interest rate environment, those prepayments generally decrease, and may decrease below the rate of prepayment assumed by the manager 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 "Fundamentals of Fixed Income Investing," page 10. As noted, each fund may invest up to 35% of its assets, and for temporary defensive purposes as determined by the manager, up to 100% of its assets in short-term money market instruments. Those instruments may include: (1) Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities; (2) Commercial Paper; (3) Certificates of Deposit and Euro Dollar Certificates of Deposit; (4) Bankers' Acceptances; (5) Short-term notes, bonds, debentures, or other debt instruments; and (6) Repurchase agreements. Prospectus Information Regarding the Funds 9 These investments must meet the rating standards for the funds. To the extent a fund assumes a defensive position, the weighted average maturity of its portfolio may not fall within the ranges stated for the fund. [line graph data] FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS 30-YEAR 20-YEAR 3-MONTH TREASURY TAX-EXEMPT TREASURY BOND BONDS BILLS 1/92 8% 6% 4% 2/92 8% 6% 4% 3/92 8% 6% 4% 4/92 8% 6% 4% 5/92 8% 6% 4% 6/92 8% 6% 4% 7/92 7% 6% 3% 8/92 7% 6% 3% 9/92 7% 6% 3% 10/92 8% 6% 3% 11/92 8% 6% 3% 12/92 7% 6% 3% 1/93 7% 6% 3% 2/93 7% 5% 3% 3/93 7% 6% 3% 4/93 7% 6% 3% 5/93 7% 6% 3% 6/93 7% 5% 3% 7/93 7% 5% 3% 8/93 6% 5% 3% 9/93 6% 5% 3% 10/93 6% 5% 3% 11/93 6% 5% 3% 12/93 6% 5% 3% 1/94 6% 5% 3% 2/94 7% 5% 3% 3/94 7% 6% 4% 4/94 7% 6% 4% 5/94 7% 6% 4% 6/94 8% 6% 4% 7/94 7% 6% 4% 8/94 7% 6% 5% 9/94 8% 6% 5% 10/94 8% 6% 5% 11/94 8% 7% 6% 12/94 8% 6% 6% 1/95 8% 6% 6% 2/95 7% 6% 6% 3/95 7% 6% 6% 4/95 7% 6% 6% 5/95 7% 6% 6% 6/95 7% 6% 6% 7/95 7% 6% 6% 8/95 7% 6% 5% 9/95 7% 6% 5% 10/95 6% 5% 6% 11/95 6% 5% 5% 12/95 6% 5% 5% 1/96 6% 5% 5% 2/96 6% 5% 5% 3/96 7% 6% 5% 4/96 7% 6% 5% 5/96 7% 6% 5% 6/96 7% 6% 5% 7/96 7% 6% 5% 8/96 7% 6% 5% 9/96 7% 6% 5% 10/96 7% 6% 5% 11/96 6% 6% 5% 12/96 7% 6% 5% BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% 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% YEARS TO MATURITY [bar graph - graph data] LIMITED-TERM BOND Likely Maturities of Individual Holdings 0-8 years Expected Weighted Average Portfolio Maturity Range 6 mos.-5 years INTERMEDIATE-TERM BOND Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 3-20 years BENHAM BOND Likely Maturities of Individual Holdings 0-30 years Expected Weighted Average Portfolio Maturity Range 10-20 years Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. AUTHORIZED QUALITY RANGES A-1 A-2 A-3 P-1 P-2 P-3 MIG-1 MIG-2 MIG-3 SP-1 SP-2 SP-3 AAA AA A BBB BB B CCC CC C D Limited-Term Bond x x x x Intermediate-Term Bond x x x x Benham Bond x x x x In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The maturity and asset quality of each fund have implications for the degree of price volatility and the yield level to be expected from each. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The portfolio turnover rates of the funds are shown in the financial information on pages 5, 6 and 7 of this Prospectus. 10 Information Regarding the Funds American Century Investments With respect to each series of shares, investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the particular fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the funds pay directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund 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 that fund. 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 repurchase 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. Since 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. The funds will limit repurchase agreement transactions to securities issued by the U.S. government, 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. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, each of 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 more accurately described 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. 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 bond whose interest rate is indexed to the return on two-year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), while a security whose underlying value is linked to the price of oil would not be a permissible investment since 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. Prospectus Information Regarding the Funds 11 There are a range of risks associated with derivative investments, including: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the Board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, each fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. FOREIGN SECURITIES Each of the funds may invest an unlimited amount of its assets in the securities of foreign issuers, including foreign governments, when these securities meet their standards of selection. Securities of foreign issuers may trade in the U.S. or foreign securities markets. The funds will limit their purchase of debt securities to U.S. dollar denominated investment grade obligations. Such securities will be primarily from developed markets. Investments in foreign securities may present certain risks, including those resulting from fluctuations in currency exchange rates, future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time the commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. 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 each security may decline prior to delivery, which could result in a loss to the fund. A separate account for each fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The funds may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the funds' cri- 12 Information Regarding the Funds American Century Investments teria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since 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 security that is illiquid. In such an event, the funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No fund may invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON The funds may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts. For options sold, a fund will segregate cash or high-quality debt securities equal to the value of securities underlying the option unless the option is otherwise covered. A fund will deposit in a segregated account with its custodian bank high-quality debt obligations in an amount equal to the fluctuating market value of long futures contracts it has purchased, less any margin deposited on its long position. It may hold cash or acquire such debt obligations for the purpose of making these deposits. A fund will purchase or sell futures contracts and options thereon only for the purpose of hedging against changes in the market value of its portfolio securities or changes in the market value of securities that it may wish to include in its portfolio. A fund will enter into future and option transactions only to the extent that the sum of the amount of margin deposits on its existing futures positions and premiums paid for related options do not exceed 5% of its assets. Since futures contracts and options thereon can replicate movements in the cash markets for the securities in which a fund invests without the large cash investments required for dealing in such markets, they may subject a fund to greater and more volatile risks than might otherwise be the case. The principal risks related to the use of such instruments are (1) the offsetting correlation between movements in the market price of the portfolio investments (held or intended) being hedged and in the price of the futures contract or option may be imperfect; (2) possible lack of a liquid secondary market for closing out futures or option positions; (3) the need for additional portfolio management skills and techniques; and (4) losses due to unanticipated market price movements. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the securities being hedged. Such equal price changes are not always possible because the investment underlying the hedging instrument may not be the same investment that is being hedged. The manager will attempt to create a closely correlated hedge but hedging activity may not be completely successful in eliminating market value fluctuation. The ordinary spreads between prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to distortion. Due to the possibility of distortion, a correct forecast of general interest rate trends by the manager Prospectus Information Regarding the Funds 13 may still not result in a successful transaction. The manager may be incorrect in its expectations as to the extent of various interest rate movements or the time span within which the movements take place. See the Statement of Additional Information for further information about these instruments and their risks. PERFORMANCE ADVERTISING From time to time, the funds may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, and yield. Performance data may be quoted separately for the Advisor Class and for the other classes offered by the funds. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, a fund's yield may not equal the income paid on your shares or the income reported in a fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 2 1/2-year CD rates. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. 14 Information Regarding the Funds American Century Investments HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS The following section explains how to purchase, exchange and redeem Advisor Class shares of the funds offered by this Prospectus. HOW TO PURCHASE AND SELL AMERICAN CENTURY FUNDS One or more of the funds offered by this Prospectus is available as an investment option under your employer-sponsored retirement or savings plan or through or in connection with a program, product or service offered by a financial intermediary, such as a bank, broker-dealer or an insurance company. Since all records of your share ownership are maintained by your plan sponsor, plan recordkeeper, or other financial intermediary, all orders to purchase, exchange and redeem shares must be made through your employer or other financial intermediary, as applicable. If you are purchasing through a retirement or savings plan, the administrator of your plan or your employee benefits office can provide you with information on how to participate in your plan and how to select American Century funds as an investment option. If you are purchasing through a financial intermediary, you should contact your service representative at the financial intermediary for information about an American Century fund. If you have questions about a fund, see "Investment Policies of the Funds," page 8, or call one of our Institutional Service Representative at 1-800-345-3533. Orders to purchase shares are effective on the day we receive payment. See "When Share Price is Determined," page 16. We may discontinue offering shares generally in the funds (including any class of shares of a fund) or in any particular state without notice to shareholders. HOW TO EXCHANGE FROM ONE AMERICAN CENTURY FUND TO ANOTHER Your plan or program may permit you to exchange your investment in the shares of a fund for shares of another fund in our family. See your plan administrator, employee benefits office or financial intermediary for details on the rules in your plan governing exchanges. HOW TO REDEEM SHARES Subject to any restrictions imposed by your employer's plan or financial intermediary's program, you can sell ("redeem") your shares through the plan or financial intermediary at their net asset value. Your plan administrator, trustee, or financial intermediary or other designated person must provide us with redemption instructions. The shares will be redeemed at the net asset value next computed after receipt of the instructions in good order. See "When Share Price Is Determined," page 16. If you have any questions about how to redeem, contact your plan administrator, employee benefits office, or service representative at your financial intermediary, as applicable. TELEPHONE SERVICES INVESTORS LINE To request information about our funds and a current prospectus, or get answers to any questions that you may have about the funds and the services we offer, call one of our Institutional Service Representatives at 1-800-345-3533. Prospectus How To Invest With American Century Investments 15 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of a fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except the funds issued by the American Century Target Maturities Trust, net asset value is determined at the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset value for the Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after we receive your investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares of a fund received by us or our agents before the time as of which the net asset value of the fund is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined on, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our account if they are deposited before the time as of which the net asset value of the fund is determined. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements with the funds or the funds' distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of each fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. 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 converted to dollars at the prevailing foreign exchange rate. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed at various times before the close of business on each day that the New York Stock Exchange is open. If an event were to occur after the value of a security was established but before the net asset value per share was determined that was likely to materially change the net asset value, then that security would be valued at fair value as determined in accordance with procedures adopted by the Board of Directors. 16 Additional Information You Should Know American Century Investments Trading of these securities in foreign markets may not take place on every New York Stock Exchange business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the New York Stock Exchange is not open and on which a fund's net asset value is not calculated. Therefore, such calculation does not take place contemporaneously with the determination of the prices of many of the portfolio securities used in such calculation and the value of a fund's portfolio may be affected on days when shares of the fund may not be purchased or redeemed. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the Investor Class of the funds are published in leading newspapers daily. Because the total expense ratio for the Advisor Class shares is 0.25% higher than the Investor Class, their net asset values will be lower than the Investor Class. The net asset values of the Advisor Class may be obtained by calling us. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income of the funds is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month, except for year-end distributions, which will be paid on the last business day of the year. You will begin to participate in the distributions the day after your purchase is effective. See "When Share Price is Determined," page 16. If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase made by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 59 1/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If Advisor Class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals from the plan. TAXABLE ACCOUNTS If Advisor Class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable as long-term capital gains regardless of the length of time the shares on which such distributions are paid have been held by the shareholder. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Prospectus Additional Information You Should Know 17 Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code and Regulations, either we or your financial intermediary is required by federal law to withhold and remit to the IRS 31% of reportable payments (which may include dividends, capital gains distributions and redemptions). Those regulations require you to certify that the Social Security number or tax identification number you provide is correct and that you are not subject to 31% withholding for previous under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of a fund (including redemptions 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of the Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the funds. Acting pursuant to an investment management agreement entered into with the funds, American Century Investment Management, Inc. serves as the investment manager of the funds. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolio of the funds and directs the purchase and sale of their investment securities. It utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the 18 Additional Information You Should Know American Century Investments funds' portfolios and the funds' asset mix as they deem appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the teams may also adjust portfolio holdings of the funds or of sectors of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this Prospectus and their work experience for the last five years are as follows: NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined American Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. JEFFREY L. HOUSTON, Portfolio Manager, has worked for American Century since November 1990. The activities of the manager are subject only to directions of the funds' Board of Directors. The manager pays all the expenses of the funds except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the Advisor Class of the funds, the manager receives an annual fee at the following rates: o 0.45% of the average net assets of Limited-Term Bond; o 0.50% of the average net assets of Intermediate-Term Bond; and o 0.55% of the average net assets of Benham Bond. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by the aggregate average daily closing value of each 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). CODE OF ETHICS The funds and the manager have adopted a Code of Ethics, which restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the funds' portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds and is paid for such services by the manager. 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 manager. The manager and the transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the funds' Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by American Century Investment Services, Inc., a registered broker-dealer and an affiliate of the manager. As agent for the funds and the manager, the distributor enters into contracts with various banks, broker-dealers, insurance companies and other financial intermediaries with respect to the sale of the funds' shares and/or the use of the funds' shares in various financial services. The manager (or an affiliate) pays all expenses incurred in promoting sales of, and distributing, the Advisor Class and in securing such services out of the Rule 12b-1 fees described in the section that follows. SERVICE AND DISTRIBUTION FEES Rule 12b-1 adopted by the Securities and Exchange Commission ("SEC") under the Investment Company Act permits investment companies that adopt a writ- Prospectus Additional Information You Should Know 19 ten plan to pay certain expenses associated with the distribution of their shares. Pursuant to that rule, the funds' Board of Directors and the initial shareholder of the funds' Advisor Class shares have approved and adopted a Master Distribution and Shareholder Services Plan (the "Plan"). Pursuant to the Plan, each fund pays the manager a shareholder services fee and a distribution fee, each equal to 0.25% (for a total of 0.50%) per annum of the average daily net assets of the shares of the fund's Advisor Class. The shareholder services fee is paid for the purpose of paying the costs of securing certain shareholder and administrative services, and the distribution fee is paid for the purpose of paying the costs of providing various distribution services. All or a portion of such fees are paid by the manager to the banks, broker-dealers, insurance companies or other financial intermediaries through which such shares are made available. The Plan has been adopted and will be administered in accordance with the requirements of Rule 12b-1 under the Investment Company Act. For additional information about the Plan and its terms, see "Master Distribution and Shareholder Services Plan" in the Statement of Additional Information. Fees paid pursuant to the Plan may be paid for shareholder services and the maintenance of accounts and therefore may constitute "service fees" for purposes of applicable rules of the National Association of Securities Dealers. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., issuer of the funds, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is American Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by telephone to 1-800-345-3533 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers three classes of each of the funds offered by this Prospectus: an Investor Class, a Service Class, and the Advisor Class. The shares offered by this Prospectus are Advisor Class shares. The Investor Class is primarily made available to retail investors. The Service Class is primarily offered to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Advisor Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the Investor Class of shares, call one of our Investor Services Representatives at 1-800-345-2021. For information concerning the Service Class of shares, call one of our Institutional Service Representatives at 1-800-345-3533 or contact a sales representative or financial intermediary who offers that class of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class, and (d) each class may have different exchange privileges. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value 20 Additional Information You Should Know American Century Investments applicable to such share on all questions, except for those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the funds to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the funds' by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the funds to hold a special meeting of shareholders. The manager will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. Prospectus Additional Information You Should Know 21 P.O. Box 419385 Kansas City, Missouri 64141-6385 Person-to-person assistance: 1-800-345-3533 or 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 or 816-753-0700 Fax: 816-340-4655 Internet: www.americancentury.com [american century logo] American Century(sm) 9702 [recycled logo] SH-BKT-7776 Recycled PROSPECTUS [american century logo] American Century(sm) MARCH 1, 1997 Twentieth Century(R) Group Select Heritage Growth Ultra Vista INSTITUTIONAL CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. American Century Investments Benham Group(R) American Century Group Twentieth Century Group MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Select o Heritage o Growth Ultra o Vista PROSPECTUS MARCH 1, 1997 Select o Heritage o Growth Ultra o Vista INSTITUTIONAL CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load mutual funds covering a variety of investment opportunities. Five of the funds from our Twentieth Century Group that invest primarily in equity securities are described in this Prospectus. Their investment objectives are listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. Each fund's shares offered in this Prospectus (the Institutional Class shares) are sold at their net asset value with no sales charges or commissions. The Institutional Class shares are made available for purchase by large institutional shareholders, such as bank trust departments, corporations, endowments, foundations and financial advisors that meet the funds' minimum investment requirements. Institutional Class shares are not available for purchase by insurance companies or participant-directed employer-sponsored retirement plans. This Prospectus gives you information about the funds that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: American Century Investments 4500 Main Street o P.O. Box 419385 Kansas City, Missouri 64141-6385 o 1-800-345-3533 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 o In Missouri: 816-753-0700 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVES OF THE FUNDS AMERICAN CENTURY - TWENTIETH CENTURY SELECT FUND AMERICAN CENTURY - TWENTIETH CENTURY HERITAGE FUND The Select and Heritage funds seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks of companies that are considered by management to have better-than-average prospects for appreciation. As a matter of fundamental policy, 80% of the assets of Select and Heritage must be invested in securities of companies that have a record of paying dividends or have committed themselves to the payment of regular dividends, or otherwise produce income. AMERICAN CENTURY - TWENTIETH CENTURY GROWTH FUND AMERICAN CENTURY - TWENTIETH CENTURY ULTRA FUND AMERICAN CENTURY - TWENTIETH CENTURY VISTA FUND The Growth, Ultra and Vista funds seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. There is no assurance that the funds will achieve their respective investment objectives. NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objectives American Century Investments TABLE OF CONTENTS Investment Objectives of the Funds...........................2 Transaction and Operating Expense Table......................4 Performance Information of Other Class.......................5 INFORMATION REGARDING THE FUNDS Investment Policies of the Funds............................10 Growth Equity Funds......................................10 Select and Heritage .....................................10 Growth, Ultra and Vista .................................10 Other Investment Practices, Their Characteristics and Risks................................................11 Foreign Securities.......................................11 Forward Currency Exchange Contracts......................11 Portfolio Turnover.......................................12 Repurchase Agreements....................................12 Derivative Securities....................................13 Portfolio Lending........................................13 When-Issued Securities...................................14 Rule 144A Securities.....................................14 Short Sales..............................................14 Performance Advertising.....................................14 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS American Century Investments................................16 Investing in American Century...............................16 How to Open an Account......................................16 By Mail................................................16 By Wire................................................16 By Exchange............................................16 In Person..............................................16 Subsequent Investments...................................17 By Mail................................................17 By Telephone...........................................17 By Wire................................................17 In Person..............................................17 Automatic Investment Plan................................17 Minimum Investment..........................................17 How to Exchange from One Account to Another ................17 By Mail ...............................................18 By Telephone...........................................18 How to Redeem Shares........................................18 By Mail................................................18 By Telephone...........................................18 By Check-A-Month.......................................18 Other Automatic Redemptions............................18 Redemption Proceeds......................................18 By Check...............................................18 By Wire and ACH........................................18 Special Requirements for Large Redemptions...............18 Signature Guarantee.........................................19 Special Shareholder Services................................19 Open Order Service.....................................19 Tax-Qualified Retirement Plans.........................19 Important Policies Regarding Your Investments...............20 Reports to Shareholders.....................................20 Customers of Banks, Broker-Dealers and Other Financial Intermediaries...........................21 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price.................................................22 When Share Price Is Determined...........................22 How Share Price Is Determined............................22 Where to Find Information About Share Price..............23 Distributions...............................................23 Taxes.......................................................23 Tax-Deferred Accounts....................................23 Taxable Accounts.........................................23 Management..................................................25 Investment Management....................................25 Code of Ethics...........................................26 Transfer and Administrative Services.....................26 Distribution of Fund Shares.................................26 Further Information About American Century..................26 Prospectus Table of Contents 3 TRANSACTION AND OPERATING EXPENSE TABLE Select, Heritage, Growth, Ultra, Vista SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases.............................................none Maximum Sales Load Imposed on Reinvested Dividends..................................none Deferred Sales Load.................................................................none Redemption Fee......................................................................none Exchange Fee........................................................................none ANNUAL FUND OPERATING EXPENSES: (as a percentage of net assets) Management Fees....................................................................0.80% 12b-1 Fees..........................................................................none Other Expenses(1)..................................................................0.00% Total Fund Operating Expenses......................................................0.80% EXAMPLE You would pay the following expenses on a 1 year $ 8 $1,000 investment, assuming a 5% annual return and 3 years 26 redemption at the end of each time period: 5 years 44 10 years 99 (1) Other expenses, which includes the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01 of 1% of average net assets for the most recent fiscal year.
The purpose of this table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of the funds offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Institutional Class shares. The funds offer three other classes of shares, one of which is primarily made available to retail investors and two that are primarily made available to institutional investors. The other classes have different fee structures than the Institutional Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for those classes. For additional information about the various classes, see "Further Information About American Century," page 27. 4 Transaction and Operating Expense Table American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS SELECT The Institutional Class of the fund was established September 3, 1996, however, no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.20% higher than the Institutional Class. Had the Institutional Class been in existence for the fund for the time periods presented, the fund's performance information would be higher as a result of the lower expenses. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ......................... $39.52 $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income .................. .20(1) .33(1) .40 .46 .53 .63 .62 1.10 .64 .33 Net Realized and Unrealized Gain (Loss) on Investment Transactions ...... 6.73 4.68 (3.59) 7.94 .34 8.17 (1.29) 7.74 1.37 .80 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total From Investment Operations .................. 6.93 5.01 (3.19) 8.40 .87 8.80 (.67) 8.84 2.01 1.13 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............. (.27) (.281) (.432) (.495) (.653) (.652) (1.116) (.707) (.481) (.380) From Net Realized Gains on Investment Transactions ................ (4.66) (2.750) (4.466) (1.313) (1.823) (1.551) -- -- (6.367) (3.462) In Excess of Net Realized Gains ........ -- (.125) -- (.016) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions .................... (4.93) (3.156) (4.898) (1.824) (2.476) (2.203) (1.116) (.707) (6.848) (3.842) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year .............. $41.52 $39.52 $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 ======= ====== ====== ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ........................ 19.76% 15.02% (7.37)% 22.20% 1.76% 27.05% (2.03)% 32.59% 7.31% 3.47% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets .................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income to Average Net Assets .................. .5% .9% 1.0% 1.1% 1.4% 1.7% 1.8% 3.4% 2.2% 1.1% Portfolio Turnover Rate ................ 105% 106% 126% 82% 95% 84% 83% 93% 140% 123% Average Commission Paid per Investment Security Traded ............. $.041 $.046 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) .................. $4,039 $4,008 $4,278 $5,160 $4,534 $4,163 $2,953 $2,721 $2,367 $2,417 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 5
PERFORMANCE INFORMATION OF OTHER CLASS HERITAGE The Institutional Class of the fund was established September 3, 1996, however, no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.20% higher than the Institutional Class. Had the Institutional Class been in existence for the fund for the time periods presented, the fund's performance information would be higher as a result of the lower expenses. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 1993 1992 1991 1990 1989 1988(1) PER-SHARE DATA Net Asset Value, Beginning of Period ...................... $11.75 $10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 $5.00 ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income ................. --(2) .05(2) .07 .07 .10 .11 .10 .08 .06 Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... 1.15 1.96 (.21) 2.43 .72 2.04 (.94) 1.93 1.16 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ...... 1.15 2.01 (.14) 2.50 .82 2.15 (.84) 2.01 1.22 ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............ (.05) (.033) (.068) (.093) (.113) (.110) (.065) (.066) (.013) From Net Realized Gains on Investment Transactions ............... (.61) (.514) (.500) (.679) -- -- (.691) -- -- In Excess of Net Realized Gains ....... -- (.030) (.006) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ................... (.66) (.577) (.574) (.772) (.113) (.110) (.756) (.066) (.013) ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period ........... $12.24 $11.75 $10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(3) ....................... 10.44% 21.04% (1.13)% 28.64% 9.65% 33.25% (11.62)% 32.65% 25.75% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. .99% .99% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(4) Ratio of Net Investment Income to Average Net Assets ................. -- .5% .7% .7% 1.1% 1.5% 1.6% 1.3% 1.4%(4) Portfolio Turnover Rate ............... 122% 121% 136% 116% 119% 146% 127% 159% 130%(4) Average Commission Paid per Investment Security Traded ............ $.042 $.042 --(5) --(5) --(5) --(5) --(5) --(5) --(5) Net Assets, End of Period (in millions) ............... $1,083 $1,008 $897 $702 $369 $269 $199 $117 $55 (1) November 10, 1987 (inception) through October 31, 1988 (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total return for periods less than one year are not annualized. (4) Annualized. (5) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
6 Financial Highlights American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS GROWTH The Institutional Class of the fund was established September 3, 1996, however, no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.20% higher than the Institutional Class. Had the Institutional Class been in existence for the fund for the time periods presented, the fund's performance information would be higher as a result of the lower expenses. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ....................... $23.88 $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income (Loss) ......... (.01)(1) .08(1) .06 .06 (.02) .04 .09 .08 .30 .01 Net Realized and Unrealized Gain (Loss) on Investment Transactions .... 1.47 4.08 .48 1.94 1.35 8.47 (2.05) 5.14 .13 1.30 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ..... 1.46 4.16 .54 2.00 1.33 8.51 (1.96) 5.22 .43 1.31 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ........... (.07) (.051) (.056) -- (.013) (.111) (.079) (.320) (.046) (.086) From Net Realized Gains on Investment Transactions ........... (2.98) (3.183) (2.764) (.353) -- (.891) (.592) -- (3.460) (5.076) In Excess of Net Realized Gains ...... (.08) (.040) (.002) (.013) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions .................. (3.13) (3.274) (2.822) (.366) (.013) (1.002) (.671) (.320) (3.506) (5.162) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ............ $22.21 $23.88 $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ...................... 8.18% 22.31% 2.66% 8.48% 5.96% 60.64% (11.72)% 42.74% 3.18% 9.32% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets ......... (.1)% .4% .3% .2% (.1)% .2% .6% .5% 2.4% .2% Portfolio Turnover Rate .............. 122% 141% 100% 94% 53% 69% 118% 98% 143% 114% Average Commission Paid per Investment Security Traded ........... $.0360 $.040 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) ................ $4,765 $5,130 $4,363 $4,641 $4,472 $3,193 $1,697 $1,597 $1,229 $1,188 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 7
PERFORMANCE INFORMATION OF OTHER CLASS ULTRA The Institutional Class of the fund was established September 3, 1996, however, no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.20% higher than the Institutional Class. Had the Institutional Class been in existence for the fund for the time periods presented, the fund's performance information would be higher as a result of the lower expenses. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ........................ $28.03 $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income (Loss) ......... (.05)(1) (.07)(1) (.03) (.09) (.05) (.03) (.03) .19 (.02) (.07) Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... 2.84 7.58 (.42) 6.24 (.02) 7.86 (.73) 2.58 1.38 (.22) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ...... 2.79 7.51 (.45) 6.15 (.07) 7.83 (.76) 2.77 1.36 (.29) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............ -- -- -- -- -- -- (.196) -- -- (.007) From Net Realized Gains on Investment Transactions ............... (1.19) (.645) -- -- -- (.028) (.947) -- (3.258) -- In Excess of Net Realized Gains ....... (.11) -- -- -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ................... (1.30) (.645) -- -- -- (.028) (1.143) -- (3.258) (.007) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ............. $29.52 $28.03 $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ....................... 10.79% 36.89% (2.08)% 39.78% (.45)% 101.51% (9.02)% 40.37% 19.52% (3.23)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets .......... (.2)% (.3)% (.1)% (.6)% (.4)% (.5)% (.3)% 2.2% (.3)% (.5)% Portfolio Turnover Rate ............... 87% 87% 78% 53% 59% 42% 141% 132% 140% 137% Average Commission Paid per Investment Security Traded ............ $.0350 $.033 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) ................. $18,266 $14,376 $10,344 $8,037 $4,275 $2,148 $330 $347 $258 $236 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
8 Financial Highlights American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS VISTA The Institutional Class of the fund was established September 3, 1996, however, no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.20% higher than the Institutional Class. Had the Institutional Class been in existence for the fund for the time periods presented, the fund's performance information would be higher as a result of the lower expenses. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31. 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 PER-SHARE DATA Net Asset Value, Beginning of Year ........................ $15.73 $10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income (Loss) .......... (.11)(1) (.08)(1) (.08) (.07) (.04) (.02) (.01) (.03) .01 (.05) Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... 1.09 4.90 .45 1.95 .52 4.27 (1.76) 2.87 .63 (.45) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations ...... .98 4.82 .37 1.88 .48 4.25 (1.77) 2.84 .64 (.50) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income ............ -- -- -- -- -- -- -- (.012) -- -- From Net Realized Gains on Investment Transactions ............ (1.02) (.030) (1.663) (.641) -- -- (.693) -- (.462) (.651) In Excess of Net Realized Gains ....... (.01) -- (.012) (.006) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions ................... (1.03) (.030) (1.675) (.647) -- -- (.693) (.012) (.462) (.651) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Year ............. $15.68 $15.73 $10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(2) ....................... 6.96% 44.20% 4.16% 17.71% 4.55% 67.67% (22.17)% 48.19% 11.41% (7.70)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................. .99% .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets .......... (.7)% (.6)% (.8)% (.6)% (.4)% (.3)% (.1)% (.4)% .2% (.7)% Portfolio Turnover Rate ............... 91% 89% 111% 133% 87% 92% 103% 125% 145% 123% Average Commission Paid per Investment Security Traded ............ $.028 $.033 --(3) --(3) --(3) --(3) --(3) --(3) --(3) --(3) Net Assets, End of Year (in millions) ................. $2,276 $1,676 $792 $847 $830 $622 $341 $264 $206 $187 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. (3) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 9 INFORMATION REGARDING THE FUNDS INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. GROWTH EQUITY FUNDS All of the funds offered by this Prospectus seek capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the funds' manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the funds fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the funds' actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of its assets committed to equity and equity equivalent investments. The funds may purchase securities only of companies that have a record of at least three years of continuous operation. SELECT AND HERITAGE Securities of companies chosen for the Select and Heritage funds are chosen primarily for their growth potential. Additionally, as a matter of fundamental policy, 80% of the assets of Select and Heritage must be invested in securities of companies that have a record of paying dividends, or have committed themselves to the payment of regular dividends, or otherwise produce income. The remaining 20% of fund assets may be invested in any otherwise permissible securities that the manager believes will contribute to the funds' stated investment objectives. The income payments of equity securities are only a secondary consideration; therefore, the income return that Select and Heritage provide may not be significant. Otherwise, Select and Heritage follow the same investment techniques described below for Growth, Ultra and Vista. Since Select is one of our larger funds and Heritage is substantially smaller, Select will invest in shares of larger companies with larger share trading volume, and Heritage will tend to invest in smaller companies with smaller share trading volume. However, the two funds are not mutually exclusive, and a given security may be owned by both funds. For the reasons stated in the next section, it should be expected that Heritage will be more volatile and subject to greater short-term risk and long-term opportunity than Select. Because of its size, and because it invests primarily in securities that pay dividends or are committed to the payment of dividends, Select may be expected to be the least volatile of the funds described in this Prospectus. GROWTH, ULTRA AND VISTA Management selects for the portfolios of the Growth, Ultra and Vista funds, securities of companies whose earnings and revenue trends meet management's standards of selection. Growth generally invests in large, established companies. Ultra generally invests in medium to large size companies, while Vista invests in medium-sized and smaller companies. As of February 1, 1997, the size of the companies (as reflected by their capitalizations) held by the funds was as follows: 10 Information Regarding the Funds American Century Investments Median Capitalization of Companies Held - ------------------------------------------------------------------ Growth $11,638,755,000 Ultra $10,795,469,000 Vista $ 1,069,608,000 - ------------------------------------------------------------------ The median capitalization of the companies in a given fund may change over time. In addition, the criteria outlined previously are not mutually exclusive, and a given security may be owned by more than one of the funds. The size of companies in which a fund invests tends to give each fund its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure, which could readily be absorbed by a large company, can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that funds investing in smaller companies would be more volatile than funds investing in larger companies. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES Each of the funds may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The funds may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. Subject to their individual investment objectives and policies, the funds may invest in common stocks, convertible securities, preferred stocks, bonds, notes and other debt securities of foreign issuers, and debt securities of foreign governments and their agencies. The funds will limit their purchase of debt securities to investment grade obligations. Investments in foreign securities may present certain risks, including those resulting from fluctuations in currency exchange rates, future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the funds may be denominated in foreign currencies. Other securities, such as DRs, may be denominated in U.S. dollars, but have a value that is dependent on the performance of a foreign security, as valued in the currency of its home country. As a result, the value of a fund's portfolio may be affected by changes in the exchange rates between foreign currencies and the U.S. dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the U.S. dollar may be a factor in the overall performance of a fund. To protect against adverse movements in exchange rates between currencies, the funds may, for hedging purposes only, enter into forward currency exchange contracts. A forward currency exchange contract obligates the fund to purchase or sell a specific currency at a future date at a specific price. A fund may elect to enter into a forward currency exchange contract with respect to a specific purchase or sale of a security, or with respect to the fund's portfolio positions generally. By entering into a forward currency exchange contract with respect to the specific purchase or sale of a security denominated in a foreign currency, a fund can "lock in" an exchange rate between the trade and settlement dates for that purchase or sale. This practice Prospectus Information Regarding the Funds 11 is sometimes referred to as "transaction hedging." Each fund may enter into transaction hedging contracts with respect to all or a substantial portion of its foreign securities trades. When the manager believes that a particular currency may decline in value compared to the U.S. dollar, a fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." A fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. Each fund will make use of portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that a fund will enter into portfolio hedges much less frequently than transaction hedges. If a fund enters into a forward currency exchange contract, the fund, when required, will instruct its custodian bank to segregate cash or liquid high-grade securities in a separate account in an amount sufficient to cover its obligation under the contract. Those assets will be valued at market daily, and if the value of the segregated securities declines, additional cash or securities will be added so that the value of the account is not less than the amount of the fund's commitment. At any given time, no more than 10% of a fund's assets will be committed to a segregated account in connection with portfolio hedging transactions. Predicting the relative future values of currencies is very difficult, and there is no assurance that any attempt to protect a fund against adverse currency movements through the use of forward currency exchange contracts will be successful. In addition, the use of forward currency exchange contracts tends to limit the potential gains that might result from a positive change in the relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The portfolio turnover rates of the funds are shown in the financial information on pages 5-9 of this Prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to a fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and, accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the funds pay directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund 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 that fund. 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 repurchase 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. Since 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. The funds will limit repurchase agreement transactions to securities issued by the U.S. government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities 12 Information Regarding the Funds American Century Investments 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. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, each of 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 more accurately described 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. 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 since 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the Board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, each fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is Prospectus Information Regarding the Funds 13 a fundamental policy that may be changed only by a vote of a majority of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time the commitment to purchase is made. Delivery of and payment for these securities typically occur 15 to 45 days after the commitment to purchase. 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. A separate account for each fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The funds may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the funds' criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since 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 security that is illiquid. In such an event, the funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No fund may invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). SHORT SALES Each fund may engage in short sales if, at the time of the short sale, the fund owns or has the right to acquire an equal amount of the security being sold short at no additional cost. These transactions allow a fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. A fund may make a short sale 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 and for purposes of satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code. PERFORMANCE ADVERTISING From time to time, the funds may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, and yield. Performance data may be quoted separately for the Institutional Class and for the other classes offered by the funds. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over 14 Information Regarding the Funds American Century Investments the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, a fund's yield may not equal the income paid on its shares or the income reported in the fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. Prospectus Information Regarding the Funds 15 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS The funds offered by this Prospectus are a part of the American Century Investments family of mutual funds. Our family provides a full range of investment opportunities, from the aggressive equity growth funds in our Twentieth Century Group, to the fixed income funds in our Benham Group, to the moderate risk and specialty funds in our American Century Group. Please call 1-800-345-3533 for a brochure or prospectuses for the other funds in the American Century Investments family. INVESTING IN AMERICAN CENTURY The following section explains how to invest with American Century funds, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Investor Services Guide that you will receive when you open an account. If you own or are considering purchasing fund shares through a bank, broker-dealer or other financial intermediary, the following sections, as well as the information contained in our Investor Services Guide, may not apply to you. Please read "Minimum Investment," page 17 and "Customers of Banks, Broker-Dealers and Other Financial Intermediaries," page 21. HOW TO OPEN AN ACCOUNT To open an account, you must complete and sign an application, furnishing your taxpayer identification number. (You must also certify whether you are subject to withholding for failing to report income to the IRS.) Investments received without a certified taxpayer identification number will be returned. You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to American Century Investments. BY WIRE You may make your initial investment by wiring funds. To do so, call us or mail a completed application and provide your bank with the following information: o RECEIVING BANK AND ROUTING NUMBER: Commerce Bank, N.A. (101000019) o BENEFICIARY (BNF): American Century Services Corporation 4500 Main St., Kansas City, Missouri 64111 o BENEFICIARY ACCOUNT NUMBER (BNF ACCT): 2804918 o REFERENCE FOR BENEFICIARY (RFB): American Century account number into which you are investing. If more than one, leave blank and see Bank to Bank Information below. o ORIGINATOR TO BENEFICIARY (OBI): Name and address of owner of account into which you are investing. o BANK TO BANK INFORMATION (BBI OR FREE FORM TEXT): o Taxpayer identification or Social Security number o If more than one account, account numbers and amount to be invested in each account. o Current tax year, previous tax year or rollover designation if an IRA. Specify whether IRA, SEP-IRA or SARSEP-IRA. BY EXCHANGE Call 1-800-345-3533 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another American Century account. See page 17 for more information on exchanges. IN PERSON If you prefer to work with a representative in person, please visit one of our Investors Centers, located at: 4500 Main Street Kansas City, Missouri 64111 1665 Charleston Road Mountain View, California 94043 2000 S. Colorado Blvd. Denver, Colorado 80222 16 How to Invest with American Century Investments American Century Investments SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see "Automatic Investment Plan," this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the investment slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without an investment slip.) BY TELEPHONE Once your account is open, you may make investments by telephone if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. You may call an Institutional Service Representative or use our Automated Information Line. BY WIRE You may make subsequent investments by wire. Follow the wire transfer instructions on page 16 and indicate your account number. IN PERSON You may make subsequent investments in person at one of our Investors Centers. The locations of our three Investors Centers are listed on page 16. AUTOMATIC INVESTMENT PLAN You may elect on your application to make investments automatically by authorizing us to draw on your bank account regularly. Such investments must be at least the equivalent of $50 per month. You also may choose an automatic payroll or government direct deposit. If you are establishing a new account, check the appropriate box under "Automatic Investments" on your application to receive more information. If you would like to add a direct deposit to an existing account, please call one of our Institutional Service Representatives. MINIMUM INVESTMENT The minimum investment is $5 million ($3 million for endowments and foundations). If you invest with us through a bank, broker-dealer or other financial intermediary, the minimum investment requirement may be met by aggregating the investments of various clients of your financial intermediary. The minimum investment requirement may be waived if you or your financial intermediary, if applicable, has an aggregate investment in our family of funds of $10 million or more ($5 million for endowments and foundations). If your balance or the balance of your financial intermediary, if applicable, falls below the minimum investment requirements due to redemptions or exchanges, we reserve the right to convert your shares to Investor Class shares of the same fund. The Investor Class shares have a unified management fee that is 0.20% higher than the Institutional Class shares. HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER As long as you meet any minimum investment requirements, you may exchange your fund shares to our other funds up to six times per year per account. An exchange request will be processed as of the same day it is received, if it is received before the funds' net asset values are calculated, which is one hour prior to the close of the New York Stock Exchange for funds issued by the American Century Target Maturities Trust, and at the close of the Exchange for all of our other funds. See "When Share Price is Determined," page 22. For any single exchange, the shares of each fund being acquired must have a value of at least $100. However, we will allow investors to set up an Automatic Exchange Plan between any two funds in the amount of at least $50 per month. See our Investor Services Guide for further information about exchanges. If, in any 90-day period, the total of your exchanges and your redemptions from any one account exceeds the lesser of $250,000 or 1% of the fund's assets, further exchanges will be subject to special requirements to comply with our policy on large redemptions. See "Special Requirements for Large Redemptions," page 18. Prospectus How to Invest with American Century Investments 17 BY MAIL You may direct us in writing to exchange your shares from one American Century account to another. For additional information, please see our Investor Services Guide. BY TELEPHONE You can make exchanges over the telephone if you have authorized us to accept telephone instructions. You can authorize this by selecting "Full Services" on your application or by calling one of our Institutional Service Representatives at 1-800-345-3533 to get the appropriate form. HOW TO REDEEM SHARES We will redeem or "buy back" your shares at any time. Redemptions will be made at the next net asset value determined after a complete redemption request is received. For large redemptions, please read "Special Requirements for Large Redemptions," this page. Please note that a request to redeem shares in an IRA or 403(b) plan must be accompanied by an executed IRS Form W4-P and a reason for withdrawal as specified by the IRS. BY MAIL Your written instructions to redeem shares may be made either by a redemption form, which we will send you upon request, or by a letter to us. Certain redemptions may require a signature guarantee. Please see "Signature Guarantee," page 19. BY TELEPHONE If you have authorized us to accept telephone instructions, you may redeem your shares by calling an Institutional Service Representative. BY CHECK-A-MONTH You may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check in an amount you choose (minimum $50). To set up a Check-A-Month plan, please call and request our Check-A-Month brochure. OTHER AUTOMATIC REDEMPTIONS You may elect to make redemptions automatically by authorizing us to send funds to you or to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Institutional Service Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Investor Services Guide. BY WIRE AND ACH You may authorize us to transmit redemption proceeds by wire or ACH. These services will be effective 15 days after we receive the authorization. Your bank will usually receive wired funds within 48 hours of transmission. Funds transferred by ACH may be received up to seven days after transmission. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS We have elected to be governed by Rule 18f-1 under the Investment Company Act, which obligates each fund make certain redemptions in cash. This requirement to pay redemptions in cash applies to situations where one shareholder redeems, during any 90-day period, up to the lesser of $250,000 or 1% of the assets of the fund. Although redemptions in excess of this limitation will also normally be paid in cash, we reserve the right under unusual circumstances to honor these redemptions by making payment in whole or in part in readily marketable securities (a "redemption-in-kind"). If payment is made in securities, the securities will be selected by the fund, will be valued in the same manner as they are in computing the fund's net asset value and will be provided without prior notice. 18 How to Invest with American Century Investments American Century Investments 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. Despite the funds' right to redeem fund shares through a redemption-in-kind, we do not expect to exercise this option unless a fund has an unusually low level of cash to meet redemptions and/or is experiencing unusually strong demands for its cash. Such a demand might be caused, for example, by extreme market conditions that result in an abnormally high level of redemption requests concentrated in a short period of time. Absent these or similar circumstances, we expect redemptions in excess of $250,000 to be paid in cash in any fund with assets of more than $50 million if total redemptions from any one account in any 90-day period do not exceed one-half of 1% of the total assets of the fund. SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee would be required when: o redeeming more than $25,000; or o establishing or increasing a Check-A-Month or automatic transfer on an existing account. You can obtain a signature guarantee from a bank or trust company, credit union, broker-dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Investor Services Guide. We reserve the right to require a signature guarantee on any transaction, or to change this policy at any time. SPECIAL SHAREHOLDER SERVICES We offer several service options to make your account easier to manage. These are listed on the account application. Please make note of these options and elect the ones that are appropriate for you. Be aware that the "Full Services" option offers you the most flexibility. You will find more information about each of these service options in our Investor Services Guide. Our special shareholder services include: OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central time are effective the same day, and orders or cancellations received after 2 p.m. Central time are effective the next business day. TAX-QUALIFIED RETIREMENT PLANS Each fund is available for your tax-deferred retirement plan. Call or write us and request the appropriate forms for: o Individual Retirement Accounts (IRAs); o 403(b)plans for employees of public school systems and non-profit organizations; or Prospectus How to Invest with American Century Investments 19 o Profit sharing plans and pension plans for corporations and other employers. You can also transfer your tax-deferred plan to us from another company or custodian. Call or write us for a Request to Transfer form. IMPORTANT POLICIES REGARDING YOUR INVESTMENTS Every account is subject to policies that could affect your investment. Please refer to the Investor Services Guide for further information about the policies discussed below, as well as further detail about the services we offer. (1) We reserve the right for any reason to suspend the offering of shares for a period of time, or to reject any specific purchase order (including purchases by exchange). Additionally, purchases may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. (2) We reserve the right to make changes to any stated investment requirements, including those that relate to purchases, transfers and redemptions. In addition, we may also alter, add to or terminate any investor services and privileges. Any changes may affect all shareholders or only certain series or classes of shareholders. (3) Shares being acquired must be qualified for sale in your state of residence. (4) Transactions requesting a specific price and date, other than open orders, will be refused. Once you have mailed or otherwise transmitted your transaction instructions to us, they may not be modified or canceled. (5) If a transaction request is made by a corporation, partnership, trust, fiduciary, agent or unincorporated association, we will require evidence satisfactory to us of the authority of the individual making the request. (6) We have established procedures designed to assure the authenticity of instructions received by telephone. These procedures include requesting personal identification from callers, recording telephone calls, and providing written confirmations of telephone transactions. These procedures are designed to protect shareholders from unauthorized or fraudulent instructions. If we do not employ reasonable procedures to confirm the genuineness of instructions, then we may be liable for losses due to unauthorized or fraudulent instructions. The company, its transfer agent and investment advisor will not be responsible for any loss due to instructions they reasonably believe are genuine. (7) All signatures should be exactly as the name appears in the registration. If the owner's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. (8) Unusual stock market conditions have in the past resulted in an increase in the number of shareholder telephone calls. If you experience difficulty in reaching us during such periods, you may send your transaction instructions by mail, express mail or courier service, or you may visit one of our Investors Centers. You may also use our Automated Information Line if you have requested and received an access code and are not attempting to redeem shares. (9) If you fail to provide us with the correct certified taxpayer identification number, we may reduce any redemption proceeds by $50 to cover the penalty the IRS will impose on us for failure to report your correct taxpayer identification number on information reports. (10) We will perform special inquiries on shareholder accounts. A research fee of $15 per hour may be applied. REPORTS TO SHAREHOLDERS At the end of each calendar quarter, we will send you a consolidated statement that summarizes all of your American Century holdings, as well as an individual statement for each fund you own that reflects all year-to-date activity in your account. You may request a statement of your account activity at any time. With the exception of most automatic transactions, each time you invest, redeem, transfer or exchange shares, we will send you a confirmation of the transaction. See the Investor Services Guide for more detail. Carefully review all the information relating to transactions on your statements and confirmations to ensure that your instructions were acted on properly. 20 How to Invest with American Century Investments American Century Investments Please notify us immediately in writing if there is an error. If you fail to provide notification of an error with reasonable promptness, i.e., within 30 days of non-automatic transactions or within 30 days of the date of your consolidated quarterly statement, in the case of automatic transactions, we will deem you to have ratified the transaction. No later than January 31 of each year, we will send you reports that you may use in completing your U.S. income tax return. See the Investor Services Guide for more information. Each year, we will send you an annual and a semiannual report relating to your fund, each of which is incorporated herein by reference. The annual report includes audited financial statements and a list of portfolio securities as of the fiscal year end. The semiannual report includes unaudited financial statements for the first six months of the fiscal year, as well as a list of portfolio securities at the end of the period. You also will receive an updated prospectus at least once each year. Please read these materials carefully as they will help you understand your fund. CUSTOMERS OF BANKS, BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES Information contained in our Investor Services Guide pertains to shareholders who invest directly with American Century rather than through a bank, broker-dealer or other financial intermediary. If you own or are considering purchasing fund shares through a bank, broker-dealer, or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Service Representatives by calling 1-800-345-3533 to request information about our funds and services, to obtain a current prospectus or to get answers to any questions about our funds that you are unable to obtain through your financial intermediary. Prospectus How to Invest with American Century Investments 19 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of a fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined at the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or our agents before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined on, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received the day they are deposited in our bank account if they are deposited before the time as of which the net asset value is determined. Investments by telephone pursuant to your prior authorization to us to draw on your bank account are considered received at the time of your telephone call. Investment and transaction instructions received by us on any business day by mail prior to the time as of which the net asset value is determined, will receive that day's price. Investments and instructions received after that time will receive the price determined on the next business day. If you invest in fund shares through a bank, financial advisor or other financial intermediary, it is the responsibility of your financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements with the funds or the funds' distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of each fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. 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 exchanged to dollars at the prevailing foreign exchange rate. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed at various times before the close of business on each day that the New York Stock Exchange is open. If an event were to occur after the value of a 22 Additional Information You Should Know American Century Investments 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 New York Stock Exchange business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the New York Stock Exchange is not open and on which a fund's net asset value is not calculated. Therefore, such calculation does not take place contemporaneously with the determination of the prices of many of the portfolio securities used in such calculation and the value of a fund's portfolio may be affected on days when shares of the fund may not be purchased or redeemed. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the Investor Class of the funds are published in leading newspapers daily. The net asset value of the Institutional Class of each fund may be obtained by calling us. DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains, if any, are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions from investment income and from net profits realized on the sale of securities, if any, will be declared annually on or before December 31. THE OBJECTIVE OF THESE FUNDS IS CAPITAL APPRECIATION AND NOT THE PRODUCTION OF DISTRIBUTIONS. YOU SHOULD MEASURE THE SUCCESS OF YOUR INVESTMENT BY THE VALUE OF YOUR INVESTMENT AT ANY GIVEN TIME AND NOT BY THE DISTRIBUTIONS YOU RECEIVE. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our Investor Services Guide for further information regarding your distribution options. A distribution on shares of a fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are included in the value of your shares prior to distribution, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. See "Taxes," this page. TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income tax. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan (excluding participant-directed employer-sponsored retirement plans, which are ineligible to invest in Institutional Class shares), income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account on a tax-deferred basis. TAXABLE ACCOUNTS 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. Distributions from net long-term capital gains are taxable as long-term capital gains regardless of the length of time you have held the shares on which such distributions are paid. 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 Prospectus Additional Information You Should Know 23 any distribution 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 of investments by non-resident investors. The foreign taxes paid by a fund will reduce its dividends. If more than 50% of the value of a fund's total assets at the end of each quarter 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 fund shareholders 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. If a fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. See "Distributions," page 23. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code, we or your financial intermediary is required by federal law to withhold and remit to the IRS 31% of reportable payments (which may include dividends, capital gains distributions and redemptions). Those regulations require you to certify that the Social Security number or tax identification number you provide is correct and that you are not subject to 31% withholding for previous under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of a fund (including redemptions 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of the Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. 24 Additional Information You Should Know American Century Investments MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the funds. Acting pursuant to an investment management agreement entered into with the funds, American Century Investment Management, Inc. serves as the investment manager of the funds. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment advisory services to investment companies and institutional clients since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolios of the funds and directs the purchase and sale of their investment securities. It utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios as they deem appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this Prospectus and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined American Century in 1981. He is a member of the teams that manage Growth and Ultra. CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined American Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined American Century's equity investment efforts. He is a member of the team that manages Select. GLENN A. FOGLE, Vice President and Portfolio Manager, joined American Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. He is a member of the team that manages Vista. NANCY B. PRIAL, Vice President and Portfolio Manager, joined American Century in February 1994 as a Portfolio Manager. For more than four years prior to joining American Century, Ms. Prial served as Senior Vice President and Portfolio Manager at Frontier Capital Management Company, Boston, Massachusetts. She is a member of the team that manages Heritage. KEVIN M. LEWIS, Portfolio Manager, joined American Century in October 1995. Prior to that he served as a Portfolio Manager for Virtus Capital Management, Richmond, Virginia, from January 1995 to October 1995. Prior to that, he was a Portfolio Manager for Signet Trust Company, Richmond, Virginia. Mr. Lewis is a member of the team that manages Heritage. JOHN D. SEITZER, Portfolio Manager, joined American Century in June 1993 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Seitzer attended Indiana University from August 1991 to June 1993, where he obtained his MBA degree. Mr. Seitzer is a member of the team that manages Vista. BRUCE A. WIMBERLY, Portfolio Manager, joined American Century in September 1994 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Wimberly attended Kellogg Graduate School of Management, Northwestern University from August 1992 to August 1994, where he obtained his MBA degree. Prior to that he served as a Research Analyst for Frontier Capital Management Company, Boston, Massachusetts. Mr. Wimberly is a member of the team that manages Ultra. JEAN LEDFORD, Vice President and Portfolio Manager, joined American Century in January 1997 as a Portfolio Manager. Prior to joining American Prospectus Additional Information You Should Know 25 Century, Ms. Ledford worked for the State of Wisconsin Investment Board as an Investment Director from 1994 to 1996 and as an Assistance Investment Director from 1983 to 1994. Ms. Ledford is a member of the team that manages Select. The activities of the manager are subject only to directions of the funds' Board of Directors. The manager pays all the expenses of the funds except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the Institutional Class of the funds, the manager receives an annual fee of 0.80% of the average net assets of each of the funds. On the first business day of each month, each series of shares pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product 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). CODE OF ETHICS The funds and the manager have adopted a Code of Ethics that restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the funds' portfolios obtain preclearance before executing personal trades. With respect to Portfolio Managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage those funds. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds, and is paid for such services by the manager. Certain recordkeeping and administrative services that would otherwise be performed by the transfer agent may be performed by an insurance company or other entity providing similar services for various retirement plans using shares of the funds as a funding medium, by broker-dealers and financial advisors for their customers investing in shares of American Century or by sponsors of multi mutual fund no- or low-transaction fee programs. Although there is no sales charge levied by the funds, transactions in shares of the funds may be executed by brokers or investment advisors who charge a transaction-based fee or other fee for their services. Such charges may vary among broker-dealers and financial advisors, but in all cases will be retained by the broker-dealer or financial advisor and not remitted to the funds or the manager. You should be aware of the fact that these transactions may be made directly with American Century without incurring such fees. 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the funds' Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by American Century Investment Services, Inc., broker-dealer and an affiliate of the manager. The manager pays all expenses for promoting sales of, and distributing the fund shares offered by this Prospectus. The Institutional Class of shares does not pay any commissions or other fees to the distributor or to any other broker-dealers or financial intermediaries in connection with the distribution of fund shares. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., the issuer of the funds, was organized as a Maryland corpora- 26 Additional Information You Should Know American Century Investments tion on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is American Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by telephone to 1-800-345-3533 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers four classes of each of the funds offered by this Prospectus: an Investor Class, an Institutional Class, a Service Class, and the Advisor Class. The shares offered by this Prospectus are Institutional Class shares and have no up-front charges, commissions, or 12b-1 fees. The Investor Class is primarily made available to retail investors. The Service Class and Advisor Class are primarily offered to institutional investors or through institutional distribution channels, such as employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Institutional Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the Investor Class of shares, call one of our Investor Services Representatives at 1-800-345-2021. For information concerning the Service or Advisor classes of shares not offered by this Prospectus, call one of our Institutional Service Representatives at 1-800-345-3533 or contact a sales representative or financial intermediary who offers those classes of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class, (d) each class may have different exchange privileges, and (e) the Institutional Class may provide for automatic conversion from that class into shares of the Investor Class of the same fund. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except for those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the funds to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the funds' by laws, the holders of shares representing at least 10% of the votes entitled to be cast may request a fund to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. Prospectus Additional Information You Should Know 27 NOTES 28 Notes NOTES Notes 29 P.O. Box 419385 Kansas City, Missouri 64141-6385 Person-to-person assistance: 1-800-345-3533 or 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 or 816-753-0700 Fax: 816-340-4655 Internet: www.americancentury.com [american century logo] American Century(sm) 9702 [recycled logo] SH-BKT-7806 Recycled PROSPECTUS [american century company logo] American Century (sm) MARCH 1, 1997 AMERICAN CENTURY GROUP Balanced INSTITUTIONAL CLASS [front cover] AMERICAN CENTURY INVESTMENTS FAMILY OF FUNDS American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your investment needs, American Century funds have been divided into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. AMERICAN CENTURY INVESTMENTS Benham Group(R) American Century Group Twentieth Century(R) Group MONEY MARKET FUNDS ASSET ALLOCATION & GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS Balanced PROSPECTUS MARCH 1, 1997 BALANCED INSTITUTIONAL CLASS AMERICAN CENTURY MUTUAL FUNDS, INC. American Century Mutual Funds, Inc. is a part of American Century Investments, a family of funds that includes nearly 70 no-load mutual funds covering a variety of investment opportunities. One of the funds that seeks capital growth and current income is described in this Prospectus. Its investment objective is listed on page 2 of this Prospectus. The other funds are described in separate prospectuses. The fund's shares offered in this Prospectus (the Institutional Class) are sold at their net asset value with no sales charges or commissions. The Institutional Class shares are made available for purchase by large institutional shareholders, such as bank trust departments, corporations, endowments, foundations and financial advisors that meet the fund's minimum investment requirement. Institutional Class shares are not available for purchase by insurance companies or participant-directed employer-sponsored retirement plans. This Prospectus gives you information about the fund that you should know before investing. Please read this Prospectus carefully and retain it for future reference. Additional information is included in the Statement of Additional Information dated March 1, 1997, and filed with the Securities and Exchange Commission. It is incorporated into this Prospectus by reference. To obtain a copy without charge, call or write: American Century Investments 4500 Main Street o P.O. Box 419385 Kansas City, Missouri 64141-6385 o 1-800-345-3533 International calls: 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 o In Missouri: 816-753-0700 Internet: www.americancentury.com Additional information, including this Prospectus and the Statement of Additional Information, may be obtained by accessing the Web site maintained by the SEC (www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus 1 INVESTMENT OBJECTIVE OF THE FUND AMERICAN CENTURY BALANCED FUND The Balanced fund seeks capital growth and current income. It is management's intention to maintain approximately 60% of the fund's assets in common stocks that are considered by management to have better-than-average prospects for appreciation and the remainder in bonds and other fixed income securities. There is no assurance that the fund will achieve its investment objective. NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 Investment Objective American Century Investments TABLE OF CONTENTS Investment Objective of the Fund....................2 Transaction and Operating Expense Table.............4 Performance Information of Other Class..............5 INFORMATION REGARDING THE FUND Investment Policies of the Fund.....................6 Investment Approach..............................6 Equity Investments...............................6 Fixed Income Investments.........................6 Other Investment Practices, Their Characteristics and Risks........................................7 Foreign Securities...............................7 Forward Currency Exchange Contracts..............7 Portfolio Turnover...............................8 Repurchase Agreements............................8 Derivative Securities............................9 Portfolio Lending................................9 When-Issued Securities...........................9 Rule 144A Securities............................10 Short Sales.....................................10 Performance Advertising............................10 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS American Century Investments.......................12 Investing in American Century......................12 How to Open an Account.............................12 By Mail.......................................12 By Wire.......................................12 By Exchange...................................12 In Person.....................................12 Subsequent Investments..........................13 By Mail.......................................13 By Telephone..................................13 By Wire.......................................13 In Person.....................................13 Automatic Investment Plan.......................13 Minimum Investment.................................13 How to Exchange from One Account to Another .......13 By Mail ......................................14 By Telephone..................................14 How to Redeem Shares...............................14 By Mail ......................................14 By Telephone..................................14 By Check-A-Month..............................14 Other Automatic Redemptions...................14 Redemption Proceeds.............................14 By Check......................................14 By Wire and ACH...............................14 Special Requirements for Large Redemptions......14 Signature Guarantee................................15 Special Shareholder Services.......................15 Open Order Service............................15 Tax-Qualified Retirement Plans................16 Important Policies Regarding Your Investments......16 Reports to Shareholders............................16 Customers of Banks, Broker-Dealers and Other Financial Intermediaries..............17 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price........................................18 When Share Price Is Determined..................18 How Share Price Is Determined...................18 Where to Find Information About Share Price.....19 Distributions......................................19 Taxes..............................................19 Tax-Deferred Accounts...........................19 Taxable Accounts................................19 Management.........................................21 Investment Management...........................21 Code of Ethics..................................21 Transfer and Administrative Services............22 Distribution of Fund Shares........................22 Further Information About American Century.........22 Prospectus Table of Contents 3 TRANSACTION AND OPERATING EXPENSE TABLE Balanced SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases....................... none Maximum Sales Load Imposed on Reinvested Dividends............ none Deferred Sales Load........................................... none Redemption Fee................................................ none Exchange Fee.................................................. none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees............................................... 0.80% 12b-1 Fees.................................................... none Other Expenses(1)............................................. 0.00% Total Fund Operating Expenses................................. 0.80% EXAMPLE: You would pay the following expenses on a 1 year $ 8 $1,000 investment, assuming a 5% annual return and 3 years 26 redemption at the end of each time period: 5 years 44 10 years 99 (1) Other expenses, which include the fees and expenses (including legal counsel fees) of those directors who are not "interested persons" as defined in the Investment Company Act, were less than 0.01% of 1% of average net assets for the most recent fiscal year. The purpose of this table is to help you understand the various costs and expenses that you, as a shareholder, will bear directly or indirectly in connection with an investment in the class of shares of Balanced offered by this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and uses a 5% annual rate of return as required by Securities and Exchange Commission regulations. NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The shares offered by this Prospectus are Institutional Class shares. The fund offers three other classes of shares, one of which is primarily made available to retail investors and two that are primarily made available to institutional investors. The other classes have different fee structures than the Institutional Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. A difference in fees will result in different performance for those classes. For additional information about the various classes, see "Further Information About American Century," page 22. 4 Transaction and Operating Expense Table American Century Investments
PERFORMANCE INFORMATION OF OTHER CLASS BALANCED The Institutional Class of the fund was established September 3, 1996, however no shares had been issued prior to the fund's fiscal year end. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's Investor Class of shares, which has a total expense ratio that is 0.20% higher than the Institutional Class. Had the Institutional Class been in existence for the fund for the time periods presented, the fund's performance information would be higher as a result of the lower expenses. The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund's annual report, which is incorporated by reference into the Statement of Additional Information. The annual report contains additional performance information and will be made available upon request and without charge. The information presented is for a share outstanding throughout the years ended October 31, except as noted. 1996 1995 1994 1993 1992 1991 1990 1989 1988(1) PER-SHARE DATA Net Asset Value, Beginning of Period.....$17.70 $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 $10.22 ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from Investment Operations Net Investment Income..................44(2) .48(2) .42 .38 .33 .38 .41 .37 .01 Net Realized and Unrealized Gain (Loss) on Investment Transactions......... 1.88 2.03 (.58) 1.62 (.23) 4.22 (.62) 1.71 (.10) ------- ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Operations...... 2.32 2.51 (.16) 2.00 .10 4.60 (.21) 2.08 (.09) ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income............ (.46) (.475) (.416) (.375) (.322) (.384) (.417) (.372) -- From Net Realized Gains on Investment Transactions.........(1.01) (.274) -- -- -- -- (.320) -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions...................(1.47) (.749) (.416) (.375) (.322) (.384) (.737) (.372) -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period...........$18.55 $17.70 $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 ======= ======= ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(3).......................14.04% 16.36% (.93)% 13.64% .63% 42.92% (2.10)% 20.94% (.88)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets................. .99% .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(4) Ratio of Net Investment Income to Average Net Assets....... 2.5% 2.9% 2.7% 2.4% 2.4% 3.1% 3.8% 4.2% 4.4%(4) Portfolio Turnover Rate............... 130% 85% 94% 95% 100% 116% 104% 171% 99%(4) Average Commission Paid per Investment Security Traded......... $.040 $.039 --(5) --(5) --(5) --(5) --(5) --(5) --(5) Net Assets, End of Period (in millions) $879 $816 $704 $706 $654 $255 $66 $30 $3 (1) October 20, 1988 (inception) through October 31, 1988. (2) Computed using average shares outstanding throughout the period. (3) Total returns for periods less than one year are not annualized. Total return assumes reinvestment of dividends and capital gains distributions, if any. (4) Annualized. (5) Disclosure of average commission paid per share was not required prior to the year ended October 31, 1995.
Prospectus Financial Highlights 5 INFORMATION REGARDING THE FUND INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on page 2 of this Prospectus, and any other investment policies designated as "fundamental" in this Prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this Prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH The manager intends to invest approximately 60% of the fund's assets in equity securities, while the remainder will be invested in bonds and other fixed income securities. A description of the investment style for each class of investment follows. EQUITY INVESTMENTS With the equity portion of the Balanced portfolio, the manager seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the equity portion of Balanced fully invested in these securities regardless of the movement of stock prices generally. The fund may purchase securities only of companies that have a record of at least three years continuous operation. The manager selects, for the equity portion of the portfolio, securities of companies whose earnings and revenue trends meet management's standards of selection. The size of the companies in which a fund invests tends to give it its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that the volatility of the fund will be impacted by the size of companies in which it invests. FIXED INCOME INVESTMENTS The manager intends to maintain approximately 40% of the fund's assets in fixed income securities with a minimum of 25% of that amount in fixed income senior securities. The fixed income securities in the fund will be chosen based on their level of income production and price stability. The fund may invest in a diversified portfolio of debt and other fixed-rate securities payable in United States currency. These may include obligations of the U.S. government, its agencies and instrumentalities; corporate securities (bonds, notes, preferreds and convertible issues), and sovereign government, municipal, mortgage-backed and other asset-backed securities. There are no maturity restrictions on the fixed income securities in which the fund invests. Under normal market conditions the weighted average portfolio maturity for the fixed income portfolio will be in the three- to 10-year range. 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. It is the manager's intention to invest the fund's fixed income holdings in high-grade securities. At least 80% of fixed income assets will be invested in securities which at the time of purchase are rated 6 Information Regarding the Fund American Century Investments within the three highest categories by a nationally recognized statistical rating organization [at least A by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corp. (S&P)]. The remaining portion of the fixed income assets may be invested in issues in the fourth highest category (Baa by Moody's or BBB by S&P), or, if not rated, are of equivalent investment quality as determined by the manager and which, in the opinion of the manager, can contribute meaningfully to the fund's results without compromising its objectives. Such issues might include a lower-rated issue where research suggests the likelihood of a rating increase; or a convertible issue of a company deemed attractive by the equity management team. According to Moody's, bonds rated Baa are medium-grade and possess some speculative characteristics. A BBB rating by S&P indicates S&P's belief that a security exhibits a satisfactory degree of safety and capacity for repayment, but is more vulnerable to adverse economic conditions or changing circumstances. See "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The fund may invest in common stocks, convertible securities, preferred stocks, bonds, notes and other debt securities of foreign issuers, and debt securities of foreign governments and their agencies. The fund will limit its purchase of debt securities to investment-grade obligations. Investments in foreign securities may present certain risks, including those resulting from fluctuations in currency exchange rates, future political and economic developments, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund may be denominated in foreign currencies. Other securities, such as DRs, may be denominated in U.S. dollars, but have a value that is dependent on the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolio may be affected by changes in the exchange rates between foreign currencies and the U.S. dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the U.S. dollar may be a factor in the overall performance of the fund. To protect against adverse movements in exchange rates between currencies, the fund may, for hedging purposes only, enter into forward currency exchange contracts. A forward currency exchange contract obligates the fund to purchase or sell a specific currency at a future date at a specific price. The fund may elect to enter into a forward currency exchange contract with respect to a specific purchase or sale of a security, or with respect to the fund's portfolio positions generally. By entering into a forward currency exchange contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the fund can "lock in" an exchange rate between the trade and settlement dates for that purchase or sale. This practice is sometimes referred to as "transaction hedging." The fund may enter into transaction hedging contracts with respect to all or a substantial portion of its foreign securities trades. When the manager believes that a particular currency may decline in value compared to the U.S. Prospectus Information Regarding the Fund 7 dollar, the fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward currency exchange contract, the fund, when required, will instruct its custodian bank to segregate cash or liquid high-grade securities in a separate account in an amount sufficient to cover its obligation under the contract. Those assets will be valued at market daily, and if the value of the segregated securities declines, additional cash or securities will be added so that the value of the account is not less than the amount of the fund's commitment. At any given time, no more than 10% of the fund's assets will be committed to a segregated account in connection with portfolio hedging transactions. Predicting the relative future values of currencies is very difficult, and there is no assurance that any attempt to protect the fund against adverse currency movements through the use of forward currency exchange contracts will be successful. In addition, the use of forward currency exchange contracts tends to limit the potential gains that might result from a positive change in the relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The portfolio turnover rate of the fund is shown in the financial information on page 5 of this Prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The manager believes that the rate of portfolio turnover is irrelevant when it determines a change is in order to achieve those objectives and, accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by the fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS The fund 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 fund. 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 repurchase 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. Since 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. The fund will limit repurchase agreement transactions to securities issued by the U.S. government, 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 fund's Board of Directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. 8 Information Regarding the Fund American Century Investments DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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 more accurately described 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. The fund may not 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 since 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: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates; o 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; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment; and o the risk that the counterparty will fail to perform its obligations. The Board of Directors has approved the manager'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 manager will report on fund activity in derivative securities to the Board of Directors as necessary. In addition, the Board will review the manager's policy for investments in derivative securities annually. PORTFOLIO LENDING In order to realize additional income, the fund may lend its portfolio securities to persons not affiliated with it and who are deemed to be creditworthy. Such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the fund must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral. The fund must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of the fund's shareholders. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time the commitment to purchase is made. Delivery of and payment for these securities typically occur Prospectus Information Regarding the Fund 9 15 to 45 days after the commitment to purchase. 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. A separate account for the fund consisting of cash or high-quality liquid debt securities in an amount at least equal to the when-issued commitments will be established and maintained with the custodian. No income will accrue to the fund prior to delivery. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors rather than the general public. Although Rule 144A securities are considered "restricted securities," they are not necessarily illiquid. With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission 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. The staff also acknowledges that, while the Board retains ultimate responsibility, it may delegate this function to the manager. Accordingly, the Board has established guidelines and procedures for determining the liquidity of Rule 144A securities and has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the manager. The Board retains the responsibility to monitor the implementation of the guidelines and procedures it has adopted. Since the secondary market for such securities is limited to certain qualified institutional investors, the liquidity of such securities may be limited accordingly and the fund may, from time to time, hold a Rule 144A security that is illiquid. In such an event, the fund's manager will consider appropriate remedies to minimize the effect on the fund's liquidity. The fund may not invest more than 15% of its assets in illiquid securities (securities that may not be sold within seven days at approximately the price used in determining the net asset value of fund shares). SHORT SALES The fund may engage in short sales if, at the time of the short sale, the fund owns or has the right to acquire an equal amount of the security being sold short at no additional cost. These transactions allow the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The fund may make a short sale 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 and for purposes of satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return, average annual total return, and yield. Performance data may be quoted separately for the Institutional Class and for the other classes offered by the fund. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced the fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 10 Information Regarding the Fund American Century Investments Yields are calculated according to accounting methods that are standardized in accordance with SEC rules for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared, on a relative basis, to other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. Fund performance may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. Prospectus Information Regarding the Fund 11 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS The Balanced Fund is a part of the American Century Investments family of mutual funds. Our family provides a full range of investment opportunities, from the aggressive equity growth funds in our Twentieth Century Group, to the fixed income funds in our Benham Group, to the moderate risk and specialty funds in our American Century Group. Please call 1-800-345-3533 for a brochure or prospectuses for the other funds in the American Century Investments family. INVESTING IN AMERICAN CENTURY The following section explains how to invest in American Century funds, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Investor Services Guide that you will receive when you open an account. If you own or are considering purchasing fund shares through a bank, broker-dealer or other financial intermediary, the following sections, as well as the information contained in our Investor Services Guide, may not apply to you. Please read "Minimum Investment," page 13 and "Customers of Banks, Broker-Dealers and Other Financial Intermediaries," page 17. HOW TO OPEN AN ACCOUNT To open an account, you must complete and sign an application, furnishing your taxpayer identification number. (You must also certify whether you are subject to withholding for failing to report income to the IRS.) Investments received without a certified taxpayer identification number will be returned. You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to American Century Investments. BY WIRE You may make your initial investment by wiring funds. To do so, call us or mail a completed application and provide your bank with the following information: o RECEIVING BANK AND ROUTING NUMBER: Commerce Bank, N.A. (101000019) o BENEFICIARY (BNF): American Century Services Corporation 4500 Main St., Kansas City, Missouri 64141 o BENEFICIARY ACCOUNT NUMBER (BNF ACCT): 2804918 o REFERENCE FOR BENEFICIARY (RFB): American Century account number into which you are investing. If more than one, leave blank and see Bank to Bank Information below. o ORIGINATOR TO BENEFICIARY (OBI): Name and address of owner of account into which you are investing. o BANK TO BANK INFORMATION (BBI OR FREE FORM TEXT): o Taxpayer identification or Social Security number. o If more than one account, account numbers and amount to be invested in each account. o Current tax year, previous tax year or rollover designation if an IRA. Specify whether IRA, SEP-IRA or SARSEP-IRA. BY EXCHANGE Call 1-800-345-3533 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another American Century account. See page 13 for more information on exchanges. IN PERSON If you prefer to work with a representative in person, please visit one of our Investors Centers, located at: 4500 Main Street Kansas City, Missouri 64111 12 How to Invest with American Century InvestmentsAmerican Century Investments 1665 Charleston Road Mountain View, California 94043 2000 S. Colorado Blvd. Denver, Colorado 80222 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see "Automatic Investment Plan," this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the investment slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without an investment slip.) BY TELEPHONE Once your account is open, you may make investments by telephone if you have authorized us (by choosing "Full Services" on your application) to draw on your bank account. You may call an Institutional Service Representative. BY WIRE You may make subsequent investments by wire. Follow the wire transfer instructions on page 12 and indicate your account number. IN PERSON You may make subsequent investments in person at one of our Investors Centers. The locations of our three Investors Centers are listed on pages 12 and 13. AUTOMATIC INVESTMENT PLAN You may elect on your application to make investments automatically by authorizing us to draw on your bank account regularly. Such investments must be at least the equivalent of $50 per month. You also may choose an automatic payroll or government direct deposit. If you are establishing a new account, check the appropriate box under "Automatic Investments" on your application to receive more information. If you would like to add a direct deposit to an existing account, please call one of our Institutional Service Representatives. MINIMUM INVESTMENT The minimum investment is $5 million ($3 million for endowments and foundations). If you invest with us through a bank, broker-dealer or other financial intermediary, the minimum investment requirement may be met by aggregating the investments of various clients of your financial intermediary. The minimum investment requirement may be waived if you or your financial intermediary, if applicable, has an aggregate investment in our family of funds of $10 million or more ($5 million for endowments and foundations). If your balance or the balance of your financial intermediary, if applicable, falls below the minimum investment requirements due to redemptions or exchanges, we reserve the right to convert your shares to Investor Class shares of the same fund. The Investor Class shares have a unified management fee that is 0.20% higher than the Institutional Class shares. HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER As long as you meet any minimum investment requirements, you may exchange your fund shares to our other funds up to six times per year per account. An exchange request will be processed as of the same day it is received, if it is received before the funds' net asset values are calculated, which is one hour prior to the close of the New York Stock Exchange for funds issued by the American Century Target Maturities Trust, and at the close of the Exchange for all of our other funds. See "When Share Price is Determined," page 18. For any single exchange, the shares of each fund being acquired must have a value of at least $100. However, we will allow investors to set up an Automatic Exchange Plan between any two funds in the amount of at least $50 per month. See our Investor Services Guide for further information about exchanges. If, in any 90-day period, the total of your exchanges and your redemptions from any one account exceeds the lesser of $250,000 or 1% of the fund's assets, fur- Prospectus How to Invest with American Century Investments 13 ther exchanges will be subject to special requirements to comply with our policy on large redemptions. See "Special Requirements for Large Redemptions," this page. BY MAIL You may direct us in writing to exchange your shares from one American Century account to another. For additional information, please see our Investor Services Guide. BY TELEPHONE You can make exchanges over the telephone if you have authorized us to accept telephone instructions. You can authorize this by selecting "Full Services" on your application or by calling one of our Institutional Service Representatives at 1-800-345-3533 to get the appropriate form. HOW TO REDEEM SHARES We will redeem or "buy back" your shares at any time. Redemptions will be made at the next net asset value determined after a complete redemption request is received. For large redemptions, please read "Special Requirements for Large Redemptions," this page. Please note that a request to redeem shares in an IRA or 403(b) plan must be accompanied by an executed IRS Form W4-P and a reason for withdrawal as specified by the IRS. BY MAIL Your written instructions to redeem shares may be made either by a redemption form, which we will send you upon request, or by a letter to us. Certain redemptions may require a signature guarantee. Please see "Signature Guarantee," page 15. BY TELEPHONE If you have authorized us to accept telephone instructions, you may redeem your shares by calling an Institutional Service Representative. BY CHECK-A-MONTH You may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check in an amount you choose (minimum $50). To set up a Check-A-Month plan, please call and request our Check-A-Month brochure. OTHER AUTOMATIC REDEMPTIONS You may elect to make redemptions automatically by authorizing us to send funds to you or to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Institutional Service Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Investor Services Guide. BY WIRE AND ACH You may authorize us to transmit redemption proceeds by wire or ACH. These services will be effective 15 days after we receive the authorization. Your bank will usually receive wired funds within 48 hours of transmission. Funds transferred by ACH may be received up to seven days after transmission. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS We have elected to be governed by Rule18f-1 under the Investment Company Act, which obligates the fund make certain redemptions in cash. This requirement to pay redemptions in cash applies to situations where one shareholder redeems, during any 90-day period, up to the lesser of $250,000 or 1% of the assets of the fund. Although redemptions in excess of this limitation will also normally be paid in cash, we reserve the right under unusual circumstances to honor these redemptions by making payment in whole or in part in readily marketable securities (a "redemption-in-kind"). 14 How to Invest with American Century Investments American Century Investments If payment is made in securities, the securities will be selected by the fund, will be valued in the same manner as they are in computing the fund's net asset value and will be provided without prior notice. If your redemption would exceed this limit and you would like to avoid being paid in securities, please provide us with an unconditional instruction to redeem at least 15 days prior to the date on which the redemption transaction is to occur. The instruction must specify the dollar amount or number of shares to be redeemed and the date of the transaction. This minimizes the effect of the redemption on the fund and its remaining shareholders. Despite the fund's right to redeem fund shares through a redemption-in-kind, we do not expect to exercise this option unless the fund has an unusually low level of cash to meet redemptions and/or is experiencing unusually strong demands for its cash. Such a demand might be caused, for example, by extreme market conditions that result in an abnormally high level of redemption requests concentrated in a short period of time. Absent these or similar circumstances, we expect redemptions in excess of $250,000 to be paid in cash in any fund with assets of more than $50 million if total redemptions from any one account in any 90-day period do not exceed one-half of 1% of the total assets of the fund. SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee would be required when: o redeeming more than $25,000; or o establishing or increasing a Check-A-Month or automatic transfer on an existing account. You can obtain a signature guarantee from a bank or trust company, credit union, broker-dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Investor Services Guide. We reserve the right to require a signature guarantee on any transaction, or to change this policy at any time. SPECIAL SHAREHOLDER SERVICES We offer several service options to make your account easier to manage. These are listed on the account application. Please make note of these options and elect the ones that are appropriate for you. Be aware that the "Full Services" option offers you the most flexibility. You will find more information about each of these service options in our Investor Services Guide. Our special shareholder services include: OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central time are effective the same day, and orders or cancellations received after 2 p.m. Central time are effective the next business day. Prospectus How to Invest With American Century Investments 15 TAX-QUALIFIED RETIREMENT PLANS This fund is available for your tax-deferred retirement plan. Call or write us and request the appropriate forms for: o Individual Retirement Accounts (IRAs); o 403(b) plans for employees of public school systems and non-profit organizations; or o Profit sharing plans and pension plans for corporations and other employers. You can also transfer your tax-deferred plan to us from another company or custodian. Call or write us for a Request to Transfer form. IMPORTANT POLICIES REGARDING YOUR INVESTMENTS Every account is subject to policies that could affect your investment. Please refer to the Investor Services Guide for further information about the policies discussed below, as well as further detail about the services we offer. (1) We reserve the right for any reason to suspend the offering of shares for a period of time, or to reject any specific purchase order (including purchases by exchange). Additionally, purchases may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. (2) We reserve the right to make changes to any stated investment requirements, including those that relate to purchases, transfers and redemptions. In addition, we may also alter, add to or terminate any investor services and privileges. Any changes may affect all shareholders or only certain series or classes of shareholders. (3) Shares being acquired must be qualified for sale in your state of residence. (4) Transactions requesting a specific price and date, other than open orders, will be refused. Once you have mailed or otherwise transmitted your transaction instructions to us, they may not be modified or canceled. (5) If a transaction request is made by a corporation, partnership, trust, fiduciary, agent or unincorporated association, we will require evidence satisfactory to us of the authority of the individual making the request. (6) We have established procedures designed to assure the authenticity of instructions received by telephone. These procedures include requesting personal identification from callers, recording telephone calls, and providing written confirmations of telephone transactions. These procedures are designed to protect shareholders from unauthorized or fraudulent instructions. If we do not employ reasonable procedures to confirm the genuineness of instructions, then we may be liable for losses due to unauthorized or fraudulent instructions. The company, its transfer agent and investment advisor will not be responsible for any loss due to instructions they reasonably believe are genuine. (7) All signatures should be exactly as the name appears in the registration. If the owner's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. (8) Unusual stock market conditions have in the past resulted in an increase in the number of shareholder telephone calls. If you experience difficulty in reaching us during such periods, you may send your transaction instructions by mail, express mail or courier service, or you may visit one of our Investors Centers. You may also use our Automated Information Line if you have requested and received an access code and are not attempting to redeem shares. (9) If you fail to provide us with the correct certified taxpayer identification number, we may reduce any redemption proceeds by $50 to cover the penalty the IRS will impose on us for failure to report your correct taxpayer identification number on information reports. (10) We will perform special inquiries on shareholder accounts. A research fee of $15 per hour may be applied. REPORTS TO SHAREHOLDERS At the end of each calendar quarter, we will send you a consolidated statement that summarizes all of your American Century holdings, as well as an individual statement for each fund you own that reflects all year-to-date activity in your account. You may request a statement of your account activity at any time. 16 How to Invest with American Century InvestmentsAmerican Century Investments With the exception of most automatic transactions, each time you invest, redeem, transfer or exchange shares, we will send you a confirmation of the transaction. See the Investor Services Guide for more detail. Carefully review all the information relating to transactions on your statements and confirmations to ensure that your instructions were acted on properly. Please notify us immediately in writing if there is an error. If you fail to provide notification of an error with reasonable promptness, i.e., within 30 days of non-automatic transactions or within 30 days of the date of your consolidated quarterly statement, in the case of automatic transactions, we will deem you to have ratified the transaction. No later than January 31 of each year, we will send you reports that you may use in completing your U.S. income tax return. See the Investor Services Guide for more information. Each year, we will send you an annual and a semiannual report relating to your fund, each of which is incorporated herein by reference. The annual report includes audited financial statements and a list of portfolio securities as of the fiscal year end. The semiannual report includes unaudited financial statements for the first six months of the fiscal year, as well as a list of portfolio securities at the end of the period. You also will receive an updated prospectus at least once each year. Please read these materials carefully as they will help you understand your fund. CUSTOMERS OF BANKS, BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES Information contained in our Investor Services Guide pertains to shareholders who invest directly with American Century rather than through a bank, broker-dealer or other financial intermediary. If you own or are considering purchasing fund shares through a bank, broker-dealer or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Service Representatives by calling 1-800-345-3533 to request information about our funds and services, to obtain a current prospectus or to get answers to any questions about our funds that you are unable to obtain through your financial intermediary. Prospectus How to Invest with American Century Investments 17 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. For all American Century funds, except funds issued by the American Century Target Maturities Trust, net asset value is determined as of the close of regular trading on each day that the New York Stock Exchange is open, usually 3 p.m. Central time. The net asset values for Target Maturities funds are determined one hour prior to the close of the Exchange. Investments and requests to redeem or exchange shares will receive the share price next determined after receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares of a fund received by us or our agents before the time as of which the net asset value is determined, are effective on, and will receive the price determined, that day. Investment, redemption and exchange requests received thereafter are effective on, and receive the price determined as of, the next day the Exchange is open. Investments are considered received only when payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the time as of which the net asset value of the fund is determined. Investments by telephone pursuant to your prior authorization to us to draw on your bank account are considered received at the time of your telephone call. Investment and transaction instructions received by us on any business day by mail prior to the time as of which the net asset value of the fund is determined, will receive that day's price. Investments and instructions received after that time will receive the price determined on the next business day. If you invest in fund shares through a bank, financial advisor or other financial intermediary, it is the responsibility of your financial intermediary to transmit your purchase, exchange and redemption requests to the fund's transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangements with the fund or the fund's distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of the fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors. 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 exchanged to dollars at the prevailing foreign exchange rate. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is 18 Additional Information You Should Know American Century Investments normally completed at various times before the close of business on each day that the New York Stock Exchange is open. If an event were to occur after the value of a security was established but before the net asset value per share was determined that was likely to materially change the net asset value, then that security would be valued at fair value as determined in accordance with procedures adopted by the Board of Directors. Trading of these securities in foreign markets may not take place on every New York Stock Exchange business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the New York Stock Exchange is not open and on which the fund's net asset value is not calculated. Therefore, such calculation does 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 fund's portfolio may be affected on days when shares of the fund may not be purchased or redeemed. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset value of the Investor Class of the fund is published in leading newspaper daily. The net asset value of the Institutional Class may be obtained by calling us. DISTRIBUTIONS Distributions from net investment income are declared and paid quarterly. Distributions from net realized securities gains, if any, are declared and paid once a year, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 generally will be reinvested. Distributions made shortly after a purchase by check or ACH may be held up to 15 days. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are at least 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our Investor Services Guide for further information regarding your distribution options. A distribution on shares of the fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are included in the value of your shares prior to distribution, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. See "Taxes," this page. TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income tax. TAX-DEFERRED ACCOUNTS If fund shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan (excluding participant-directed employer-sponsored retirement plans, which are ineligible to invest in Institutional Class shares), income and capital gains distributions paid by the fund will generally not be subject to current taxation, but will accumulate in your account on a tax-deferred basis. TAXABLE ACCOUNTS 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. Distributions from net long-term capital gains are taxable as long-term capital gains regardless of the length of time you have held the shares on which such distributions are paid. However, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Prospectus Additional Information You Should Know 19 Dividends and interest received by the 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 of investments by non-resident investors. The foreign taxes paid by the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter 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 fund shareholders 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. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in a taxable account, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions may also 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. If you have not complied with certain provisions of the Internal Revenue Code, we are required by federal law to withhold and remit to the IRS 31% of reportable payments (which may include dividends, capital gains distributions and redemptions). Those regulations require you to certify that the Social Security number or tax identification number you provide is correct and that you are not subject to 31% withholding for previous under-reporting to the IRS. You will be asked to make the appropriate certification on your application. Payments reported by us that omit your Social Security number or tax identification number will subject us to a penalty of $50, which will be charged against your account if you fail to provide the certification by the time the report is filed, and is not refundable. Redemption of shares of the fund (including redemptions 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. Assuming that shareholders hold such shares as a capital asset, the gain or loss will be a capital gain or loss and will generally be long term if shareholders have held such shares for a period of more than one year. If a loss is realized on the redemption of fund shares, the reinvestment in additional fund shares within 30 days before or after the redemption may be subject to the "wash sale" rules of the Code, resulting in a postponement of the recognition of such loss for federal income tax purposes. 20 Additional Information You Should Know American Century Investments MANAGEMENT INVESTMENT MANAGEMENT Under the laws of the State of Maryland, the Board of Directors is responsible for managing the business and affairs of the fund. Acting pursuant to an investment management agreement entered into with the fund, American Century Investment Management, Inc. serves as the investment manager of the fund. Its principal place of business is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. The manager has been providing investment services to investment companies and institutional clients, since it was founded in 1958. In June 1995, American Century Companies, Inc. ("ACC"), the parent of the manager, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of mutual funds, became a wholly owned subsidiary of ACC. Certain employees of BMC provide investment management services to funds managed by the manager, while certain employees of the manager provide investment management services to funds managed by BMC. The manager supervises and manages the investment portfolio of the fund and directs the purchase and sale of its investment securities. It utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the fund's portfolio as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing Balanced and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined American Century in 1981. He is a member of the team that manages the equity portion of Balanced. BRUCE A. WIMBERLY, Portfolio Manager, joined American Century in September 1994 as an Investment Analyst, a position he held until July 1996. At that time he was promoted to Portfolio Manager. Prior to joining American Century, Mr. Wimberly attended Kellogg Graduate School of Management, Northwestern University from August 1992 to August 1994, where he obtained his MBA degree. Prior to that he served as a Research Analyst for Frontier Capital Management Company, Boston, Massachusetts. Mr. Wimberly is a member of the team that manages the equity portion of Balanced. NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined American Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. He is a member of the team that manages the fixed income portion of Balanced. JEFFREY L. HOUSTON, Portfolio Manager, has worked for American Century since November 1990. He is a member of the team that manages the fixed income portion of Balanced. The activities of the manager are subject only to directions of the fund's Board of Directors. The manager pays all the expenses of the fund except brokerage, taxes, interest, fees and expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. For the services provided to the Institutional Class of the fund, the manager receives an annual fee of 0.80% of the average net assets of the fund. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product 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). CODE OF ETHICS The fund and the manager have adopted a Code of Ethics that restricts personal investing practices by employees of the manager and its affiliates. Among other provisions, the Code of Ethics requires that employees with access to information about the purchase or sale of securities in the fund's portfolio obtain preclearance before executing personal trades. Prospectus Additional Information You Should Know 21 With respect to portfolio managers and other investment personnel, the Code of Ethics prohibits acquisition of securities in an initial public offering, as well as profits derived from the purchase and sale of the same security within 60 calendar days. These provisions are designed to ensure that the interests of fund shareholders come before the interests of the people who manage the fund. TRANSFER AND ADMINISTRATIVE SERVICES American Century Services Corporation, 4500 Main Street, Kansas City, Missouri 64111, acts as transfer agent and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund, and is paid for such services by the manager. Certain recordkeeping and administrative services that would otherwise be performed by the transfer agent may be performed by an insurance company or other entity providing similar services for various retirement plans using shares of the fund as a funding medium, by broker-dealers and financial advisors for their customers investing in shares of American Century or by sponsors of multi mutual fund no- or low-transaction fee programs. Although there is no sales charge levied by the fund, transactions in shares of the fund may be executed by brokers or investment advisors who charge a transaction-based fee or other fee for their services. Such charges may vary among broker-dealers and financial advisors, but in all cases will be retained by the broker-dealer or financial advisor and not remitted to the fund or the investment manager. You should be aware of the fact that these transactions may be made directly with American Century without incurring such fees. 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 manager. The manager and transfer agent are both wholly owned by American Century Companies, Inc. James E. Stowers Jr., Chairman of the fund's Board of Directors, controls American Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by American Century Investment Services, Inc., a registered broker-dealer and an affiliate of the manager. The manager pays all expenses for promoting sales of, and distributing the fund shares offered by this Prospectus. The Institutional Class of shares does not pay any commissions or other fees to the distributor or to any other broker-dealers or financial intermediaries in connection with the distribution of fund shares. FURTHER INFORMATION ABOUT AMERICAN CENTURY American Century Mutual Funds, Inc., issuer of the fund, was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is American Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by telephone to 1-800-345-3533 (international calls: 816-531-5575). American Century Mutual Funds, Inc. issues 17 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. American Century offers four classes of the fund: an Investor Class, an Institutional Class, a Service Class, and the Advisor Class. The shares offered by this Prospectus are Institutional Class shares and have no up-front charges, commissions, or 12b-1 fees. The Investor Class is primarily made available to retail investors. The Service Class and Advisor Class are primarily offered to institutional investors or through institutional distribution channels, such as 22 Additional Information You Should Know American Century Investments employer-sponsored retirement plans or through banks, broker-dealers, insurance companies or other financial intermediaries. The other classes have different fees, expenses, and/or minimum investment requirements than the Institutional Class. The difference in the fee structures among the classes is the result of their separate arrangements for shareholder and distribution services and not the result of any difference in amounts charged by the manager for core investment advisory services. Accordingly, the core investment advisory expenses do not vary by class. Different fees and expenses will affect performance. For additional information concerning the Investor Class of shares, call one of our Investor Services Representatives at 1-800-345-2021. For information concerning the Service or Advisor Classes of shares, call one of our Institutional Service Representatives at 1-800-345-3533 or contact a sales representative or financial intermediary who offers those classes of shares. Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among the various classes are (a) each class may be subject to different expenses specific to that class, (b) each class has a different identifying designation or name, (c) each class has exclusive voting rights with respect to matters solely affecting such class, (d) each class may have different exchange privileges, and (e) the Institutional Class may provide for automatic conversion from that class into shares of the Investor Class of the same fund. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value applicable to such share on all questions, except for those matters which must be voted on separately by the series or class of shares affected. Matters affecting only one series or class are voted upon only by that series or class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes cast in an election of directors can elect all of the directors if they choose to do so, and in such event the holders of the remaining votes will not be able to elect any person or persons to the Board of Directors. Unless required by the Investment Company Act, it will not be necessary for the fund to hold annual meetings of shareholders. As a result, shareholders may not vote each year on the election of directors or the appointment of auditors. However, pursuant to the fund's bylaws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund to hold a special meeting of shareholders. We will assist in the communication with other shareholders. WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED. Prospectus Additional Information You Should Know 23 NOTES 24 Notes American Century Investments NOTES Notes 25 P.O. Box 419385 Kansas City, Missouri 64141-6385 Person-to-person assistance: 1-800-345-3533 or 816-531-5575 Telecommunications Device for the Deaf: 1-800-345-1833 or 816-753-0700 Fax: 816-340-4655 Internet: www.americancentury.com [american century logo] American Century(sm) 9703 [recycled logo] SH-BKT-7774 Recycled STATEMENT OF ADDITIONAL INFORMATION [american century logo] American Century(sm) MARCH 1, 1997 AMERICAN CENTURY MUTUAL FUNDS, INC. [FRONT COVER] STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 1997 AMERICAN CENTURY MUTUAL FUNDS, INC. This statement is not a prospectus but should be read in conjunction with American Century's current prospectuses dated March 1, 1997. Please retain this document for future reference. To obtain a prospectus, call American Century toll-free at 1-800-345-2021 (international calls: 816-531-5575), or write to P.O. Box 419200, Kansas City, Missouri 64141-6200. TABLE OF CONTENTS Investment Objectives of the Funds ............................2 Fundamental Policies of the Funds .............................2 Additional Investment Restrictions ............................4 Forward Currency Exchange Contracts ...........................6 An Explanation of Fixed Income Securities Ratings .............7 Short Sales ...................................................8 Portfolio Turnover ............................................8 Interest Rate Futures Contracts and Related Options ...........9 Municipal Leases .............................................13 Officers and Directors .......................................13 Management ...................................................15 Custodians ...................................................17 Independent Accountants ......................................17 Capital Stock ................................................17 Multiple Class Structure .....................................18 Brokerage ....................................................20 Performance Advertising ......................................21 Redemptions in Kind ..........................................23 Holidays .....................................................23 Financial Statements .........................................23 Statement of Additional Information 1 INVESTMENT OBJECTIVES OF THE FUNDS The investment objective of each fund comprising American Century Mutual Funds, Inc. is described on page 2 of the applicable prospectus. One feature of the various series of shares (funds) merits further explanation. As described in the Growth Funds Prospectus, the chief investment difference among Growth, Ultra and Vista, and between Select and Heritage, is the size of the fund, which affects the nature of the investments in the fund's portfolio. A smaller fund tends to be more responsive to changes in the value of its portfolio securities. For example, if a $1,000,000 fund buys $5,000 of stock which then doubles in value, the value of the fund increases by only one-half of 1%. However, if a $100,000 fund buys $5,000 of such stock which then doubles in value, the value of the fund increases by 5%, or at a rate 10 times as great. By the same token, if the value of such stock declines by one-half, the small fund would decline in value by 2.5%, while the larger fund would decline in value by only one-half of 1% or at a rate only one-tenth as great. Thus, a small fund with the same objective as a large fund, and similarly managed, likely will have a greater potential for profit and for loss as well. FUNDAMENTAL POLICIES OF THE FUNDS In achieving its objective, a fund must conform to certain fundamental policies that may not be changed without shareholder approval, as follows: SELECT, HERITAGE, GROWTH, ULTRA, VISTA, GIFTRUST, NEW OPPORTUNITIES AND THE EQUITY INVESTMENTS OF BALANCED In general, within the restrictions outlined herein, American Century has broad powers with respect to investing funds or holding them uninvested. Investments are varied according to what is judged advantageous under changing economic conditions. It is our 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. It is the manager's intention that each of these portfolios will generally consist of common stocks. However, the manager may invest the assets of each series in varying amounts in other instruments and in senior securities, such as bonds, debentures, preferred stocks and convertible issues, when such a course is deemed appropriate in order to attempt to attain its financial objective. Senior securities that, in the opinion of the manager, are high-grade issues may also be purchased for defensive purposes. [Note: The above statement of fundamental policy gives American Century authority to invest in securities other than common stocks and traditional debt and convertible issues. Though the funds have not made such investments in the past, the manager may invest in master limited partnerships (other than real estate partnerships) and royalty trusts which are traded on domestic stock exchanges when such investments are deemed appropriate for the attainment of the funds' investment objectives.] BALANCED The manager will invest approximately 60% of the Balanced portfolio in common stocks and the balance in fixed income securities. Common stock investments are described above. At least 80% of the fixed income assets will be invested in securities that are rated at the time of purchase by a nationally recognized statistical rating organization to be within the three highest categories. The fund may invest in securities of the United States government and its agencies and instrumentalities, corporate, sovereign government, municipal, mortgage-backed, and other asset-backed securities. It can be expected that management will invest from time to time in bonds and preferred stock convertible into common stock. CASH RESERVE The manager will invest the Cash Reserve portfolio in debt securities payable in United States currency. Such securities may be obligations issued or guaranteed by the United States government or its agencies and instrumentalities or obligations issued by corporations and others, including repurchase agreements, of such quality and with such maturities to permit Cash Reserve to be designated as a money market fund and to enable it to maintain a stable offering price per share. The fund operates pursuant to a rule under the Investment Company Act that permits valuation of portfolio securities on the basis of amortized cost. As required by the rule, the Board of Directors has 2 American Century Investments adopted procedures designed to stabilize, to the extent reasonably possible, the fund's price per share as computed for the purpose of sales and redemptions at $1.00. While the day-to-day operation of the fund has been delegated to the manager, the quality requirements established by the procedures limit investments to certain United States dollar-denominated instruments which the board of directors has determined present minimal credit risks and which 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 the fund's portfolio holdings at such intervals as are reasonable in light of current market conditions to determine whether the fund's net asset value calculated by using available market quotations deviates from the per-share value based on amortized cost. The procedures also prescribe the action to be taken if such deviation should occur. SHORT-TERM GOVERNMENT FUND AND INTERMEDIATE-TERM GOVERNMENT FUND The manager will invest the portfolios of Short-Term Government Fund and Intermediate-Term Government Fund in direct obligations of the United States, such as Treasury bills, Treasury notes and U.S. government bonds, that are supported by the full faith and credit of the United States. The manager may also invest in agencies and instrumentalities of the United States government that are established under the authority of an act of Congress. The securities of some of such agencies and instrumentalities are supported by the full faith and credit of the United States Treasury; others are supported by the right of the issuer to borrow from the Treasury; still others are supported only by the credit of the instrumentality. Such agencies and instrumentalities include, but are not limited to, the Government National Mortgage Association, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Student Loan Marketing Association, Federal Farm Credit Banks, Federal Home Loan Banks, and Resolution Funding Corporation. Purchase of such securities may be made outright or on a when-issued basis and may be made subject to repurchase agreements. LIMITED-TERM BOND, INTERMEDIATE-TERM BOND AND BENHAM BOND The manager will invest the portfolios of the corporate bond funds in high- and medium-grade debt securities payable in United States currency. The funds may invest in securities that, at the time of purchase, are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the management, as follows: short-term notes within the two highest categories; corporate, sovereign government and municipal bonds within the four highest categories; securities of the United States government and its agencies and instrumentalities; and other types of securities rated at least P-2 by Moody's or A-2 by S&P. The funds may also purchase securities under repurchase agreements as described in the prospectus and purchase and sell interest rate futures contracts and related options. See "Interest Rate Futures Contracts and Related Options," page 9. LIMITED-TERM TAX-EXEMPT, INTERMEDIATE-TERM TAX-EXEMPT AND LONG-TERM TAX-EXEMPT The manager will invest the tax-exempt portfolios in high- and medium-grade securities. At least 80% of each fund's net assets will be invested in securities whose income is not subject to federal income taxes, including the alternative minimum tax. The two principal classifications of tax-exempt securities are notes and bonds. Tax-exempt notes are of short maturity, generally less than three years, and are issued to provide for short-term capital needs. These include tax anticipation notes and revenue anticipation notes, among others, as well as tax-exempt commercial paper. Tax-exempt bonds, which meet long-term capital needs, generally have maturities longer than one year. The two categories of tax-exempt bonds, general obligation and revenue, may be held by the funds in any proportion. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenue derived from a project or facility or from the proceeds of a specific revenue source, but not from the general taxing power. Industrial development revenue bonds are a type of revenue bond secured by payments from a private user, and generally do not Statement of Additional Information 3 enjoy a call upon the resources of the municipality that issued the bond on behalf of the user. The funds may invest in fixed-, floating- and variable-rate securities. Fixed-rate securities pay interest at the fixed rate until maturity. Floating- and variable-rate securities normally have a stated maturity in excess of one year, but may have a provision permitting the holder to demand payment of principal and interest upon not more than seven days' notice. Floating rates of interest are tied to a percentage of a designated base rate, such as rates on Treasury bills or the prime rate at a major bank, and change whenever the designated rate changes. Variable-rate securities provide for a periodic adjustment in the rate. For the purpose of determining the maturity of an individual security or the average weighted portfolio maturity of one of the funds, the manager shall consider the maturity to be the shorter of final maturity, the remaining expected average life of a sinking fund bond, the remaining time until a mandatory put date, the time until payment as the result of exercising a put or demand-for-payment option, or the remaining time until the pre-refunding payment date of a security whose redemption on a call date in advance of final maturity is assured through contractual agreement and with high-quality collateral in escrow. The funds may invest in securities that, at the time of purchase, are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the management, as follows: short-term notes within the two highest categories, bonds within the four highest categories, and other types of securities rated at least P-2 by Moody's or A-2 by S&P. The funds may invest more than 25% of their assets in industrial development revenue bonds. Each of the funds may invest in interest rate futures contracts and related options. See "Interest Rate Futures Contracts and Related Options," page 9. BENHAM BOND, LIMITED-TERM TAX-EXEMPT, INTERMEDIATE-TERM TAX-EXEMPT AND LONG-TERM TAX-EXEMPT Benham Bond, Limited-Term Tax-Exempt, Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt (the funds) may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts for the purpose of hedging against (i) declines or possible declines in the market value of debt securities or (ii) inability to participate in advances in the market values of debt securities at times when the funds are not fully invested in long-term debt securities; provided that, the funds may not purchase or sell futures contracts or related options if immediately thereafter the sum of the amount of margin deposits on a fund's existing futures positions and premiums paid for related options would exceed 5% of the fund's assets. ADDITIONAL INVESTMENT RESTRICTIONS Additional fundamental policies that may be changed only with shareholder approval provide that, with the exception of New Opportunities, each series of shares: (1) Shall not invest more than 15% of its assets in illiquid investments, except for any fund intended to be a money market fund, which shall not invest more than 10% of its assets in illiquid investments. (2) Shall not invest in the securities of companies that, including predecessors, have a record of less than three years of continuous operation. (3) Shall not lend its portfolio securities except to unaffiliated persons, and is subject to the rules and regulations adopted under the Investment Company Act. No such rules and regulations have been promulgated, but it is the corporation's policy that such loans must be secured continuously by cash collateral maintained on a current basis in an amount at least equal to the market value of the securities loaned, or by irrevocable letters of credit. During the existence of the loan, the corporation must continue to receive the equivalent of the interest and dividends paid by the issuer on the securities loaned and interest on the investment of the collateral; the corporation must have the right to call the loan and obtain the securities loaned at any time on five days' notice, including the right to call the loan to enable the corporation to vote the securities. To comply with the regulations of certain state secur- 4 American Century Investments ities administrators, such loans may not exceed one-third of the corporation's net assets taken at market. It is the policy of the corporation not to permit interest on loaned securities of any series to exceed 10% of the annual gross income of that series (without offset for realized capital gains). (4) Shall not purchase the security of any one issuer if such purchase would cause more than 5% of the corporation's assets at market to be invested in the securities of such issuer, except United States government securities, or if the purchase would cause more than 10% of the outstanding voting securities of any one issuer to be held in the corporation's portfolio. (5) Shall not invest for control or for management, or concentrate its investment in a particular company or a particular industry. No more than 25% of the assets of each series, exclusive of cash and government securities, will be invested in securities of any one industry. The corporation's policy in this respect includes the statement, "The management's definition of the phrase `any one industry' shall be conclusive unless clearly unreasonable." That statement may be ineffective because it may be an attempt to waive a provision of the law, and such waivers are void. (6) Shall not buy securities on margin nor sell short (unless it owns, or by virtue of its ownership of, other securities has the right to obtain securities equivalent in kind and amount to the securities sold); however, the corporation's funds may make margin deposits in connection with the use of any financial instrument or any transaction in securities permitted by their fundamental policies. (7) Shall not invest in the securities of other investment companies except by purchases in the open market involving only customary brokers' commissions and no sales charges. (8) Shall not issue any senior security. (9) Shall not underwrite any securities. (10) Shall not purchase or sell real estate. (In the opinion of management, this restriction will not preclude the corporation from investing in securities of corporations that deal in real estate.) (11) Shall not purchase or sell commodities or commodity contracts; except that Limited-Term Bond, Intermediate-Term Bond, Benham Bond, Limited-Term Tax-Exempt, Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt may, for non-speculative purposes, buy or sell interest rate futures contracts on debt securities (debt futures and bond index futures) and related options. (12) Shall not borrow any money with respect to any series of its stock, except in an amount not in excess of 5% of the total assets of the series, and then only for emergency and extraordinary purposes; this does not prohibit the escrow and collateral arrangements in connection with investment in interest rate futures contracts and related options by Limited-Term Bond, Intermediate-Term Bond, Benham Bond, Limited-Term Tax-Exempt, Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt. Paragraphs 3, 5, 8 and 9 shall also apply as fundamental policies of New Opportunities. Paragraphs 1, 2, 6, 7, 10, 11 and 12 shall also apply to New Opportunities, but shall not be considered fundamental policies. Paragraph 4 shall apply to New Opportunities with respect to 75% of its portfolio and shall not be considered a fundamental policy. The Investment Company Act imposes certain additional restrictions upon acquisition by the corporation of securities issued by insurance companies, brokers, dealers, underwriters or investment advisers, and upon transactions with affiliated persons as therein defined. It also defines and forbids the creation of cross and circular ownership. Neither the Securities and Exchange Commission nor any other agency of the federal government participates in or supervises the corporation's management or its investment practices or policies. The Investment Company Act also provides that the funds may not invest more than 25% of their assets in the securities of issuers engaged in a single industry. In determining industry groups for purposes of this standard, the Securities and Exchange Commission ordinarily uses the Standard Industry Classification codes developed by the United States Office of Management and Budget. In the interest of ensuring adequate diversification, the funds monitor industry concentration Statement of Additional Information 5 using a more restrictive list of industry groups than that recommended by the SEC. The funds believe that these classifications are reasonable and are not so broad that the primary economic characteristics of the companies in a single class are materially different. The use of these restrictive industry classifications may, however, cause the funds to forego investment possibilities which may otherwise be available to them under the Investment Company Act. Neither the SEC nor any other agency of the federal or state government participates in or supervise the funds' management or their investment practices or policies. FORWARD CURRENCY EXCHANGE CONTRACTS The funds conduct their foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward foreign currency exchange contracts to purchase or sell foreign currencies. The funds expect to use forward contracts under two circumstances: (1) When the manager wishes 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 manager believes that the currency of a particular foreign country may suffer a substantial decline against the U.S. dollar, a fund would be able to enter into a forward contract to sell foreign currency for a fixed U.S. dollar amount approximating the value of some or all of its fund's portfolio securities either denominated in, or whose value is tied to, such foreign currency. As to 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 at the subject foreign currency. Under the second circumstance, when the manager believes that the currency of a particular country may suffer a substantial decline relative to the U.S. dollar, a fund could enter into a 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 place cash or high-grade liquid securities in a separate account with its custodian in an amount sufficient to cover its obligation under the contract. If the value of the securities placed in the separate account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account equals the amount of the fund's commitments with respect to such contracts. The precise matching of forward contracts in the amounts and values of securities involved would not generally be possible since 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 manager does not intend to enter into such contracts on a regular basis. Normally, consideration of the prospect for currency parities will be incorporated into the long-term investment decisions made with respect to overall diversification strategies. However, the manager believes that it is important to have flexibility to enter into such forward contracts when it determines that a fund's best interests may be served. Generally, a fund will not enter into a forward contract with a term of greater than one year. At the maturity of the forward contract, the fund may either sell the portfolio security and make delivery of the foreign currency, or it may retain the security and terminate the obligation to deliver the foreign currency by purchasing an "offsetting" forward contract with the same currency trader obligating the fund to purchase, on the same maturity date, the same amount of the foreign currency. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the forward contract. Accordingly, it may be 6 American Century Investments 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. AN EXPLANATION OF FIXED INCOME SECURITIES RATINGS As described in the applicable prospectus, certain of the funds will have, at any given time, investments in fixed income securities. Those investments, however, are subject to certain credit quality restrictions, as noted in the applicable prospectus. The following is a description of the rating categories referenced in the prospectus fund disclosure. The following summarizes the highest four ratings used by Standard & Poor's Corporation for bonds: AAA - This is the highest rating assigned by S&P to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal. AA - Debt rated AA is considered to have a very strong capacity to pay interest and repay principal and differs from AAA issues only in a small degree. A - Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. 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. To provide more detailed indications of credit quality, the AA, A and BBB ratings may be modified by the addition of a plus or minus sign to show relative standing within these major rating categories. Commercial paper rated A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted A-1+. Capacity for timely payment on commercial paper rated A-2 is satisfactory, but the relative degree of safety is not as high as for issues designated A-1. The rating SP-1 is the highest rating assigned by S&P to municipal notes and indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are given a plus (+) designation. The following summarizes the highest four ratings used by Moody's Investors Service, Inc. for bonds: Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large, or by an exceptionally stable, margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A - Debt which is rated A possesses many favorable investment attributes and is to be considered as an upper medium-grade obligation. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa - Debt which is rated Baa is considered as a medium-grade obligation, i.e., it is neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such debt lacks outstanding investment characteristics and in fact has speculative characteristics as well. Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated Aa, A and Baa. The modifier 1 indicates that the bond being rated ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 Statement of Additional Information 7 indicates that the bond ranks in the lower end of its generic rating category. The rating Prime-1 or P-1 is the highest commercial paper rating assigned by Moody's. Issuers rated Prime-1 (or related supporting institutions) are considered to have a superior capacity for repayment of short-term promissory obligations. Issuers rated Prime-2 or P-2 (or related supporting institutions) are considered to have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriated, may be more affected by external conditions. Ample alternate liquidity is maintained. The following summarized the highest rating used by Moody's for short-term notes and variable rate demand obligations: MIG-1; VMIG-1 - Obligations bearing these designations are of the best quality, enjoying strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. SHORT SALES The common stock funds and the Balanced Fund may engage in short sales if, at the time of the short sale, the fund owns or has the right to acquire an equal amount of the security being sold short at no additional cost. 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 and for purposes of satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code. In such a case, any future losses in the fund's long position should be reduced by a gain in the short position. The extent to which such gains or losses are reduced would depend upon the amount of the security sold short relative to the amount the fund owns. 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 TURNOVER The portfolio turnover rates of the funds are shown in the Financial Highlights table in the prospectuses. With respect to each series of shares, the manager will purchase and sell securities without regard to the length of time the security has been held and, accordingly, it can be expected that the rate of portfolio turnover may be substantial. The funds intend to purchase a given security whenever the manager believes it will contribute to the stated objective of the series, even if the same security has only recently been sold. In selling a given security, the manager keeps in mind that (1) profits from sales of securities held less than three months must be limited in order to meet the requirements of Subchapter M of the Internal Revenue Code, and (2) profits from sales of securities are taxed to shareholders as ordinary income. Subject to those considerations, the corporation will sell a given security, no matter for how long or for how short a period it has been held in the portfolio, and no matter whether the sale is at a gain or at a loss, if the manager believes that it is not fulfilling its purpose, either because, among other things, it did not live up to the manager's expectations, or because it may be replaced with another security holding greater promise, or because it has reached its optimum potential, or because of a change in the circumstances of a particular company 8 American Century Investments or industry or in general economic conditions, or because of some combination of such reasons. When a general decline in security prices is anticipated, the equity funds may decrease or eliminate entirely their equity positions and increase their cash positions, and when a rise in price levels is anticipated, the equity funds may increase their equity positions and decrease their cash positions. However, these funds have followed the practice of remaining essentially fully invested in equity securities. Since investment decisions are based on the anticipated contribution of the security in question to the corporation's objectives, the manager believes that the rate of portfolio turnover is irrelevant when it believes a change is in order to achieve those objectives, and the corporation's annual portfolio turnover rate cannot be anticipated and may be comparatively high. This disclosure regarding portfolio turnover is a statement of fundamental policy and may be changed only by a vote of the shareholders. Since the manager does not take portfolio turnover rate into account in making investment decisions, (1) the manager has no intention of accomplishing any particular rate of portfolio turnover, whether high or low, and (2) the portfolio turnover rates in the past should not be considered as a representation of the rates which will be attained in the future. INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS Limited-Term Bond, Intermediate-Term Bond, Benham Bond, Limited-Term Tax-Exempt, Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt (the funds) may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts. A fund will not purchase or sell futures contracts and options thereon for speculative purposes but rather only for the purpose of hedging against changes in the market value of its portfolio securities or changes in the market value of securities that American Century Investment Management, Inc. (manager) anticipates that it may wish to include in the portfolio of a fund. A fund may sell a future or write a call or purchase a put on a future if the manager anticipates that a general market or market sector decline may adversely affect the market value of any or all of the fund's holdings. A fund may buy a future or purchase a call or sell a put on a future if the manager anticipates a significant market advance in the type of securities it intends to purchase for the fund's portfolio at a time when the fund is not invested in debt securities to the extent permitted by its investment policies. A fund may purchase a future or a call option thereon as a temporary substitute for the purchase of individual securities which may then be purchased in an orderly fashion. As securities are purchased, corresponding futures positions would be terminated by offsetting sales. The "sale" of a debt future means the acquisition by the fund of an obligation to deliver the related debt securities (i.e., those called for by the contract) at a specified price on a specified date. The "purchase" of a debt future means the acquisition by the fund of an obligation to acquire the related debt securities at a specified time on a specified date. The "sale" of a bond index future means the acquisition by the fund of an obligation to deliver an amount of cash equal to a specified dollar amount times the difference between the index value at the close of the last trading day of the future and the price at which the future is originally struck. No physical delivery of the bonds making up the index is expected to be made. The "purchase" of a bond index future means the acquisition by the fund of an obligation to take delivery of such an amount of cash. Unlike when the fund purchases or sells a bond, no price is paid or received by the fund upon the purchase or sale of 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. Cash held in the margin account is not income producing. Subsequent payments, called variation margin, to and from the broker, will be made on a daily basis as the price of the underlying debt securities or index fluctuates, making the future more or less valuable, a process known as mark to the market. Changes in variation margin are recorded by the fund as unrealized gains or losses. At any time prior to expiration Statement of Additional Information 9 of the future, the fund may elect to close the position by taking an opposite position that will operate to terminate its position in the future. A final determination of variation margin is then made; additional cash is required to be paid by or released to the fund and the fund realizes a loss or a gain. When a fund writes an option on a futures contract it becomes obligated, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time during the term of the option. If a fund has written a call, it becomes obligated to assume a "long" position in a futures contract, which means that it is required to take delivery of the underlying securities. If it has written a put, it is obligated to assume a "short" position in a futures contract, which means that it is required to deliver the underlying securities. When the fund purchases an option on a futures contract it acquires a right in return for the premium it pays to assume a position in a futures contract. If a fund writes an option on a futures contract it will be required to deposit initial and variation margin pursuant to requirements similar to those applicable to futures contracts. Premiums received from the writing of an option on a future are included in the initial margin deposit. For options sold, the fund will segregate cash or high-quality debt securities equal to the value of securities underlying the option unless the option is otherwise covered. A fund will deposit in a segregated account with its custodian bank high-quality debt obligations maturing in one year or less, or cash, in an amount equal to the fluctuating market value of long futures contracts it has purchased less any margin deposited on its long position. It may hold cash or acquire such debt obligations for the purpose of making these deposits. Changes in variation margin are recorded by a fund as unrealized gains or losses. Initial margin payments will be deposited in the fund's custodian bank in an account registered in the broker's name; access to the assets in that account may be made by the broker only under specified conditions. At any time prior to expiration of a futures contract or an option thereon, a fund may elect to close the position by taking an opposite position that will operate to terminate its position in the futures contract or option. A final determination of variation margin is made at that time; additional cash is required to be paid by or released to it and it realizes a loss or gain. Although futures contracts by their terms call for the actual delivery or acquisition of the underlying securities or cash, in most cases the contractual obligation is so fulfilled without having to make or take delivery. The funds do not intend to make or take delivery of the underlying obligation. All transactions in futures contracts and options thereon are made, offset or fulfilled through a clearinghouse associated with the exchange on which the instruments are traded. Although the funds intend to buy and sell futures contracts only on exchanges where there appears to be an active secondary market, there is no assurance that a liquid secondary market will exist for any particular future at any particular time. In such event, it may not be possible to close a futures contract position. Similar market liquidity risks occur with respect to options. The use of futures contracts and options thereon to attempt to protect against the market risk of a decline in the value of portfolio securities is referred to as having a "short futures position." The use of futures contracts and options thereon to attempt to protect against the market risk that a fund might not be fully invested at a time when the value of the securities in which it invests is increasing is referred to as having a "long futures position." The funds must operate within certain restrictions as to long and short positions in futures contracts and options thereon under a rule (CFTC Rule) adopted by the Commodity Futures Trading Commission under the Commodity Exchange Act to be eligible for the exclusion provided by the CFTC Rule from registration by the fund with the CFTC as a "commodity pool operator" (as defined under the CEA), and must represent to the CFTC that it will operate within such restrictions. Under these restrictions a fund will not, as to any positions, whether long, short or a combination thereof, enter into futures contracts and options thereon for which the aggregate initial margins and premiums exceed 5% of the fair market value of the fund's assets after taking into account unrealized profits and losses on options the fund has entered into; in the case of an option that is "in-the-money" (as defined under the CEA), the in-the-money 10 American Century Investments amount may be excluded in computing such 5%. (In general, a call option on a futures contract is in-the-money if the value of the future exceeds the strike, i.e., exercise, price of the call; a put option on a futures contract is in-the-money if the value of the futures contract that is the subject of the put is exceeded by the strike price of the put.) Under the restrictions, a fund also must, as to short positions, use futures contracts and options thereon solely for bona fide hedging purposes within the meaning and intent of the applicable provisions under the CEA. As to its long positions that are used as part of a fund's portfolio strategy and are incidental to the fund's activities in the underlying cash market, the "underlying commodity value" (see below) of the fund's futures contract and options thereon must not exceed the sum of (i) cash set aside in an identifiable manner, or short-term U.S. debt obligations or other U.S. dollar-denominated, high-quality, short-term money market instruments so set aside, plus any funds deposited as margin; (ii) cash proceeds from existing investments due in 30 days; and (iii) accrued profits held at the futures commission merchant. [There are described above the segregated accounts that a fund must maintain with its custodian bank as to its options and futures contracts activities due to Securities and Exchange Commission requirements. The fund will, as to its long positions, be required to abide by the more restrictive of these SEC and CFTC requirements.] The underlying commodity value of a futures contract is computed by multiplying the size (dollar amount) of the futures contract by the daily settlement price of the futures contract. For an option on a futures contract, that value is the underlying commodity value of the future underlying the option. Since futures contracts and options thereon can replicate movements in the cash markets for the securities in which a fund invests without the large cash investments required for dealing in such markets, they may subject a fund to greater and more volatile risks than might otherwise be the case. The principal risks related to the use of such instruments are (i) the offsetting correlation between movements in the market price of the portfolio investments (held or intended) being hedged and in the price of the futures contract or option may be imperfect; (ii) possible lack of a liquid secondary market for closing out futures or options positions; (iii) the need for additional portfolio management skills and techniques; (iv) losses due to unanticipated market price movements; and (v) the bankruptcy or failure of a futures commission merchant holding margin deposits made by the funds and the funds' inability to obtain repayment of all or part of such deposits. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the security being hedged. Such equal price changes are not always possible because the investment underlying the hedging instrument may not be the same investment that is being hedged. The manager will attempt to create a closely correlated hedge, but hedging activity may not be completely successful in eliminating market value fluctuation. The ordinary spreads between prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to the following factors which may create distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into off-setting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of general interest trends by the manager may still not result in a successful transaction. The manager may be incorrect in its expectations as to the extent of various interest rate movements or the time span within which the movements take place. The risk of imperfect correlation between movements in the price of a bond index future and movements in the price of the securities that are the subject of the hedge increases as the composition of a fund's portfolio diverges from the securities included in the Statement of Additional Information 11 applicable index. The price of the bond index future may move more than or less than the price of the securities being hedged. If the price of the bond index future moves less than the price of the securities that are the subject of the hedge, the hedge will not be fully effective, but if the price of the securities being hedged has moved in an unfavorable direction, the fund would be in a better position than if it had not hedged at all. If the price of the securities being hedged has moved in a favorable direction, this advantage will be partially offset by the futures contract. If the price of the futures contract moves more than the price of the security, a fund will experience either a loss or a gain on the futures contract that will not be completely offset by movements in the price of the securities that are the subject of the hedge. To compensate for the imperfect correlation of movements in the price of the securities being hedged and movements in the price of the bond index futures, a fund may buy or sell bond index futures in a greater dollar amount than the dollar amount of securities being hedged if the historical volatility of the prices of such securities being hedged is less than the historical volatility of the bond index. It is also possible that, where a fund has sold futures contracts to hedge its securities against a decline in the market, the market may advance and the value of securities held in the portfolio may decline. If this occurred, a fund would lose money on the futures contract and also experience a decline in value in its portfolio securities. However, while this could occur for a brief period or to a very small degree, over time the value of a portfolio of debt securities will tend to move in the same direction as the market indexes upon which the futures contracts are based. Where bond index futures are purchased to hedge against a possible increase in the price of bonds before a fund is able to invest in securities in an orderly fashion, it is possible that the market may decline instead; if the fund then concludes not to invest in securities at that time because of concern as to possible further market decline or for other reasons, it will realize a loss on the futures contract that is not offset by a reduction in the price of the securities it had anticipated purchasing. The risks of investment in options on bond indexes may be greater than options on securities. Because exercises of bond index options are settled in cash, when a fund writes a call on a bond index it cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. A fund can offset some of the risk of its writing position by holding a portfolio of bonds similar to those on which the underlying index is based. However, a fund cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities as the underlying index and, as a result, bears a risk that the value of the securities held will vary from the value of the index. Even if a fund could assemble a portfolio that exactly reproduced the composition of the underlying index, it still would not be fully covered from a risk standpoint because of the "timing risk" inherent in writing index options. When an index option is exercised, the amount of cash that the holder is entitled to receive is determined by the difference between the exercise price and the closing index level on the date when the option is exercised. As with other kinds of options, a fund, as the call writer, will not learn that it has been assigned until the next business day at the earliest. The time lag between exercise and notice of assignment poses no risk for the writer of a covered call on a specific underlying security because there, the writer's obligation is to deliver the underlying security, not to pay its value as of a fixed time in the past. So long as the writer already owns the underlying security, it can satisfy its settlement obligations by simply delivering it, and the risk that its value may have declined since the exercise date is borne by the exercising holder. In contrast, even if the writer of an index call holds securities that exactly match the composition of the underlying index, it will not be able to satisfy its assignment obligations by delivering those securities against payment of the exercise price. Instead, it will be required to pay cash in an amount based on the closing index value of the exercise date; and by the time it learns that it has been assigned, the index may have declined with a corresponding decline in the value of its portfolio. This "timing risk" is an inherent limitation on the ability of index call writers to cover their risk exposure by holding securities positions. If a fund has purchased an index option and exercises it before the closing index value for that day is available, it runs the risk that the level of the underlying 12 American Century Investments index may subsequently change. If such a change causes the exercised option to fall out-of-the-money, the fund exercising the option must pay the difference between the closing index value and the exercise price of the option (times the applicable multiplier) to the assigned writer. MUNICIPAL LEASES The tax-exempt funds may invest in municipal lease obligations and certificates of participation in such obligations (collectively, lease obligations). A lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, although the lease obligation is ordinarily backed by the municipality's covenant to budget for the payments due under the lease obligation. Certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease obligation payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In evaluating a potential investment in such a lease obligation, management will consider: (i) the credit quality of the obligor, (ii) whether the underlying property is essential to a governmental function, and (iii) whether the lease obligation contains covenants prohibiting the obligor from substituting similar property if the obligor fails to make appropriations for the lease obligation. Municipal lease obligations may be determined to be liquid in accordance with the guidelines established by the funds' board of directors for purposes of complying with the funds' investment restrictions. In determining the liquidity of a lease obligation, the manager will consider: (1) the frequency of trades and quotes for the lease obligation, (2) the number of dealers willing to purchase or sell the lease obligation and the number of other potential purchasers, (3) dealer undertakings to make a market in the lease obligation, (4) the nature of the marketplace trades, including the time needed to dispose of the lease obligation, the method of soliciting offers, and the mechanics of transfer, (5) whether the lease obligation is of a size that will be attractive to institutional investors, (6) whether the lease obligation contains a non-appropriation clause and the likelihood that the obligor will fail to make an appropriation therefore, and (7) such other factors as the manager may determine to be relevant to such determination. OFFICERS AND DIRECTORS The principal officers and directors of the corporation, their principal business experience during the past five years, and their affiliations with the fund's investment manager, American Century Investment Management, Inc. and its transfer agent, American Century Services Corporation, are listed below. Unless otherwise noted, the business address of each director and officer is American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. All persons named as officers of the Corporation also serve in similar capacities for other funds advised by the manager. Those directors that are "interested persons" as defined in the Investment Company Act of 1940 are indicated by an asterisk(*). JAMES E. STOWERS JR.,* Chairman of the Board and Director; Chairman of the Board, Director and controlling shareholder of American Century Companies, Inc., parent corporation of American Century Investment Management, Inc. and American Century Services Corporation; Chairman of the Board and Director of American Century Investment Management, Inc. and American Century Services Corporation; father of James E. Stowers III. JAMES E. STOWERS III,* President, Chief Executive Officer and Director; President, Chief Executive Officer and Director, American Century Companies, Inc., American Century Investment Management, Inc. and American Century Services Corporation. THOMAS A. BROWN, Director; 2029 Wyandotte, Kansas City, Missouri; Chief Executive Officer, Associated Bearing Company, a corporation engaged in the sale of bearings and power transmission products. ROBERT W. DOERING, M.D., Director; 6420 Prospect, Kansas City, Missouri; general surgeon. D. D. (DEL) HOCK, Director; 1225 Seventeenth Street #900, Denver, Colorado; Chairman, President and Chief Executive Officer, Public Service Company of Colorado. Statement of Additional Information 13 LINSLEY L. LUNDGAARD, Vice Chairman of the Board and Director; 18648 White Wing Drive, Rio Verde, Arizona; retired; formerly Vice President and National Sales Manager, Flour Milling Division, Cargill, Inc. DONALD H. PRATT, Director; P.O. Box 419917, Kansas City, Missouri; President, Butler Manufacturing Company. LLOYD T. SILVER JR., Director; 2300 West 70th Terrace, Mission Hills, Kansas; President, LSC, Inc., manufacturer's representative. M. JEANNINE STRANDJORD, Director; 908 West 121st Street, Kansas City, Missouri; Senior Vice President and Treasurer, Sprint Corporation. WILLIAM M. LYONS, Executive Vice President, Chief Operating Officer, Secretary and General Counsel; Executive Vice President, Chief Operating Officer and General Counsel, American Century Companies, Inc., American Century Investment Management, Inc. and American Century Services Corporation. ROBERT T. JACKSON, Executive Vice President and Principal Financial Officer; Executive Vice President and Treasurer, American Century Companies, Inc., American Century Investment Management, Inc. and American Century Services Corporation; formerly Executive Vice President, Kemper Corporation. MARYANNE ROEPKE, CPA, Vice President, Treasurer and Principal Accounting Officer; Vice President, American Century Services Corporation. PATRICK A. LOOBY, Vice President; Vice President, American Century Services Corporation. MERELE A. MAY, Controller. C. JEAN WADE, CPA, Controller; formerly, accountant, Baird, Kurtz & Dobson. The Board of Directors has established four standing committees, the Executive Committee, the Audit Committee, the Compliance Committee and the Nominating Committee. Messrs. Stowers Jr., Stowers III, and Lundgaard constitute the Executive Committee of the Board of Directors. The committee performs the functions of the Board of Directors between meetings of the Board, subject to the limitations on its power set out in the Maryland General Corporation Law, and except for matters required by the Investment Company Act to be acted upon by the whole Board. Messrs. Lundgaard (chairman), Doering and Hock and Ms. Strandjord constitute the Audit Committee. The functions of the Audit Committee include recommending the engagement of the funds' independent accountants, reviewing the arrangements for and scope of the annual audit, reviewing comments made by the independent accountants with respect to internal controls and the considerations given or the corrective action taken by management, and reviewing nonaudit services provided by the independent accountants. Messrs. Brown (chairman), Pratt and Silver constitute the Compliance Committee. The functions of the Compliance Committee include reviewing the results of the funds' compliance testing program, reviewing quarterly reports from the manager to the Board regarding various compliance matters and monitoring the implementation of the funds' Code of Ethics, including violations thereof. The Nominating Committee has as its principal role the consideration and recommendation of individuals for nomination as directors. The names of potential director candidates are drawn from a number of sources, including recommendations from members of the Board, management and shareholders. This committee also reviews and makes recommendations to the Board with respect to the composition of Board committees and other Board-related matters, including its organization, size, composition, responsibilities, functions and compensation. The members of the nominating committee are Messrs. Pratt (Chairman), Lundgaard and Stowers III. The Directors of the corporation also serve as Directors for other funds advised by the manager. Each Director who is not an "interested person" as defined in the Investment Company Act receives for service as a member of the Board of all Twentieth Century investment companies an annual director's fee of $44,000, and an additional fee of $1,000 per regular Board meeting attended and $500 per special Board meeting and committee meeting attended. In addition, those Directors who are not "interested persons" and serve as chairman of a committee of the Board of Directors receive an additional $2,000 for such services. These fees and expenses are divided among the six investment companies based upon their relative net assets. Under the terms of the management agreement with the manager, the funds are responsible for paying such fees and expenses. Set 14 American Century Investments forth below is the aggregate compensation paid for the periods indicated by the funds and by the American Century family of funds as a whole to each Director who is not an "interested person" as defined in the Investment Company Act. Aggregate Total Compensation from Compensation the American Century Director from the corporation 1 Family of Funds 2 - ------------------------------------------------------------------------ Thomas A. Brown 40,880.74 45,000 Robert W. Doering, M.D. 38,046.00 41,500 Linsley L. Lundgaard 41,179.13 45,000 Donald H. Pratt 39,388.80 43,333 Lloyd T. Silver Jr. 39,388.80 43,000 M. Jeannine Strandjord 39,388.80 42,500 John M. Urie 3 41,179.13 37,167 Del Hock 3 0 7,500 - ------------------------------------------------------------------------ 1 Includes compensation actually paid by the corporation during the fiscal year ended October 31, 1996. 2 Includes compensation paid by the fifteen investment company members of the American Century family of funds for the calendar year ended December 31, 1996. 3 Del Hock replaced Jack Urie as an independent director effective October 31, 1996. The corporation has adopted the American Century Mutual Funds Deferred Compensation Plan for Non-Interested Directors. Under the Plan, the non-interested person Directors may defer receipt of all or any part of the fees to be paid to them for serving as Directors of the corporation. Under the Plan, all deferred fees are credited to an account established in the name of the participating 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 participating Director. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts credited to the account. Directors are allowed to change their designation of mutual funds from time to time. No deferred fees are payable until such time as a participating 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, American Century has no obligation to segregate assets to secure or fund the deferred fees. The rights of Directors to receive their deferred fee account balances are the same as the rights of a general unsecured creditor of the corporation. The Plan may be terminated at any time by the administrative committee of the Plan. If terminated, all deferred fee account balances will be paid in a lump sum. No deferred fees were paid to any participating Directors under the Plan during the fiscal year ended October 31, 1995. Those Directors who are "interested persons," as defined in the Investment Company Act, receive no fee as such for serving as a Director. The salaries of such individuals, who are also officers of the funds, are paid by the manager. MANAGEMENT A description of the responsibilities and method of compensation of the funds' investment manager, American Century Investment Management, Inc., appears in each prospectus under the caption, "Management." During the past three years, the management fees of the manager were: FUND Years Ended October 31, - ------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------ SELECT Management fees $ 39,305,054 $ 40,918,896 $ 46,147,911 Average net assets 3,935,124,830 4,100,172,070 4,616,441,587 HERITAGE Management fees 10,572,605 8,900,956 8,238,322 Average net assets 1,065,351,654 899,947,177 822,480,118 GROWTH Management fees 47,632,557 45,713,727 43,916,916 Average net assets 4,789,339,586 4,575,064,437 4,404,299,518 ULTRA Management fees 162,207,777 113,284,379 91,474,921 Average net asset 16,286,747,712 11,330,063,925 9,149,558,371 VISTA Management fees 20,199,050 11,104,694 7,226,302 Average net assets 2,041,214,251 1,123,979,069 732,311,586 GIFTRUST Management fees 7,161,935 3,840,425 1,875,098 Average net assets 731,222,156 389,827,724 189,487,155 Statement of Additional Information 15 FUND Years Ended October 31, - ------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------ BALANCED Management fees $ 8,345,585 $ 7,303,148 $ 6,861,248 Average net assets 844,937,283 743,379,550 687,079,027 CASH RESERVE Management fees 9,593,595 9,546,843 10,282,495 Average net assets 1,375,448,677 1,367,481,447 1,294,838,404 SHORT-TERM GOVERNMENT FUND Management fees 2,570,178 2,708,850 3,611,805 Average net assets 370,206,942 387,845,926 447,658,784 INTERMEDIATE-TERM GOVERNMENT FUND Management fees 179,763 104,141 19,566 Average net assets 24,215,896 14,092,947 3,821,083 LIMITED-TERM TAX-EXEMPT Management fees 205,918(1) 0 0 Average net assets 53,836,145 59,645,970 57,545,359 INTERMEDIATE-TERM TAX-EXEMPT Management fees 484,914 471,159 537,893 Average net assets 81,296,908 78,781,379 89,751,385 LONG-TERM TAX-EXEMPT Management fees 352,945 317,622 361,732 Average net assets 59,479,341 53,244,618 60,383,665 LIMITED-TERM BOND Management fees 52,116 40,530 17,509 Average net assets 7,680,716 5,906,790 3,690,814 INTERMEDIATE-TERM BOND Management fees 108,870 59,552 17,532 Average net assets 14,807,295 8,128,357 3,458,399 BENHAM BOND Management fees 1,148,428 1,038,120 1,233,251 Average net assets 146,071,676 132,239,065 141,750,838 - ------------------------------------------------------------------------ 1 Net of fees waived by the manager. The Advisor Class of Ultra and Vista commenced operations on October 2, 1996. The management fees shown above include $7,146 paid on Advisor Class shares of Ultra and $3,127 paid on Advisor Class shares of Vista for the 29 day period ended October 31, 1996. The management agreement shall continue in effect until the earlier of the expiration of two years from the date of its execution, or until the first meeting of shareholders following such execution, and for as long thereafter as its continuance is specifically approved at least annually by (i) the funds' Board of Directors, or by the vote of a majority of the outstanding votes (as defined in the Investment Company Act), and (ii) by the vote of a majority of the Directors of the funds who are not parties to the agreement or interested persons of the manager, cast in person at a meeting called for the purpose of voting on such approval. The management agreement provides that it may be terminated at any time without payment of any penalty by the funds' Board of Directors, or by a vote of a majority of the funds' shareholders, on 60 days' written notice to the manager, and that it shall be automatically terminated if it is assigned. The management agreement provides that the manager shall not be liable to the funds or its shareholders for anything other than willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations or duties. The management agreement also provides that the manager and its officers, directors and employees may engage in other business, devote time and attention to any other business whether of a similar or dissimilar nature, and render services to others. Certain investments may be appropriate for one or more funds and also for other clients advised by the manager. Investment decisions for the funds and other clients are made with a view to achieving their respective investment objectives after consideration of such factors as their current holdings, availability of cash for investment, and the size of their investment generally. A particular security may be bought or sold for only one client or series, or in different amounts and at different times for more than one but less than all clients or series. In addition, purchases or sales of the same security may be made for two or more clients or series on the same date. Such transactions will be allocated among clients or series in a manner believed by the manager to be equitable to each. In some cases this procedure could have an adverse effect on the price or amount of the securities purchased or sold by a fund. The manager may aggregate purchase and sale orders of the funds with purchase and sale orders of its other clients when the manager believes that such aggregation provides the best execution for the funds. The funds' Board of Directors has approved the policy of the manager 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 manager will not aggregate portfolio transactions of the funds unless it believes such aggregation is consistent with its duty to seek best execution on behalf of the funds and the terms of the 16 American Century Investments management agreement. The manager receives no additional compensation or remuneration as a result of such aggregation. On January 31, 1997, the manager was acting as an investment advisor to 12 institutional accounts with an aggregate value of $498,426,343. While each of these clients has unique investment restrictions and guidelines, some have all elected to have their portfolios managed in a manner similar to the portfolio of either Growth or Select. Accordingly, anytime a security is being bought or sold for the Growth or Select funds, it may also be bought or sold for some or all of such institutional accounts. The manager anticipates acquiring additional such accounts in the future. American Century Services Corporation provides physical facilities, including computer hardware and software and personnel, for the day-to-day administration of the funds and of the manager. The manager pays American Century Services Corporation for such services. The payments by the manager to American Century Services Corporation for the years ending October 31, 1996, 1995 and 1994 have been, respectively, $118,664,664, $100,504,910 and $139,895,701. As stated in each prospectus, all of the stock of American Century Services Corporation and American Century Investment Management, Inc. is owned by American Century Companies, Inc. CUSTODIANS Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York 10003-9598, Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105, and United Missouri Bank of Kansas City, N.A., 10th and Grand, Kansas City, Missouri 64105, each serves as custodian of the assets of the funds. The custodians take no part in determining the investment policies of the funds or in deciding which securities are purchased or sold by the funds. The funds, however, may invest in certain obligations of the custodians and may purchase or sell certain securities from or to the custodians. INDEPENDENT ACCOUNTANTS Beginning with the 1997 fiscal year, Delloitte and Touche LLP, 1010 Grand Avenue, Kansas City, Missouri 64106, has been selected to serve as the fund's independent accountants, providing services including (1) audit of the annual financial statements, (2) assistance and consultation in connection with SEC filings and (3) review of the annual federal income tax return filed for each fund. CAPITAL STOCK The funds' capital stock is described in the prospectuses under the caption, "Further Information About American Century." American Century may in the future issue additional series or class of shares without a vote of shareholders. The assets belonging to each series or classes 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. Each share, irrespective of series or class, is entitled to one vote for each dollar of net asset value represented by such share on all questions. In the event of complete liquidation or dissolution of American Century, 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. As of January 31, 1997, in excess of 5% of the outstanding shares of the following funds were owned of record by: NAME OF SHAREHOLDER FUND AND PERCENTAGE - ------------------------------------------------------------------------ Growth Nationwide Life Insurance Company Columbus, Ohio -- 13.0% Ultra Charles Schwab & Co. San Francisco, California -- 8.7% Vista Charles Schwab & Co. -- 6.9% Heritage Charles Schwab & Co. -- 6.2% Bankers Trust Company as trustee for Kraft General Foods -- 11.3% Limited-Term Tax-Exempt Twentieth Century Companies, Inc.-- 14.5% Long-Term Tax-Exempt Twentieth Century Companies, Inc. -- 6.7% Limited-Term Bond Twentieth Century Companies, Inc. -- 38.3% Statement of Additional Information 17 NAME OF SHAREHOLDER FUND AND PERCENTAGE - -------------------------------------------------------------------------------- Intermediate-Term Bond Twentieth Century Companies, Inc.-- 17.6% The Chase Manhattan Bank as Trustee for Gza Geo Environmental Inc. Restated 401(k) Profit Sharing Plan and Trust New York, New York -- 6.8% The Chase Manhattan Bank as trustee for Fujisawa USA Inc. Savings and Retirement Plan Trust New York, New York-- 5.2% Short-Term Government Fund Nationwide Life Insurance Company -- 10.2% Intermediate-Term Government Fund The Chase Manhattan Bank as Trustee for Robert Bosch Corporation Star Plan and Trust New York, New York -- 14.1% New Opportunities Trustees of Twentieth Century Profit Sharing and 401(k) Savings Distribution Reinvested Plan and Trust -- 6.2% - -------------------------------------------------------------------------------- MULTIPLE CLASS STRUCTURE The funds' Board of Directors has adopted a multiple class plan (the "Multiclass Plan") pursuant to Rule 18f-3 adopted by the SEC. Pursuant to such plan, the funds may issue up to four classes of funds: an Investor Class, an Institutional Class, a Service Class and an Advisor Class. Not all funds offer all four classes. The Investor Class is made available to investors directly by the investment manager through its affiliated broker-dealer, American Century Investment Services, Inc., for a single unified management fee, without any load or commission. The Institutional, Service and Advisor Classes are made available to institutional shareholders or through financial intermediaries that do not require the same level of shareholder and administrative services from the manager as Investor Class shareholders. As a result, the manager is able to charge these classes a lower management fee. In addition to the management fee, however, Service Class shares are subject to a Shareholder Services Plan (described below), and the Advisor Class shares are subject to a Master Distribution and Shareholder Services Plan (also described below). Both plans have been adopted by the funds' board of directors and initial shareholder in accordance with Rule 12b-1 adopted by the SEC under the 1940 Act. RULE 12-B1 Rule 12b-1 permits an investment company to pay expenses associated with the distribution of its shares in accordance with a plan adopted by the investment company's Board of Directors and approved by its shareholders. Pursuant to such rule, the Board of Directors and initial shareholder of the funds' Service Class and Advisor Class have approved and entered into a Shareholder Services Plan, with respect to the Service Class, and a Master Distribution and Shareholder Services Plan, with respect to the Advisor Class (collectively, the "Plans"). Both Plans are described below. In adopting the Plans, the Board of Directors (including a majority of directors who are not "interested persons" of the funds (as defined in the 1940 Act), hereafter referred to as the "independent directors") determined that there was a reasonable likelihood that the Plans would benefit the funds and the shareholders of the affected classes. Pursuant to Rule 12b-1, information with respect to revenues and expenses under the Plans is presented to the Board of Directors quarterly for its consideration in connection with its deliberations as to the continuance of the Plans. Continuance of the Plans must be approved by the Board of Directors (including a majority of the independent directors) annually. The Plans may be amended by a vote of the Board of Directors (including a majority of the independent directors), except that the Plans may not be amended to materially increase the amount to be spent for distribution without majority approval of the shareholders of the affected class. The Plans terminate automatically in the event of an assignment and may be terminated upon a vote of a majority of the independent directors or by vote of a majority of the outstanding voting securities of the affected class. All fees paid under the plans will be made in accordance with Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers. SHAREHOLDER SERVICES PLAN As described in the Prospectuses, the funds' Service Class of shares are made available to participants in employer-sponsored retirement or savings plans and to persons purchasing through financial 18 American Century Investments intermediaries, such as banks, broker-dealers and insurance companies. In such circumstances, certain recordkeeping and administrative services that are provided by the funds' transfer agent for the Investor Class shareholders may be performed by a plan sponsor (or its agents) or by a financial intermediary. To enable the funds' shares to be made available through such plans and financial intermediaries, and to compensate them for such services, the funds' investment manager has reduced its management fee by 0.25% per annum with respect to the Service Class shares and the funds' Board of Directors has adopted a Shareholder Services Plan. Pursuant to the Shareholder Services Plan, the Service Class shares pay a shareholder services fee of 0.25% annually of the aggregate average daily assets of the funds' Service Class shares. American Century Investment Services, Inc. (the "Distributor") enters into contracts with each financial intermediary for the provision of certain shareholder services and utilizes the shareholder services fees received under the Shareholder Services Plan to pay for such services. Payments may be made for a variety of shareholder services, including, but are not limited to, (a) receiving, aggregating and processing purchase, exchange and redemption request from beneficial owners (including contract owners of insurance products that utilize the funds as underlying investment media) of shares and placing purchase, exchange and redemption orders with the Distributor; (b) providing shareholders with a service that invests the assets of their accounts in shares pursuant to specific or pre-authorized instructions; (c) processing dividend payments from a fund on behalf of shareholders and assisting shareholders in changing dividend options, account designations and addresses; (d) providing and maintaining elective services such as check writing and wire transfer services; (e) acting as shareholder of record and nominee for beneficial owners; (f) maintaining account records for shareholders and/or other beneficial owners; (g) issuing confirmations of transactions; (h) providing subaccounting with respect to shares beneficially owned by customers of third parties or providing the information to a fund as necessary for such subaccounting; (i) preparing and forwarding shareholder communications from the funds (such as proxies, shareholder reports, annual and semi-annual financial statements and dividend, distribution and tax notices) to shareholders and/or other beneficial owners; (j) providing other similar administrative and sub-transfer agency services; and (k) paying "service fees" for the provision of personal, continuing services to investors, as contemplated by the Rules of Fair Practice of the NASD (collectively referred to as "Shareholder Services"). Shareholder Services do not include those activities and expenses that are primarily intended to result in the sale of additional shares of the funds. MASTER DISTRIBUTION AND SHAREHOLDER SERVICES PLAN As described in the Prospectuses, the funds' Advisor Class of shares are also made available to participants in employer-sponsored retirement or savings plans and to persons purchasing through financial intermediaries, such as banks, broker-dealers and insurance companies. The Distributor enters into contracts with various banks, broker-dealers, insurance companies and other financial intermediaries with respect to the sale of the funds' shares and/or the use of the funds' shares in various investment products or in connection with various financial services. As with the Service Class, certain recordkeeping and aministrative services that are provided by the funds' transfer agent for the Investor Class shareholders may be performed by a plan sponsor (or its agents) or by a financial intermediary for shareholders in the Advisor Class. In addition to such services, the financial intermediaries provide various distribution services. To enable the funds' shares to be made available through such plans and financial intermediaries, and to compensate them for such services, the funds' investment manager has reduced its management fee by 0.25% per annum with respect to the Advisor Class shares and the funds' Board of Directors has adopted a Master Distribution and Shareholder Services Plan (the "Distribution Plan"). Pursuant to such Plan, the Advisor Class shares pay the Distributor a fee of 0.50% annually of the aggregate average daily assets of the funds' Advisor Class shares, 0.25% of which is paid for Shareholder Services (as described above) and 0.25% of which is paid for distribution services. Distribution services include any activity undertaken or expense incurred that is primarily intended Statement of Additional Information 19 to result in the sale of Advisor Class shares, which services may include but are not limited to, (a) the payment of sales commission, ongoing commissions and other payments to brokers, dealers, financial institutions or others who sell Advisor Class shares pursuant to Selling Agreements; (b) compensation to registered representatives or other employees of Distributor who engage in or support distribution of the funds' Advisor Class shares; (c) compensation to, and expenses (including overhead and telephone expenses) of, Distributor; (d) the printing of prospectuses, statements of additional information and reports for other than existing shareholders; (e) the preparation, printing and distribution of sales literature and advertising materials provided to the funds' shareholders and prospective shareholders; (f) receiving and answering correspondence from prospective shareholders, including distributing prospectuses, statements of additional information, and shareholder reports; (g) the providing of facilities to answer questions from prospective investors about fund shares; (h) complying with federal and state securities laws pertaining to the sale of fund shares; (i) assisting investors in completing application forms and selecting dividend and other account options; (j) the providing of other reasonable assistance in connection with the distribution of fund shares; (k) the organizing and conducting of sales seminars and payments in the form of transactional compensation or promotional incentives; (l) profit on the foregoing; (m) the payment of "service fees" for the provision of personal, continuing services to investors, as contemplated by the Rules of Fair Practice of the NASD and (n) such other distribution and services activities as the manager determines may be paid for by the funds pursuant to the terms of this Agreement and in accordance with Rule 12b-1 of the 1940 Act. BROKERAGE SELECT, HERITAGE, GROWTH, ULTRA, VISTA, GIFTRUST AND THE EQUITY INVESTMENTS OF BALANCED Under the management agreement between the funds and the manager, the manager has the responsibility of selecting brokers to execute portfolio transactions. The funds' policy is to secure the most favorable prices and execution of orders on its portfolio transactions. So long as that policy is met, the manager may take into consideration the factors discussed under this caption when selecting brokers. The manager receives statistical and other information and services without cost from brokers and dealers. The manager evaluates such information and services, together with all other information that it may have, in supervising and managing the investment portfolios of the funds. Because such information and services may vary in amount, quality and reliability, their influence in selecting brokers varies from none to very substantial. The manager proposes to continue to place some of the funds' brokerage business with one or more brokers who provide information and services. Such information and services will be in addition to and not in lieu of services required to be performed by the manager. The manager does not utilize brokers that provide such information and services for the purpose of reducing the expense of providing required services to the funds. In the years ended October 31, 1996, 1995 and 1994, the brokerage commissions of each fund were as follows: Years Ended October 31, - ------------------------------------------------------------------------ Fund 1996 1995 1994 - ------------------------------------------------------------------------ SELECT $8,157,658 $11,363,976 $14,844,437 HERITAGE 3,093,265 3,180,082 3,620,144 GROWTH 10,712,208 13,577,767 10,144,618 ULTRA 22,985,927 18,911,590 19,240,703 VISTA 2,246,175 1,750,665 1,895,400 GIFTRUST 886,460 571,349 588,145 BALANCED 1,038,530 875,207 979,903 - ------------------------------------------------------------------------ In 1996, $49,120,223 of the total brokerage commissions was paid to brokers and dealers who provided information and services on transactions of $56,023,070,599 (92% of all transactions). The brokerage commissions paid by the funds may exceed those which another broker might have charged for effecting the same transactions, because of the value of the brokerage and research services provided by the broker. Research services furnished by brokers through whom the funds effect securities transactions may be used by the manager in servicing all of its accounts, and not all such services may be used by the manager in managing the portfolios of the funds. 20 American Century Investments The staff of the SEC has expressed the view that the best price and execution of over-the-counter transactions in portfolio securities may be secured by dealing directly with principal market makers, thereby avoiding the payment of compensation to another broker. In certain situations, the officers of the funds and the manager believe that the facilities, expert personnel and technological systems of a broker often enable the funds to secure as good a net price by dealing with a broker instead of a principal market maker, even after payment of the compensation to the broker. The funds regularly place its over-the-counter transactions with principal market makers, but may also deal on a brokerage basis when utilizing electronic trading networks or as circumstances warrant. CASH RESERVE, SHORT-TERM GOVERNMENT FUND, INTERMEDIATE-TERM GOVERNMENT FUND, LIMITED-TERM BOND, INTERMEDIATE-TERM BOND, BENHAM BOND, LIMITED-TERM TAX-EXEMPT, INTERMEDIATE-TERM TAX-EXEMPT, LONG-TERM TAX-EXEMPT AND THE FIXED INCOME INVESTMENTS OF BALANCED Under the management agreement between the funds and the manager, the manager has the responsibility of selecting brokers and dealers to execute portfolio transactions. In many transactions, the selection of the broker or dealer is determined by the availability of the desired security and its offering price. In other transactions, the selection of broker or dealer is a function of the selection of market and the negotiation of price, as well as the broker's general execution and operational and financial capabilities in the type of transaction involved. The manager will seek to obtain prompt execution of orders at the most favorable prices or yields. The manager may choose to purchase and sell portfolio securities to and from dealers who provide services or research, statistical and other information to the funds and to the manager. Such information or services will be in addition to and not in lieu of the services required to be performed by the manager, and the expenses of the manager will not necessarily be reduced as a result of the receipt of such supplemental information. PERFORMANCE ADVERTISING Individual fund performance may be compared to various indices including the Standard & Poor's 500 Index, the Dow Jones Industrial Average, Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 21/2-year CD rates. EQUITY FUNDS The following table sets forth the average annual total return of the equity funds and Balanced for the one-, five- and 10-year periods (or period since inception) ended October 31, 1996, the last day of the funds' fiscal year. Average annual total return is calculated by determining each fund's cumulative total return for the stated period and then computing the annual compound return that would produce the cumulative total return if the fund's performance had been constant over that period. Cumulative total return includes all elements of return, including reinvestment of dividends and capital gains distributions. From Fund 1 year 5 year 10 year Inception (1) - ------------------------------------------------------------------------ SELECT 19.76% 9.67% 11.27% -- HERITAGE 10.44% 13.27% -- 15.57% GROWTH 8.18% 9.32% 13.56% -- ULTRA 10.79% 15.62% 19.92% -- VISTA 6.96% 14.61% 14.67% -- GIFTRUST 9.72% 24.31% 21.71% -- BALANCED 14.04% 8.50% -- 12.21% - ------------------------------------------------------------------------ 1 Data from inception shown for funds that are less than 10 years old. The funds may also advertise average annual total return over periods of time other than one, five and 10 years and cumulative total return over various time periods. The following table shows the cumulative total return of the equity funds and Balanced since their respective dates of inception. The table also shows annual compound rates for Growth and Select from June 30, 1971, which corresponds with the funds' implementation of its current investment philosophy and practices and for all other funds from their respective dates of inception (as noted previously) through October 31, 1996. Statement of Additional Information 21 Cumulative Total Average Annual Fund Return Since Inception Compound Rate - ------------------------------------------------------------------------ SELECT 4776.98% 16.58% HERITAGE 266.32% 15.57% GROWTH 6728.19% 18.14% ULTRA 1051.37% 17.70% VISTA 442.07% 13.96% GIFTRUST 1109.27% 21.26% BALANCED 152.24% 12.21% - ------------------------------------------------------------------------ FIXED INCOME FUNDS AND BALANCED Cash Reserve. The yield of Cash Reserve is calculated by measuring the income generated by an investment in the fund over a seven-day period (net of fund expenses). This income is then "annualized." That is, the amount of income generated by the investment over the seven-day period is assumed to be generated over each similar period throughout a full year and is shown as a percentage of the investment. The "effective yield" is calculated in a similar manner but, when annualized, the income earned by the investment is assumed to be reinvested. The effective yield will be slightly higher than the yield because of the compounding effect of the assumed reinvestment. Based upon these methods of computation, the yield and effective yield for Cash Reserve for the seven days ended October 31, 1996, the last seven days of the fund's fiscal year, was 4.74% and 4.85%, respectively. Other Fixed Income Funds and Balanced. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. The following table sets forth yield quotations for the fixed income funds (other than Cash Reserve) and Balanced for the 30-day period ended October 31, 1996, the last day of the fiscal year pursuant to computation methods prescribed by the SEC. Intermediate- Short-Term Intermediate-Term Limited-Term Term Government Fund GovernmentFund Bond Bond - ------------------------------------------------------------------------ 5.36% 5.68% 5.55% 6.31% - ------------------------------------------------------------------------ Intermediate- Benham Limited-Term Term Long-Term Balanced Bond Tax-Exempt Tax-Exempt Tax-Exempt - ------------------------------------------------------------------------ 6.30% 3.69% 4.34% 4.80% 2.29% - ------------------------------------------------------------------------ The following table sets forth tax-equivalent yields for the Limited-Term Tax-Exempt, Intermediate-Term Tax-Exempt and the Long-Term Tax-Exempt funds for the 30-day period ended October 31, 1996. The example assumes a 36% tax rate. The tax-equivalent yield is computed as follows: tax- equivalent = tax-exempt yield + non tax-exempt yield yield ------------------ 1-assumed tax rate Tax-Exempt Tax-Exempt Tax-Exempt Short-Term Intermediate-Term Long-Term - ---------------------------------------------------- 5.77% 6.78% 7.50% - ---------------------------------------------------- The fixed income funds may also elect to advertise cumulative total return and average annual total return, computed as described above. The table below shows the cumulative total return and the average annual total return of the fixed income funds since their respective dates of inception (as noted below) through October 31, 1996. Cumulative Total Return Average Annual Date of FUND Since Inception Total Return Inception - ------------------------------------------------------------------------ SHORT-TERM GOVERNMENT FUND 167.78% 7.36% 12/15/82 INTERMEDIATE-TERM GOVERNMENT FUND 15.01% 5.38% 3/1/94 LIMITED-TERM BOND 14.77% 5.30% 3/1/94 INTERMEDIATE-TERM BOND 16.74% 5.97% 3/1/94 BENHAM BOND 104.68% 7.69% 3/2/87 LIMITED-TERM TAX-EXEMPT 16.40% 4.23% 3/1/93 INTERMEDIATE-TERM TAX-EXEMPT 74.65% 5.94% 3/2/87 LONG-TERM TAX-EXEMPT 94.55% 7.13% 3/2/87 - ------------------------------------------------------------------------ 22 American Century Investments ADDITIONAL PERFORMANCE COMPARISONS Investors may judge the performance of the funds by comparing their performance to the performance of other mutual funds or mutual fund portfolios with comparable investment objectives and policies through various mutual fund or market indices such as the EAFE(R) Index and those prepared by Dow Jones & Co., Inc., Standard & Poor's Corporation, Shearson Lehman Brothers, Inc. and The Russell 2000 Index, and to data prepared by Lipper Analytical Services, Inc., Morningstar, Inc. and the Consumer Price Index. Comparisons may also be made to indices or data published in Money, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, Pensions and Investments, USA Today, and other similar publications or services. In addition to performance information, general information about the funds that appears in a publication such as those mentioned above or in the Prospectus under the heading "Performance Advertising" may be included in advertisements and in reports to shareholders. PERMISSIBLE ADVERTISING INFORMATION From time to time, the funds may, in addition to any other permissible information, include the following types of information in advertisements, supplemental sales literature and reports to shareholders: (1) discussions of general economic or financial principles (such as the effects of compounding and the benefits of dollar-cost averaging); (2) discussions of general economic trends; (3) presentations of statistical data to supplement such discussions; (4) descriptions of past or anticipated portfolio holdings for one or more of the funds; (5) descriptions of investment strategies for one or more of the funds; (6) descriptions or comparisons of various savings and investment products (including, but not limited to, qualified retirement plans and individual stocks and bonds), which may or may not include the funds; (7) comparisons of investment products (including the funds) with relevant market or industry indices or other appropriate benchmarks; (8) discussions of fund rankings or ratings by recognized rating organizations; and (9) testimonials describing the experience of persons that have invested in one or more of the funds. The funds may also include calculations, such as hypothetical compounding examples, which describe hypothetical investment results in such communications. Such performance examples will be based on an express set of assumptions and are not indicative of the performance of any of the funds. REDEMPTIONS IN KIND The funds' policy with regard to redemptions in excess of the lesser of one half of 1% of a fund's assets or $250,000 from its equity funds and Balanced is described in the applicable fund prospectus under the heading "Special Requirements for Large Redemptions." The funds have elected to be governed by Rule 18f-1 under the Investment Company Act, pursuant to which the funds are obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the fund during any 90-day period for any one shareholder. If shares are redeemed in kind, the redeeming shareholder might incur brokerage costs in converting the assets to cash. The method of valuing portfolio securities used to make redemptions in kind will be the same as the method of valuing portfolio securities described in the Prospectus under the caption "How Share Price is Determined," and such valuation will be made as of the same time the redemption price is determined. HOLIDAYS The funds do not determine the net asset value of its shares on days when the New York Stock Exchange is closed. Currently, the Exchange is closed on Saturdays and Sundays, and on holidays, namely New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. FINANCIAL STATEMENTS The financial statements of the various series of shares of American Century (other than New Opportunities) for the fiscal year ended October 31, 1996, are included in the annual report to shareholders, which is incorporated herein by reference. You may receive copies of the report without charge upon request to American Century at the address and phone number shown on the cover of this Statement of Additional Information. Statement of Additional Information 23 The unaudited financial statements of Twentieth Century New Opportunities for the period from December 26, 1996 (inception) to January 31, 1997 are included in this Statement of Additional Information. While the financial statements respecting such fund contained herein are unaudited, in the opinion of the manager, all adjustments necessary for a fair presentation of the financial position and the results of operation at January 31, 1997 and for the period from December 26, 1996 (inception) to January 31, 1997, have been made. The results of operations for the period indicated are not necessarily indicative of the results for an entire year. 24 American Century Investments STATEMENT OF ASSETS AND LIABILITIES NEW JANUARY 31, 1997 (Unaudited) OPPORTUNITIES - -------------------------------------------------------------------------------- ASSETS Investment securities, at value (identified cost of $119,093,317) (Note 3) ................................................ $119,847,813 Cash ....................................................... 5,029,586 Receivable for capital shares sold ......................... 124,235 Dividends and interest receivable .......................... 2,340 --------- 125,003,974 ---------- LIABILITIES Payable for investments purchased .......................... 21,621,743 Accrued management fees (Note 2) ........................... 44,058 Other liabilities .......................................... 128 ---------- 21,665,929 ---------- Net Assets Applicable to Outstanding Shares ................ $103,338,045 ============ CAPITAL SHARES, $.01 PAR VALUE Authorized ................................................. 100,000,000 =========== Outstanding ................................................ 20,840,529 =========== Net Asset Value Per Share .................................. $4.96 =========== NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) .................... $103,044,301 Undistributed net investment income ........................ 27,913 Accumulated undistributed net realized (loss) from investment transactions ..................... (488,665) Net unrealized appreciation on investments (Note 3) ........ 754,496 ---------- $103,338,045 See Notes to Financial Statements Statement of Additional Information 25 STATEMENT OF OPERATIONS DECEMBER 26, 1996 (INCEPTION) NEW THROUGH JANUARY 31, 1997 (Unaudited) OPPORTUNITIES - -------------------------------------------------------------------------------- INVESTMENT INCOME Income: Interest .............................................. $70,129 Dividends ............................................. 2,340 ---------- 72,469 ---------- Expenses: Management fees (Note 2) .............................. 44,428 Directors' fees and expenses .......................... 128 ---------- 44,556 ---------- Net investment income ...................................... 27,913 ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3) Net realized (loss) ................................... (488,665) Change in net unrealized appreciation ................. 754,496 ---------- Net realized and unrealized gain on investments ............ 265,831 ---------- Net Increase in Net Assets Resulting from Operations ....... $293,744 See Notes to Financial Statements 26 American Century Investments STATEMENT OF CHANGES IN NET ASSETS DECEMBER 26, 1996 (INCEPTION) NEW THROUGH JANUARY 31, 1997 (Unaudited) OPPORTUNITIES - -------------------------------------------------------------------------------- Increase in Net Assets OPERATIONS Net investment income ......................................... $ 27,913 Net realized (loss) on investments ............................ (488,665) Change in net unrealized appreciation on investments .......... 754,496 ------------- Net increase in net assets resulting from operations 293,744 ------------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 103,105,758 Payments for shares redeemed .................................. (61,457) ------------- Net increase in net assets from capital share transactions ............................ 103,044,301 ------------- Net increase in net assets .................................... 103,338,045 NET ASSETS Beginning of period ........................................... -- ------------- End of period ................................................. $ 103,338,045 ------------- ------------- Undistributed net investment income ........................... $ 27,913 ------------- ------------- TRANSACTIONS IN SHARES OF THE FUND Sold 20,852,883 Redeemed ...................................................... (12,354) ------------- Net increase .................................................. $ 20,840,529 See Notes to Financial Statements Statement of Additional Information 27 NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1997 (UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Mutual Funds, Inc. (the Corporation) is registered under the Investment Company Act of 1940 as an open-end diversified management investment company. Twentieth Century New Opportunities (the Fund) is one of the seventeen series of funds issued by the Corporation. The Fund's investment objective is capital growth. The Fund seeks to achieve its investment objective by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. The following significant accounting policies, related to the Fund, are in accordance with accounting policies generally accepted in the investment company industry. SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal securities exchange are valued at the last reported sales price, or the mean of the latest bid and asked prices where no last sales price is available. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices or, in the case of certain foreign securities, at the last reported sales price, depending on local convention or regulation. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Board of Directors. SECURITY TRANSACTIONS -- Security transactions are accounted for on the date purchased or sold. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Dividend income, less foreign taxes withheld (if any), is recorded as of the ex-dividend date. Interest income is recorded on the accrual basis and includes amortization of discounts and premiums. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with institutions that the Fund's investment manager, American Century Investment Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria adopted by the Board of Directors. Each repurchase agreement is recorded at cost. The Fund requires that the securities purchased in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the Fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the value of the securities transferred to ensure that the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the Fund under each repurchase agreement. JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having management agreements with ACIM and Benham Management Corporation, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collaterized by U.S. Treasury or Agency obligations. INCOME TAX STATUS -- It is the policy of the Fund to distribute all taxable income and capital gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on the ex-dividend date. Distributions from net investment income and net realized gains are declared and paid annually. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences are primarily due to differences in the recognition of income and expense items for financial statement and tax purposes. SUPPLEMENTARY INFORMATION -- Certain officers and directors of the Corporation are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc., the parent of the Corporation's investment manager, ACIM, the Corporation's distributor, American Century Investment Services, Inc., and the Corporation's transfer agent, American Century Services Corporation. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 28 American Century Investments NOTES TO FINANCIAL STATEMENTS 2. TRANSACTIONS WITH RELATED PARTIES The Corporation has entered into a Management Agreement with ACIM that provides the Fund with investment advisory and management services in exchange for a single, unified fee. The Agreement provides that all expenses of the Fund, except brokerage commissions, taxes, interest, expenses of those directors who are not considered "interested persons" as defined in the Investment Company Act of 1940 (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is computed daily and paid monthly based on the Fund's average daily closing net assets during the previous month. The annual management fee for the Fund is 1.5%. 3. INVESTMENT TRANSACTIONS The aggregate cost of investment securities purchased (excluding short-term investments) for the period December 26, 1996 (inception) through January 31, 1997, totaled $90,556,978 for common stocks. Proceeds from investment securities sold (excluding short-term investments) totaled $2,065,528 for common stocks. As of January 31, 1997, accumulated net unrealized appreciation on investments was $754,496, consisting of unrealized appreciation of $2,651,084 and unrealized depreciation of $1,896,588. The aggregate cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. 4. AFFILIATED COMPANY TRANSACTIONS A summary of transactions for each issuer who is or was an affiliate at or during the period December 26, 1996 (inception) through January 31, 1997, follows: JANUARY 31, 1997 -------------------------------- ISSUER PURCHASE SHARE MARKET COST BALANCE VALUE - ------------------------------------------------------------------------ Brightpoint, Inc. $ 2,238,278 80,300 $ 2,263,456 NBTY Inc. 1,687,018 82,400 1,761,300 Pomeroy Computer Resources, Inc. 1,761,427 53,900 1,677,638 Rational Software Corp. 3,269,444 113,200 2,851,225 Teledata Communication Ltd. 1,715,977 64,500 1,685,063 - ------------------------------------------------------------------------ $10,672,144 $10,238,682 - ------------------------------------------------------------------------ Statement of Additional Information 29 P.O. Box 419200 Kansas City, Missouri 64141-6200 Person-to-person assistance: 1-800-345-2021 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-340-7962 Internet: www.americancentury.com [american century logo] American Century(sm) 9702 [recycled logo] SH-BKT-7971 Recycled PART C. OTHER INFORMATION. ITEM 24. Financial Statements and Exhibits. (a) Financial Statements (i) Financial Statements filed in Part A of the Registration Statement: 1. Financial Highlights. (ii) Financial Statements filed in Part B of the Registration Statement (each of the following financial statements is contained in the Registrant's Annual Reports dated October 31, 1996, and which are incorporated by reference into Part B of this Registration Statement): 1. Statement of Assets and Liabilities at October 31, 1996. 2. Statement of Operations for the year ended October 31, 1996. 3. Statement of Changes in Net Assets for the year ended October 31, 1996. 4. Notes to Financial Statements as of October 31, 1996. 5. Schedule of Investments as of October 31, 1996. 6. Report of Independent Certified Public Accountants dated November 20, 1996. (iii) Financial Statements filed in Part B of the Registration Statement (each of the following financial statements for the New Opportunities fund is contained in the Part B of this Registration Statement): 1. Statement of Assets and Liabilities at January 31, 1997 (unaudited). 2. Statement of Operations for the period ended January 31, 1997 (unaudited). 3. Statement of Changes in Net Assets for the period ended January 31, 1997 (unaudited). 4. Notes to Financial Statements as of January 31, 1997 (unaudited). (b) Exhibits (all exhibits not filed herewith are being incorporated herein by reference) 1. (a) Articles of Incorporation of Twentieth Century Investors, Inc., dated July 2, 1990 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (b) Articles of Amendment of Twentieth Century Investors, Inc., dated November 20, 1990 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (c) Articles of Merger of Twentieth Century Investors, Inc., a Maryland corporation and Twentieth Century Investors, Inc., a Delaware corporation, dated February 22, 1991 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (d) Articles of Amendment of Twentieth Century Investors, Inc., dated August 11, 1993 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (e) Articles Supplementary of Twentieth Century Investors, Inc., dated September 3, 1993 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (f) Articles Supplementary of Twentieth Century Investors, Inc., dated April 28, 1995 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (g) Articles Supplementary of Twentieth Century Investors, Inc., dated November 17, 1995 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (h) Articles Supplementary of Twentieth Century Investors, Inc., dated January 30, 1996 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (i) Articles Supplementary of Twentieth Century Investors, Inc., dated March 11, 1996 (filed electronically as an Exhibit to Post-Effective Amendment No. 75 on Form N-1A on June 14, 1996. (j) Articles of Amendment of Twentieth Century Investors, Inc., dated December 2, 1996 (filed herewith as EX-99.B1j). (k) Articles Supplementary of American Century Mutual Funds, Inc., dated December 2, 1996 (filed herewith as EX-99.B1k). 2. By-laws of Twentieth Century Investors, Inc. (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). 3. Voting Trust Agreements - None. 4. Specimen copy of stock certificate - all series (filed herewith as EX-99.B4). 5. (a) Management Agreement between Twentieth Century Investors, Inc. and Investors Research Corporation dated August 1, 1994 (filed electronically as an Exhibit to Post-Effective Amendment No. 75 on Form N-1A on June 14, 1996). (b) Addendum to Management Agreement between Twentieth Century Investors, Inc. and Investors Research Corporation dated August 1, 1996 (filed electronically as an Exhibit to Post-Effective Amendment No. 75 on Form N-1A on June 14, 1996). (c) Management Agreement-Advisor Class between Twentieth Century Investors, Inc. and Investors Research Corporation dated September 1, 1996 (filed electronically as an Exhibit to Post-Effective Amendment No. 75 on Form N-1A on June 14, 1996). (d) Management Agreement-Service Class between Twentieth Century Investors, Inc. and Investors Research Corporation dated September 1, 1996 (filed electronically as an Exhibit to Post-Effective Amendment No. 75 on Form N-1A on June 14, 1996). (e) Management Agreement-Institutional Class between Twentieth Century Investors, Inc. and Investors Research Corporation dated September 1, 1996 (filed electronically as an Exhibit to Post-Effective Amendment No. 75 on Form N-1A on June 14, 1996). 6. Distribution Agreement between TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Strategic Asset Allocations, Inc., Twentieth Century World Investors, Inc. and Twentieth Century Securities, Inc. dated September 3, 1996 (filed electronically as an Exhibit to Post-Effective Amendment No. 75 on Form N-1A on June 14, 1996). 7. Bonus and Profit Sharing Plan, Etc. - None. 8. (a) Custodian Agreement dated September 21, 1994 for ACH transactions, between Twentieth Century Investors, Inc. and United Missouri Bank of Kansas City, N.A.(filed herewith as EX-99.B8a). (b) Custody Agreement dated September 12, 1995, between UMB Bank, N.A., Investors Research Corporation, Twentieth Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc. and Twentieth Century Capital Portfolios, Inc. (filed electronically as an Exhibit to Pre-Effective Amendment No. 4 on Form N-1A of Twentieth Century Strategic Asset Allocations, Inc., Commission File No. 33-79482). (c) Amendment No. 1 to Custody Agreement dated January 25, 1996, between UMB Bank, N.A., Investors Research Corporation, Twentieth Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc.(filed electronically as an Exhibit to Pre-Effective Amendment No. 4 on Form N-1A of Twentieth Century Strategic Asset Allocations, Inc., Commission File No. 33-79482). (d) Global Custody Agreement between The Chase Manhattan Bank and the Twentieth Century and Benham funds, dated August 9, 1996. (filed electronically as an Exhibit to Post-Effective Amendment No. 31 on Form N-1A of American Century Government Income Trust, Commission File No. 2-99222 (e) Master Agreement between Commerce Bank, N.A. and Twentieth Century Services, Inc. dated January 22, 1997 (filed herewith as EX-99.B8e). 9. Transfer Agency Agreement between Twentieth Century Investors, Inc. and Twentieth Century Services, Inc. dated March 1, 1991 (filed herewith as EX-99.B9). 10. Opinion and Consent of Counsel (filed herewith as EX-99.B10). 11. Consent of Baird, Kurtz & Dobson (filed herewith as EX-99.B11). 12. Equity Funds and Fixed Income Funds Annual Reports, dated October 31, 1996 (filed electronically on December 23, 1996). 13. Agreements for Initial Capital, Etc. - None. 14. Model Retirement Plans (filed on May 6, 1991, as Exhibits 14(a)-(d) to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A of Twentieth Century World Investors, Inc., Commission File No. 33-39242). 15. (a) Master Distribution and Shareholder Services Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. (Advisor Class) dated September 3, 1996 (filed electronically as an Exhibit to Post-Effective Amendment to No. 75 on Form N-1A on June 14, 1996). (b) Shareholder Services Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. (Service Class) dated September 3, 1996 (filed electronically as an Exhibit to Post-Effective Amendment to No. 75 on Form N-1A on June 14, 1996). 16. Schedules For Computation of Advertising Performance Quotations (filed herewith as EX-99.B16). 17. Power of Attorney (filed herewith as EX-99.B17). 18. Multiple Class Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. dated September 3, 1996 (filed electronically as an Exhibit to Post-Effective Amendment to No. 75 on Form N-1A on June 14, 1996). 27. (a) Financial Data Schedules for Growth Fund (EX-27.1.1). (b) Financial Data Schedules for Select Fund (EX-27.1.2). (c) Financial Data Schedules for Ultra Fund (EX-27.1.3). (d) Financial Data Schedules for Vista Fund (EX-27.1.4). (e) Financial Data Schedules for Giftrust (EX-27.1.5). (f) Financial Data Schedules for Short-Term Government Fund (EX-27.5.6). (g) Financial Data Schedules for Cash Reserve Fund (EX-27.4.7). (h) Financial Data Schedules for Benham Bond Fund (EX-27.5.8). (i) Financial Data Schedules for Intermediate-Term Tax-Exempt Fund (EX-27.5.9). (j) Financial Data Schedules for Long-Term Tax-Exempt Fund (EX-27.5.10). (k) Financial Data Schedules for Heritage Fund (EX-27.1.11). (l) Financial Data Schedules for Balanced Fund (EX-27.7.12). (m) Financial Data Schedules for Limited-Term Tax-Exempt Fund (EX-27.5.13). (n) Financial Data Schedules for Limited-Term Bond Fund (EX-27.5.14). (o) Financial Data Schedules for Intermediate-Term Bond Fund (EX-27.5.15). (p) Financial Data Schedules for Intermediate-Term Government Fund (EX-27.5.16). (q) Financial Data Schedules for New Opportunities Fund (EX-27.1.17). ITEM 25. Persons Controlled by or Under Common Control with Registrant - None. ITEM 26. Number of Holders of Securities Title of Class Number of Record Holders as of January 31, 1997 Single Investor Institutional Advisor Class Class Class Class Growth Fund - 274,727 - - Select Fund - 257,239 - - Ultra Investors - 817,173 1 3 Short-Term Government Fund - 21,677 - - Vista Fund - 168,223 1 1 Giftrust 274,101 - - - Cash Reserve Fund - 104,243 - - Benham Bond Fund - 11,327 - - Limited-Term Tax-Exempt Fund 1,110 - - - Intermediate-Term Tax-Exempt Fund 2,403 - - - Long-Term Tax-Exempt Fund 1,911 - - - Heritage Fund - 83,580 - - Balanced Fund - 57,353 - 1 Limited-Term Bond Fund - 439 - - Intermediate-Term Bond Fund - 1,099 - - Intermediate-Term Government Fund - 1,230 - - New Opportunities Fund 3,240 - - - ITEM 27. Indemnification. The Corporation is a Maryland corporation. Section 2-418 of the General Corporation Law of Maryland allows a Maryland corporation to indemnify its directors, officers, employees and agents to the extent provided in such statute. Article Eighth of the Articles of Incorporation requires the indemnification of the corporation's directors and officers to the extent permitted by the General Corporation Law of Maryland, the Investment Company Act and all other applicable laws. The registrant has purchased an insurance policy insuring its officers and directors against certain liabilities which such officers and directors may incur while acting in such capacities and providing reimbursement to the registrant for sums which it may be permitted or required to pay to its officers and directors by way of indemnification against such liabilities, subject in either case to clauses respecting deductibility and participation. ITEM 28. Business and Other Connections of Investment Advisor. American Century Investment Management, Inc., the investment advisor, is engaged in the business of managing investments for deferred compensation plans and other institutional investors. ITEM 29. Principal Underwriters - None. ITEM 30. Location of Accounts and Records. All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act, and the rules promulgated thereunder, are in the possession of American Century Mutual Funds, Inc., American Century Services Corporation and American Century Investment Management, Inc., all located at American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. ITEM 31. Management Services - None. ITEM 32. Undertakings a. Not Applicable. b. Not Applicable. c. Registrant hereby undertakes to furnish each person to whom a prospectus is delivered a copy of Registrant's latest annual report to shareholders, upon request and without charge. d. The Registrant hereby undertakes that it will, if requested to do so by the holders of at least 10% of the Registrant's outstanding shares, call a meeting of shareholders for the purpose of voting upon the question of the removal of a director and to assist in communication with other shareholders as required by Section 16(c). SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, Twentieth Century Investors, Inc., the Registrant, has duly caused this Post-Effective Amendment No. 76 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Kansas City, State of Missouri on the 28th day of February, 1997. American Century Mutual Funds, Inc. (Registrant) By: /s/James E. Stowers III James E. Stowers III, President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 76 has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date *James E. Stowers, Jr. Chairman, Director and February 28, 1997 James E. Stowers, Jr. Principal Executive Officer *James E. Stowers III President and Director February 28, 1997 James E. Stowers III *Robert T. Jackson Executive Vice President February 28, 1997 Robert T. Jackson and Principal Financial Officer *Maryanne Roepke Vice President, Treasurer and February 28, 1997 Maryanne Roepke Principal Accounting Officer *Thomas A. Brown Director February 28, 1997 Thomas A. Brown *Robert W. Doering, M.D. Director February 28, 1997 Robert W. Doering, M.D. *Linsley L. Lundgaard Director February 28, 1997 Linsley L. Lundgaard *Donald H. Pratt Director February 28, 1997 Donald H. Pratt *Lloyd T. Silver, Jr. Director February 28, 1997 Lloyd T. Silver, Jr. *M. Jeannine Strandjord Director February 28, 1997 M. Jeannine Strandjord *D. D. (Del) Hock Director February 28, 1997 D. D. (Del) Hock *By /s/James E. Stowers III James E. Stowers III Attorney-in-Fact EX-99 2 EXHIBIT INDEX EXHIBIT INDEX EXHIBIT DESCRIPTION OF DOCUMENT NUMBER EX-99.B1a Articles of Incorporation of Twentieth Century Investors, Inc., dated July 2, 1990. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1b Articles of Amendment of Twentieth Century Investors, Inc., dated November 20, 1990. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1c Articles of Merger of Twentieth Century Investors, Inc., a Maryland corporation and Twentieth Century Investors, Inc., a Delaware corporation, dated February 22, 1991. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1d Articles of Amendment of Twentieth Century Investors, Inc., dated August 11, 1993. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1e Articles Supplementary of Twentieth Century Investors, Inc., dated September 3, 1993. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1f Articles Supplementary of Twentieth Century Investors, Inc., dated April 28, 1995. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1g Articles Supplementary of Twentieth Century Investors, dated November 17, 1995. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1h Articles Supplementary of Twentieth Century Investors, Inc., dated January 30, 1996. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1i Articles Supplementary of Twentieth Century Investors, Inc., dated March 11, 1996. (filed as a part of Post-Effective Amendment #75 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on June 14, 1996, and incorporated herein by reference.) EX-99.B1j Articles of Amendment of Twentieth Century Investors, Inc. dated December 2, 1996 is included herein. EX-99.B1k Articles Supplementary of American Century Mutual Funds, Inc. dated December 2, 1996 is included herein. EX-99.B2 Bylaws of Twentieth Century Investors, Inc. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B4 Specimen certificate representing shares of common stock of American Century Mutual Funds, Inc. is included herein. EX-99.B5a Management Agreement, dated as of August 1, 1994, between Twentieth Century Investors, Inc. and Investors Research Corporation.(filed as a part of Post-Effective Amendment #75 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on June 14, 1996, and incorporated herein by reference.) EX-99.B5b Addendum to Management Agreement, dated as of August 1, 1996, between Twentieth Century Investors, Inc. and Investors Research Corporation.(filed as a part of Post-Effective Amendment #75 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on June 14, 1996, and incorporated herein by reference.) EX-99.B5c Management Agreement-Advisor Class, dated as of September 1, 1996, between Twentieth Century Investors, Inc. and Investors Research Corporation.(filed as a part of Post-Effective Amendment #75 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on June 14, 1996, and incorporated herein by reference.) EX-99.B5d Management Agreement-Service Class, dated as of September 1, 1996, between Twentieth Century Investors, Inc. and Investors Research Corporation.(filed as a part of Post-Effective Amendment #75 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on June 14, 1996, and incorporated herein by reference.) EX-99.B5e Management Agreement-Institutional Class, dated as of September 1, 1996, between Twentieth Century Investors, Inc. and Investors Research Corporation.(filed as a part of Post-Effective Amendment #75 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on June 14, 1996, and incorporated herein by reference.) EX-99.B6 Distribution Agreement between TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Strategic Asset Allocations, Inc., Twentieth Century World Investors, Inc. and Twentieth Century Securities, Inc. dated September 3, 1996.(filed as a part of Post-Effective Amendment #75 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on June 14, 1996, and incorporated herein by reference.) EX-99.B8a Custodian Agreement for ACH transactions, dated September 21, 1994 between Twentieth Century Investors, Inc. and United Missouri Bank of Kansas City, N.A. is included herein. EX-99.B8b Custody Agreement dated September 12, 1995, between United Missouri Bank of Kansas City, N.A., Investors Research Corporation, Twentieth Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc. and Twentieth Century Capital Portfolios, Inc. (filed as Exhibit 8(e) to Pre-Effective Amendment No. 4 to the Registration Statement on Form N-1A of Twentieth Century Strategic Asset Allocations, Inc., Commission File No. 33-79482, filed February 5, 1996). EX-99.B8c Amendment No. 1 to Custody Agreement dated January 25, 1996, between United Missouri Bank of Kansas City, N.A., Investors Research Corporation, Twentieth Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc. (filed as Exhibit 8(e) to Pre-Effective Amendment No. 4 to the Registration Statement on Form N-1A of Twentieth Century Strategic Asset Allocations, Inc., Commission File No. 33-79482, filed February 5, 1996). EX-99.B8d Global Custody Agreement between The Chase Manhattan Bank and the Twentieth Century and Benham funds, dated August 9, 1996 (filed Exhibit-99.B8 as a part of Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A of American Century Goverment Income Trust, Commission File No. 2-99222, filed February 7, 1997, and incorporated herein by reference.) EX-99.B8e Master Agreement between Commerce Bank, N.A. and Twentieth Century Services, Inc. dated January 22, 1997, is included herein. EX-99.B9 Transfer Agency Agreement dated as of March 1, 1991, by and between Twentieth Century Investors, Inc. and Twentieth Century Services, Inc. is included herein. EX-99.B10 Opinion and Consent of Charles A. Etherington, Esq. EX-99.B11 Consent of Baird, Kurtz & Dobson. EX-99.B12a Equity Funds Annual Report and Fixed Income Funds Annual Reports of Twentieth Century Investors, Inc. dated October 31, 1996, filed on December 23, 1996, and incorporated herein by reference. EX-99.B14 Model Retirement Plans (filed as Exhibits 14(a), 14(b), 14(c) and 14(d) to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A of Twentieth Century World Investors, Inc., Commission File No. 33-39242, filed May 6, 1991, and incorporated herein by reference). EX-99.B15a Master Distribution and Shareholder Services Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. (Advisor Class) dated September 3, 1996.(filed as a part of Post-Effective Amendment #75 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on June 14, 1996, and incorporated herein by reference.) EX-99.B15b Shareholder Services Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. (Service Class) dated September 3, 1996.(filed as a part of Post-Effective Amendment #75 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on June 14, 1996, and incorporated herein by reference.) EX-99.B16 Schedules for Computations of Advertising Performance Quotations. EX-99.B17 Power of Attorney dated February 15, 1997, is included herein. EX-99.B18 Multiple Class Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. dated September 3, 1996.(filed as a part of Post-Effective Amendment #75 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on June 14, 1996, and incorporated herein by reference.) EX-27.1.1 Financial Data Schedule for Growth Fund. EX-27.1.2 Financial Data Schedule for Select Fund. EX-27.1.3 Financial Data Schedule for Ultra Fund. EX-27.1.4 Financial Data Schedule for Vista Fund. EX-27.1.5 Financial Data Schedule for Giftrust. EX-27.5.6 Financial Data Schedule for Short-Term Government Fund. EX-27.4.7 Financial Data Schedule for Cash Reserve Fund. EX-27.5.8 Financial Data Schedule for Benham Bond Fund. EX-27.5.9 Financial Data Schedule for Intermediate-Term Tax-Exempt Fund. EX-27.5.10 Financial Data Schedule for Long-Term Tax-Exempt Fund. EX-27.1.11 Financial Data Schedule for Heritage Fund. EX-27.7.12 Financial Data Schedule for Balanced Fund. EX-27.5.13 Financial Data Schedule for Limited-Term Tax-Exempt Fund. EX-27.5.14 Financial Data Schedule for Limited-Term Bond Fund. EX-27.5.15 Financial Data Schedule for Intermediate-Term Bond Fund. EX-27.5.16 Financial Data Schedule for Intermediate-Term Government Fund. EX-27.1.17 Financial Data Schedule for New Opportunities Fund. EX-99.B1J 3 ARTICLES OF AMENDMENT ARTICLES OF AMENDMENT OF TWENTIETH CENTURY INVESTORS, INC. The undersigned, William M. Lyons, in accordance with the Maryland General Corporation Law, does hereby certify that: 1. He is the duly elected Executive Vice President of Twentieth Century Investors, Inc., a Maryland corporation (the "Corporation"). 2. The amendment to the Articles of Incorporation of the Corporation, which was approved as of November 23, 1996 by the Board of Directors of the Corporation at a meeting pursuant to Section 2-605(a)(4) of the Maryland General Corporation Law, is as follows: The Articles of Incorporation of the Corporation are hereby amended by deleting all of the present Article SECOND and inserting in lieu therefor the following Article SECOND: "SECOND: The name of the Corporation is American Century Mutual Funds, Inc." 3. The amendment shall be effective January 1, 1997. IN WITNESS WHEREOF, the undersigned hereby acknowledges that these Articles of Amendment are the act of the Corporation and states, that to the best of his knowledge, information and belief, the matters and facts stated herein are true in all material respects, and that this statement is made under penalties of perjury. Dated this 2nd day of December, 1996. /s/ William M. Lyons William M. Lyons Executive Vice President Witness: /s/ Charles A. Etherington Charles A. Etherington Assistant Secretary EX-99.B1K 4 ARTICLES SUPPLEMENTARY AMERICAN CENTURY MUTUAL FUNDS, INC. ARTICLES SUPPLEMENTARY AMERICAN CENTURY MUTUAL FUNDS, INC., a Maryland corporation whose principal Maryland office is located in Baltimore, Maryland (the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The Corporation is registered as an open-end company under the Investment Company Act of 1940. SECOND: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Section 2-605(a)(4) of the Maryland General Corporation Law, the Board of Directors of the Corporation has renamed the duly established and allocated series of the Corporation's stock as follows: New Series Name Prior Series Name American Century - Twentieth Century Growth Investors Growth Fund American Century - Twentieth Century Select Investors Select Fund American Century - Twentieth Century Ultra Investors Ultra Fund American Century - Twentieth Century Vista Investors Vista Fund American Century - Twentieth Century Heritage Investors Heritage Fund American Century - Twentieth Century Giftrust Investors Giftrust American Century Balanced Fund Balanced Investors American Century - Benham Cash Cash Reserve Reserve Fund American Century - Benham Short-Term U.S. Governments Short-Term Government Fund American Century - Benham Bond Fund Long-Term Bond American Century - Benham Intermediate-Term Tax-Exempt Intermediate-Term Tax-Exempt Fund American Century - Benham Long-Term Tax-Exempt Long-Term Tax-Exempt Fund American Century - Benham Limited-Term Tax-Exempt Short-Term Tax-Exempt Fund American Century - Benham Intermediate-Term U.S. Governments Intermediate-Term Government Fund American Century - Benham Limited-Term Limited Term Bond Bond Fund American Century - Benham Intermediate-Term Intermediate-Term Bond Bond Fund American Century - Twentieth Century New Twentieth Century New Opportunities Fund Opportunities Fund The name changes shall be effective on January 1, 1997.
THIRD: Except as otherwise provided by the express provisions of these Articles Supplementary, nothing herein shall limit, by inference or otherwise, the discretionary right of the Board of Directors to serialize, classify or reclassify and issue any unissued shares of any Series or Class or any unissued shares that have not been allocated to a Series or Class, and to fix or alter all terms thereof, to the full extent provided by the Articles of Incorporation of the Corporation. FOURTH: A description of the series and classes of shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions for redemption is set forth in the Articles of Incorporation of the Corporation and is not changed by these Articles Supplementary, except with respect to the creation and/or designation of the various Series. FIFTH: The Board of Directors of the Corporation duly adopted resolutions renaming the Series, as set forth in Article SECOND. IN WITNESS WHEREOF, AMERICAN CENTURY MUTUAL FUNDS, INC. has caused these Articles Supplementary to be signed and acknowledged in its name and on its behalf by its Executive Vice President and its corporate seal to be hereunto affixed and attested to by its Assistant Secretary on this 2nd day of December, 1996. AMERICAN CENTURY MUTUAL ATTEST: FUNDS, INC. /s/ Patrick A. Looby By: /s/ William M. Lyons Name: Patrick A. Looby Name: William M. Lyons Title: Assistant Secretary Title: Executive Vice President THE UNDERSIGNED Executive Vice President of AMERICAN CENTURY MUTUAL FUNDS, INC., who executed on behalf of said Corporation the foregoing Articles Supplementary to the Charter, of which this certificate is made a part, hereby acknowledges, in the name of and on behalf of said Corporation, the foregoing Articles Supplementary to the Charter to be the corporate act of said Corporation, and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects under the penalties of perjury. Dated: December 2, 1996 /s/ William M. Lyons William M. Lyons, Executive Vice President EX-99.B4 5 SPECIMEN STOCK CERTIFICATE Specimen Stock Certificate AMERICAN CENTURY - (name of series) A Series of the Capital Stock of American Century Mutual Funds, Inc. Incorporated Under the Laws of the State of Maryland NUMBER DATED SHARES This is to Certify that IS THE OWNER OF THE FULLY PAID AND NON-ASSESSABLE SHARES STATED ABOVE OF American Century - (name of series) (name of class) A series of the Capital Stock, Par Value $0.01, of American Century Mutual Funds, Inc. (american century logo) American Century (sm) [printed vertically along right margin] Countersigned: By---------------Transfer Clerk The Corporation will furnish without charge to each Shareholder who so requests the designations and the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of each series and class of stock of the Corporation. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Articles of Incorporation of the Corporation and all amendments thereto, copies of which are on file at the executive offices of the Corporation, and the holder hereof by acceptance of this certificate consents and agrees to be bound by all of said provisions. This certificate is not valid until countersigned by an authorized Transfer Clerk of the Corporation. WITNESS the facsimile signatures of the Corporation's duly authorized officers. /s/William M. Lyons /s/James E. Stowers III William M. Lyons James E. Stowers III SECRETARY PRESIDENT [front of certificate] FOR VALUE RECEIVED,-----------------------------HEREBY SELL, ASSIGN AND TRANSFER unto---------------------------------------------------------------------------- - -------------------------------------------------------------------------------- of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint - ------------------------------------------------------------------------Attorney to transfer the said Stock on the books of the within named issuer with full power of substitution in the premises. DATED:------------------- ------------------------------- Signature ------------------------------- Signature (signature guarantee stamp) [printed vertically along far right margin] NOTICE: The signature(s) on this assignment must correspond with the name(s) as written upon the face of the certificate, in every particular, without alteration or any change whatever. The signature(s) must be guaranteed by a bank or trust company, credit union, broker-dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. Notarized or witnessed signatures are not acceptable as guaranteed signatures. [back of certificate] EX-99.B8A 6 CUSTODIAN AGREEMENT CUSTODIAN AGREEMENT WHEREAS, TWENTIETH CENTURY INVESTORS, INC., a Maryland corporation ("Corporation") desires to appoint a custodian with respect to certain monies received from shareholders for the purchase of its shares; and WHEREAS, UNITED MISSOURI BANK OF KANSAS CITY, N.A., a nationally-chartered banking association ("Custodian"), desires to serve as a custodian for these assets of the Corporation; NOW, THEREFORE, in consideration of the mutual promises herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. During the term of this Agreement the Corporation shall maintain one or more custody accounts (the "Accounts") with the Custodian and shall deposit in the Accounts all Automated Clearing House (ACH) purchases designated for the Corporation in payment for its shares. 2. The Custodian shall process all ACH purchases pursuant to that certain Electronic Entries Agreement dated September 13, 1994, between the Custodian and Twentieth Century Services, Inc. 3. The Custodian promptly and in a business-like manner shall process the items so deposited in the Accounts and remit the funds deposited to United States Trust Company of New York, the Corporation's Custodian, for deposit in Corporation's accounts there. Any funds not remitted by the close of each day shall be invested for the Corporation's benefit in such manner as the Corporation and Custodian may from time to time agree upon. All income from such investments shall be deposited in the Accounts. No funds shall be invested or otherwise utilized for the benefit of the Custodian. 4. (a) The Custodian shall no later that 9 a.m. on every day (Saturdays, Sundays and Holidays excluded) report to the Corporation the balance in the Accounts and the amounts available for transfer to United States Trust Company of New York. (b) The Custodian shall furnish monthly bank statements of the Accounts in the usual form. (c) At least monthly the Custodian shall provide the Corporation with an account analysis showing average ledger and collected balance for the month, total items processed and other bank services used during the period. 5. If the Corporation instructs the Custodian in any capacity to take any action with respect to any funds held by it hereunder, which action might subject the Custodian in the opinion of the Custodian to liability for any cost, loss, damage or expense, as a prerequisite to taking such action the Custodian shall be and be kept indemnified in an amount and form satisfactory to it. 6. This Agreement may be terminated by the Corporation in whole or in part upon ten (10) days written notice delivered to the Custodian at 10th & Grand Streets, Kansas City, Missouri 64105 (mailing address P. O. Box 419226, Kansas City, Missouri 64141) or by the Custodian upon sixty (60) days written notice delivered to the Corporation at 4500 Main Street, Kansas City, Missouri 64111 (mailing address P. O. Box 419200, Kansas City, Missouri 64141), and each party may from time to time designate another address to which such notice shall be delivered. Such notices shall be sent by registered mail and shall be deemed delivered when deposited in the United States Mail, postage prepaid. In the event of the inability of the Custodian to serve or other termination of this Agreement by either party, the Corporation shall forthwith appoint a custodian which qualifies as such under the Investment Company Act of 1940 or any other applicable law and the Custodian shall deliver all funds to such successor custodian (or to any other Custodian of the Corporation's assets) and such delivery shall constitute a full and complete discharge of the Custodian's obligations hereunder. If no such successor shall be found and there should be no other custodian, the Corporation shall submit to the holders of shares of its capital stock, before permitting delivery of such cash to anyone other than a qualified custodian, the question whether the Corporation shall be dissolved or shall function without a Custodian; and pending such decision the Custodian shall, (a) continue to hold the Accounts, or (b) deliver the funds in the Accounts, and all other assets, if any, to a Bank or Trust Company selected by it, such funds and assets to be held subject to the terms of custody hereunder and any such delivery shall be a full and complete discharge of its obligations hereunder. 7. If the Corporation shall be liquidated while this Agreement is in force, the Custodian shall distribute the property of the Corporation to creditors and shareholders in such manner as the Corporation may direct. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its officer or officers duly authorized, as of the 21st day of September, 1994. TWENTIETH CENTURY INVESTORS, INC. By: /s/ James E. Stowers III Name: James E. Stowers III Title: President UNITED MISSOURI BANK OF KANSAS CITY, N.A. By: /s/ Michael Porter Name: Michael Porter Title: Senior Vice President/ Director of Operations EX-99.B8E 7 MASTER AGREEMENT MASTER AGREEMENT Terms and Conditions Cash Management Services Company Name: Twentieth Century Master Agreement Number: 44-0619208 COMMERCE BANK, N.A. ("Bank") Twentieth Century Services, Inc. ("Company") Introduction. Bank shall perform Services described in separate Service Agreements and corresponding Service Manuals in accordance with this Master Agreement and the respective Service Agreements and Service Manuals. Banks may utilize outside service providers and agents in the performance of all or any of the Services. If the terms of any of the Service Agreements and/or Service Manuals conflict with this Master Agreement, this Master Agreement shall control. 1. Company's Records and Media. The Company will provide to the Bank all records and data processing media necessary to perform the Service. The records will be legible, correct, complete and in the format specified in the Service Agreements, Service Manuals and any related schedules. The records will contain totals and proof information satisfactory to the Bank. All data processing media supplied by the company; must be specified by, or acceptable to, the Bank. Checks must be MICR encoded in accordance with the Bank's specifications. When any Service Agreement is terminated, the Company will instruct the Bank in writing within sixty (60) days whether the Bank should return or destroy any data processing media furnished by the Company and any records produced as a part of terminated Services. If the company does not instruct the Bank within such sixty (60) day period, the Bank may destroy or return any such materials, and shall have no liability to the company or any third party if such materials are destroyed or otherwise not retained. All specifications, tapes or other media, programs and procedures owned by the Bank or its service providers in connection with the performance of the Services, will be and remain the sole property of the Bank. The Company will return such materials tot he Bank promptly upon request, and shall be responsible for any damage to any such materials incurred in shipping and usage other than normal wear and tear. 2. Company Failure to Furnish Satisfactory Records and Media. The Bank's performance of Services is subject to the Bank's receipt of timely, accurate and complete data for each Service, in form and on media specified by, or acceptable to the Bank. If any of these requirements are not met by the Company: a. The Bank shall no longer be bound by the applicable production and delivery schedules; and b. The Bank shall be authorized to produce and deliver whatever portion of the Services can be performed under the circumstances. In addition to the foregoing, the Company shall compensate the Bank at the Bank's then current rates for the time and materials for converting data from nonstandard form to standard form, or for completing missing data. 3. Company's Duty to Inspect. The Company shall be responsible for inspecting the work product for all Services performed, when received, and for notifying the Bank immediately upon the discovery of any errors. The Company must notify the Bank within a reasonable time after receipt of the material containing any error, or of a report or statement reflecting any error, and in any event, within the time periods specified in the applicable Service Manuals. Except to the extent otherwise provided by applicable law or this Agreement, failure to notify the Bank of errors within the applicable time period will relieve the Bank of any and all responsibility and liability relating thereto. 4. Limitation of Liability. Except to the extent otherwise provided by applicable law, the Bank's liability will be limited as set forth herein. The Bank's liability shall be limited to actual damages sustained by the Company and only to the extent such damages are a direct result of the Bank's failure to act in good faith and exercise ordinary care (as measured by the standard of care as set forth in Section 12 below). The Bank shall not be liable for any act or omission of th3 Company or any third party. Each Service Agreement shall constitute a contract solely between the Bank and the Company, and the Bank shall have no liability thereunder to any third party, or for any charges imposed by any third party, EXCEPT TO THE EXTENT OTHERWISE LIMITED BY APPLICABLE LAW, IN NO EVENT SHALL THE BANK BE LAIBLE FOR SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL LOSS OR DAMAGE OF ANY KIND, INCLUDING LSOT PROFITS (WHETHER OR NOT THE BANK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE.) For transfers governed under Article 4A of the Uniform Commercial Code, the Bank will compensate the Company, to the extent required by applicable law, for the Company's loss of interest on funds as a direct result of the Bank's failure to comply with such law in executing a transfer, such compensation shall be based upon the Fed Funds Rate at the Federal Reserve Bank of New York in effect at the time of the claimed loss of interest (as determined by the Bank in its reasonable discretion). Except to the extent otherwise provided by applicable law or this Agreement, the Bank shall not be liable for the Company's attorney's fees in connection with any claim for loss of interest, or otherwise. 5. Fees. The Company shall compensate the Bank for the Services in accordance with the Bank's fee schedules in effect from time to time. The Bank may amend the fee schedules at any time and will endeavor to give written notice thirty (30) days in advance, to the Company of changes in fee schedules relating to Services then being performed for the Company. If acceptable to the Bank, fees may be payable through the maintenance by the Company of required compensating collected balances in specified account(s) of the Company; the compensation collected balance requirements will be measured by Bank's standard "analysis" of the Company's specified account(s). In the alternative, Bank may bill the Company for fees, by invoice. Each invoice shall be due and payable within sixty (60) days of the date of invoice. In addition to the fees to be paid by the Company, the Company agrees to pay all sales, use or other taxes applicable to the Services provided hereunder, excluding, however, taxes based upon the Bank's net income. 6. Overdrafts; Set-off. In the event any actions by the Company should result in an overdraft in any of its accounts, the Company shall be responsible for immediately covering the overdraft (with immediately available funds), together with interest thereon at a per annum rate equal to two percent (2%) in excess of the Bank's published prime Rate. Notwithstanding the foregoing, Bank shall no duty or obligation to honor or effect any transfer which will result in an overdraft in any of Company's accounts. 7. Credit Limits; Documentation. In the event the Services selected by the Company and to be performed by the Bank may result in credit exposure to the Bank, the Bank may limit the Company's transaction volume of dollar amount and refuse to execute transactions that exceed any such limit. The Company shall, upon request by the Bank from time to time, provide to the Bank financial information and statements and such other documentation as the Bank determines to be reasonably necessary or appropriate to enable the Bank to evaluate its credit exposure and the Company's credit worthiness. The Company shall provide to the Bank, as the Bank may request from time to time, such documentation (such as resolutions, incumbency certificates, authorizations, agreements and other documents) relating to (without limitation) the Company's authority to contract for the Services and/or the Company's establishment of any deposit accounts. 8. Security Procedures. If the Services involve the establishment of security procedures to be implemented and followed by Company, the Company agrees that is shall be solely responsible to assure that such security procedures are followed, as they may be amended from time to time. If such security procedures are breached or violated, the Company agrees to immediately notify Bank of any such breach or violation. THE COMPANY ACKNOWLEDGES THAT IT HAS REVIEWED ALL APPLICABLE COMPANY SECURITY PROCEDURES AND HAS DETERMINED, AS OF THE DATE HEROF, THAT THOSE PROCEDURES ARE COMEMRCIALLY REASONABALE. THE COMPANY ALSO AGREES THAT ITS EXECUTION OF ANY SERVICE AGAREEMENS IN THE FUTURE WILL CONSTITUTE ITS ACKNOWLEDGMENET THAT ALL COMPANY SECURITY PROCEDURES APPLCIABLE TO THE RESPECTIVE SERVICES ARE COMMERCIALLY REASONABLE. This Section 8 shall survive termination of all Service Agreements. 9. Indemnity. The Company shall indemnify and hold the Bank harmless from any and all claims, damages, losses, liabilities, costs and expenses, including reasonable attorney's fees, which result from any breach of a Service Agreement or this Master Agreement by the Company, or which relate in any manner to the Services performed under this Maser Agreement and the respective Service Agreements and Service Manuals, except to the extent arising from the Bank's failure to perform Services in accordance with the standard of care a set forth in Section 12 below. Bank hereby represents and warrants: (a) that Bank owns all Bank-provided software, or has the authority to license the software as provided in the Agreement; and (b) that the software does not now and will not infringe any United States patent, copyright, trade secret or other proprietary right of any third party. Bank, at its expense, hereby agrees to indemnify and hold harmless Company, and defend any actin brought against Company with respect to any claim, demand, cause of action, cost, loss, damage, expense (including reasonable attorneys' fees) or liability, arising from or based in any respect on a claim by any third party that Company's use of any Bank-provided software or documentation infringe, violate or in any manner contravene, breach or constitute an unauthorized use of misappropriation of any patent, copyright, license, trade secret or other property or proprietary right. 10. Term. Each Service Agreement shall continue until terminated by either party upon thirty (30) days prior written notice; provided, however, each Service Agreement shall automatically terminate without notice (i) upon the filing by or against the Company of any bankruptcy petition for the appointment of a receiver, or upon the filing of any other action alleging, or if a determination is made, that the Company is insolvent, (ii) in the event that the Company's designated accounts with the Bank are closed, (iii) u0pon termination of a third party contract which is necessary for the performance of the Services, or (iv) if either the Bank or the Company is hereafter prohibited by law from performing or contracting for the Services. The Bank may also terminate any Service Agreement immediately with or without notice if the Bank determines that the Company has failed to maintain a financial condition deemed necessary by the Bank, or in the event of a material breach by the company of any agreement between the Company; and the Bank. 11. Force Majeure. Neither party shall bear any responsibility for non-performance of any Services caused by, or relating to, an event beyond the applicable party's control, including, without limitation, fire, casualty, breakdown in equipment of failure of telecommunications or data processing services, sabotage, labor shortage, lockout, strike, unavoidable accident, acts of God, riot, war or the enactment, issuance or operation of any adverse governmental law, ruling, regulation, order or decree, or an emergency or catastrophe that prevents or materially interferes with the such party's normal operations. . 12. Standard of Care. Bank will exercise reasonable care to select and use facilities, equipment, personnel and third party service providers in connection with the activities to be performed under the respective Service Agreements and this Master Agreement, with the same care as it exercises in the conduct of its own banking operations. Bank shall exercise reasonable care in performing its duties and obligations under the Service Agreements. 13. Facsimile Signature. If the Company at any time authorizes or permits utilization of a facsimile signature for any "authorized signature", the Bank shall be entitled to honor and charge the Company for all checks and other orders for payment of money so signed, regardless of by whom or what means the purported or actual facsimile signature may have been affixed thereto, is such orders are drawn in the Company's name. Company agrees that all previous, present and future authorizations shall continue in full force and effect until Bank is advised din writing to the contrary and until Bank shall have had a reasonable opportunity to at upon such advise. 14. Check Retention. If the Company chooses to have the Bank retain copies of its paid checks, Company agrees not to make any claim against the Bank arising out of the authorized destruction of the original check, or the clarity of legibility of any copy that the Bank provides. 15. Business Purpose. The Company agrees that the Services to be performed by the Bank will be sued by the Company solely for business or commercial purposes and not for personal, family, or household purposes. 16. Severability. If any provision of this Master Agreement or any Service Agreement shall be determined by a court of competent jurisdiction to be void or unenforceable as written, the affected provision shall be interpreted so as to achieve, to the extent permitted by applicable law, the purposes intended under the original provision, and the remaining provisions of the Service Agreements and this Master Agreement shall continue in full force and effect as modified. 17. Headings; Complete Agreement. Headings are used for reference purposes only and shall not be deemed a part of these Terms and Conditions. The parties hereto acknowledge that each has read the Service Agreements and this Master Agreement, understands them, and agrees to be bound by the respective terms thereof. The parties further agree that the Service Agreements, the Service Manuals and this Master Agreement, and any written modifications made to any of the foregoing, and the applicable deposit account agreements, shall constitute the complete and exclusive expression of the agreements between the parties, and shall specifically supersede all other proposals (whether oral or written), understandings, representations, conditions, warranties, covenants, and all other communications between the parties relating to the subject matter of all of the foregoing. 18. Amendments; Assignments. The Bank may amend this Maser Agreement, any Service Agreement and/or Service Manual at any time. Unless a greater period is otherwise required by applicable law, the Bank will use reasonable efforts to provide notice to the Company, at least (30) days before the effective date, of any amendment which in the reasonable opinion of Bank will materially alter the terms of this Master Agreement, any Service Agreement and/or Service Manual. Company may not assign any Service Agreement or any of its rights or duties hereunder or thereunder to any person or entity without Bank's prior written consent (which consent will not be unreasonably withheld or delayed), and any attempted assignment without such consent shall be null and void. 19. Notices. All notices required or permitted to be given hereunder shall be effective when received if hand delivered or sent by telecopier, or when deposited in the United States Mail, first class postage prepaid, and addressed to the respective parties at the addresses set forth below the respective signature lines contained herein, or to such other address as either party shall have specified in writing to the other. 20. Binding Agreement; Benefit. This Master Agreement shall be binding upon and inure to the benefit of, and shall be enforceable exclusively by and for the exclusive benefit of, the parties hereto and their respective legal representatives, permitted successors and permitted assigns. 21. Waiver of Jury Trial. COMPANY AND BANK HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY ON ANY MATTERS ARISING OUT OF THIS MASTER AGREEMENT OR THE TRANSACTINS CONTEMPLETED HEREIN, IN THE SERVICE AGREEMENTS AND IN THE SERVICE MANUALS. 22. Governing Law. This Master Agreement and the Service Agreements shall be governed by, and interpreted in accordance with, the laws of the State of Missouri. Twentieth Century Services, Inc. -------------------------------- --------------------------------- Company Commerce Bank, N.A By: /s/ Mary Anne Roepke By: /s/ Teresa Rouse Maryanne Roepke 8/29/96 Teresa Rouse 1/22/97 Title: Vice President & Treasurer Title: Senior Vice President Address for notice: Address for notice: -------------- Commerce Bank, N.A. -------------- Corporate Services -------------- P.O. Box 419248 -------------- Kansas City, MO 64141-6248 Commerce Bank, N.A. The Cash Sweep Program Sweep Service Agreement I have received and reviewed the Goldman Sachs & Co. prospectus of the Financial Square Trust Fund and appoint you, Commerce Bank, N.A. to implement a cash management program whereby you will purchase service units in the Portfolio for me [and the accompanying investment (purchase and redemption) requirements]. I understand that you will purchase such units with funds which I may deliver to you for such purpose, provided I maintain in my depository account with you (the "Account") a minimum balance which shall be determined from time to time. As my agent, you are also authorized and directed to purchase units in the Portfolio with any cash balances remaining in my Account at the end of every business day in excess of the minimum balance. I understand that such cash balances in excess of the minimum balance will either be invested directly at the end of every business day in units in the Portfolio or will be swept into an omnibus account of the Bank which account, at the beginning of the following business day, will invest such cash balances directly in units in the Portfolio and that such units, when purchased, will be allocated directly to the Account. You are authorized to hold these units as unitholder of record and nominee for my sole benefit and you are to maintain appropriate records of units purchased, earnings on units held and units redeemed. Dividends on Portfolio units will be reinvested in additional units. An accurate monthly statement showing all income and principal cash received or disbursed by the Account during the period covered shall be furnished. You shall use "best efforts", as that term is understood in the investment community, to invest all cash balances in excess of the minimum balance in Portfolio units until you receive notice of any changes in this authorization. Units held are to be redeemed as promptly as practicable and the cash received for such redemptions credited to the Account whenever such cash is needed for other uses as directed by me, to cover outstanding and unpaid checks drawn the Account or to cover cash management fees and expense reimbursements charged to the Account as described below. I Agree that I will not draw checks on my deposit account in a fashion that will create an overdraft that will be used for the purpose of buying, carrying or trading securities, or buying or carrying any part of an investment contract security or obtaining such overdraft to repay debt incurred for such purposes. I understand that the Bank shall immediately obtain a security interest in the Portfolio units upon the occurrence of and to the extent necessary to cover the amount of any overdraft incurred in the Account for such period of time as said overdraft remains outstanding. The Bank, in its sole discretion, alternatively may withhold from payment any outstanding and unpaid check drawn on the Account until finds sufficient to cover such outstanding and unpaid check have been credited to the Account as a result of cash received from the redemption of Portfolio units. This Agreement shall continue until you receive written notice of my revocation or until you advise me that you do not wish to continue this service. Upon revocation or termination, all Portfolio units then held shall be promptly redeemed for cash and the proceeds delivered to my Account or to me after payment of outstanding check or service fees, if any, as I may designate. I understand that your responsibility is limited to the exercise of due care and diligence in the custody of the assets you hold hereunder and in acting pursuant to this Agreement. In no event, however, shall you be liable in any respect except for negligence or willful breach of duties and in no event for losses due to investment selection. I understand that Portfolio units are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency and do not constitute obligations of the Bank, but that the Bank acts solely as agent for me in purchasing units. I shall be responsible for all expenses, taxes, or other charges or liabilities incurred by you in connection with the Account, and you are authorized to charge my Account accordingly. You are authorized to supply information or to sign, as my agent, documents required by any tax laws or other laws or regulations. In addition, I expressly authorize you or your designee to act upon voice, telegram, cablegram and radio messages received by you purporting to be sent by me or by any dully authorized agent although bearing no test or other form of confirmation. I assume all risk which may result from any action taken by you or your designee in good faith in reliance on such communications. I also acknowledge that fees will be paid monthly by the Portfolio and Goldman Sachs Asset Management to the Bank as disclosed in the Portfolio prospectus. This Agreement is governed by the laws of the State of Missouri. I am completing the attached new account information form to facilitate the establishment of this account. Please confirm this authorization and direction with respect to the funds delivered herein. This Agreement will be effective upon confirmation by you. Signatures: 1. /s/ Maryanne Roepke Maryanne Roepke 2./s/----------------- -------------------- Accepted this day of ----- 199 Commerce Bank, N.A. By:/s/ Carolyn M. Fitzgerald Carolyn M. Fitzgerald Account # --------------------------- EX-99.B9 8 TRANSFER AGENCY AGREEMENT TRANSFER AGENCY AGREEMENT Agreement made March 1, 1991 between Twentieth Century Investors, Inc., a Maryland corporation ("Twentieth Century"), and Twentieth Century Services, Inc., a Missouri corporation ("Services"). 1. By action of its Board of directors Twentieth Century on November 17, 1990 appointed Services as its transfer agent, and Services accepted such appointment. 2. As transfer agent for Twentieth Century, Services shall perform all the functions usually performed by transfer agents of investment companies, in accordance with the policies and practices of Twentieth Century as disclosed in its prospectus or otherwise communicated to Services from time to time, including but not limited to, the following: (a) Recording the ownership, transfer, conversion and cancellation of ownership of shares of Twentieth Century on the books of Twentieth Century; (b) Causing the issuance, transfer, conversion and cancellation of stock certificates of Twentieth Century; (c) Establishing and maintaining records of accounts; (d) Computing and causing to be prepared and mailed or otherwise delivered to shareholders payment of redemption proceeds due from Twentieth Century on redemption of shares and notices of reinvestment in additional shares of dividends, stock dividends or stock splits declared by Twentieth Century on shares of Twentieth Century; (e) Furnishing to shareholders such information as may be reasonably required by Twentieth Century, including confirmation of shareholder's transactions and appropriate income tax information; (f) Addressing and mailing to shareholders prospectuses, annual and semiannual reports; addressing and mailing proxy materials for shareholder meetings prepared by or on behalf of Twentieth Century, and tabulating the proxy votes. (g) Replacing allegedly lost, stolen or destroyed stock certificates in accordance with and subject to usual and customary procedures and conditions. (h) Maintaining such books and records relating to transactions effected by Services pursuant to this Agreement as are required by the Investment Company Act, or by rules or regulations thereunder, or by any other applicable provisions of law, to be maintained by Twentieth Century or its transfer agent with respect to such transactions; preserving, or causing to be preserved, any such books and records for such periods as may be required by any such law, rule or regulation; furnishing Twentieth century such information as to such transactions and at such times as may be reasonably required by it to comply with applicable laws and regulations, including but not limited to the laws of the several states of the United States. (i) Dealing with and answering all correspondence from or on behalf of shareholders relating to its functions under this agreement. 3. Twentieth Century may perform on site inspection of records and accounts and perform audits directly pertaining to Twentieth Century shareholder accounts services by Services hereunder at Services' facilities in accordance with reasonable procedures at the frequency necessary to show proper administration of this agreement and the proper audit of Twentieth Century's financial statements. Services will cooperate with Twentieth Century's auditors and the representatives of appropriate regulatory agencies and furnish all reasonably requested records and data. 4. (a) Services will at all times exercise due diligence and good faith in performing its duties hereunder. Services will make every reasonable effort and take all reasonably available measures to assure the adequacy of its personnel and facilities as well as the accurate performance of all services to be performed by it hereunder within the time requirement of any applicable statutes, rules or regulations or as disclosed in Twentieth Century's prospectus. (b) Services shall not be responsible for, and Twentieth Century agrees to indemnify Services, for any losses, damages or expenses (including reasonable counsel fees and expenses) (a) resulting from any claim, demand, action or suit not resulting from Services' failure to exercise good faith or due diligence and arising out of or in connection with Services duties on behalf of the fund hereunder; (b) for any delay, error, or omission by reason or circumstance beyond its control, including acts of civil or military authority, national emergencies, labor difficulties (except with response to Services' employees), fire, mechanical breakdowns beyond its control, flood or catastrophe, act of God, insurrection, war, riot or failure beyond its control of transportation, communication or power supply; or (c) for any action taken or omitted to be taken by Services in good faith in reliance on (i) the authenticity of any instrument or communication reasonably believed by it to be genuine and to have been properly made and signed or endorsed by an appropriate person, or (ii) the accuracy of any records or information provided to it by Twentieth Century, (iii) any authorization or instruction contained in any officers' instruction, or (iv) any advice of counsel approved by Twentieth Century who may be internally employed counsel or outside counsel, in either case for Twentieth Century of Services. 5. Services shall not look to Twentieth Century for compensation for its services described herein. It shall be compensated entirely by Investors Research Corporation, pursuant to the management agreement between Investors Research Corporation and Twentieth Century which requires Investors Research Corporation to pay all of the expenses of Twentieth Century. 6. This Agreement may be terminated by either party at any time without penalty upon giving the other party 60 days written notice (which notice may be waived by either party). Upon termination Services will deliver to Twentieth Century all microfilm records pertaining to shareholder accounts of Twentieth Century, and all records of shareholder accounts in machine readable form in the format in which they are maintained by Services. All data processing programs used by Services in connection with the performance of its duties under this Agreement are the sole and exclusive property of Services, and after the termination of this Agreement, Twentieth Century shall have no right to use the same. IN WITNESS WHEREOF, the parties have executed this instrument the day and year first above written. Twentieth Century Investors, Inc. By: /s/ William M. Lyons William M. Lyons, Vice President Twentieth Century Services, Inc. By: /s/ Wendy B. Welte Wendy B. Welte, Vice President EX-99.B10 9 OPINION AND CONSENT OF COUNSEL Charles A. Etherington Attorney at Law 4500 Main Street P.O. Box 418210 Kansas City, Missouri 64141-9210 Telephone (816) 340-4051 Telecopier (816) 340-4964 -------------------------- February 28, 1997 American Century Mutual Funds, Inc. American Century Tower 4500 Main Street Kansas City, Missouri 64111 Ladies and Gentlemen: As counsel to American Century Mutual Funds, Inc., I am generally familiar with its affairs. Based upon this familiarity, and upon the examination of such documents as I have deemed relevant, it is my opinion that the shares of the Corporation described in Post-Effective Amendment No. 76 to its Registration Statement on Form N-1A, to be filed with the Securities and Exchange Commission on February 28, 1997, will, when issued, be validly issued, fully paid and nonassessable. For the record, it should be noted that I am an officer of American Century Services Corporation, an affiliated corporation of American Century Investment Management, Inc., the investment adviser of American Century Mutual Funds, Inc. I hereby consent to the use of this opinion as an exhibit to Post-Effective Amendment No. 76. Very truly yours, /s/Charles A. Etherington Charles A. Etherington EX-99.B11 10 INDEPENDENT AUDITOR'S CONSENT CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT American Century Mutual Funds, Inc. American Century Tower 4500 Main Street Kansas City, Missouri 64111 We hereby consent to the use in this Post-Effective Amendment No. 76 to the Registration Statement under the Securities Act of 1933 and this Amendment No. 76 to the Registration Statement under the Investment Company Act of 1940, both on form N-1A, of our report dated November 20, 1996, accompanying and pertaining to the financial statements of Twentieth Century Investors, Inc., as of October 31, 1996, which are included in such Post-Effective Amendments. /s/ BAIRD, KURTZ & DODSON BAIRD, KURTZ & DOBSON Kansas City, Missouri February 28, 1997 EX-99.B16 11 SCHEDULES OF COMPUTATION Schedule of Computation of Performance Advertising Quotations A. Representative Total Return Calculations Set forth below are representative calculations of each type of total return performance quotation included in the Statement of Additional Information of Twentieth Century Investors, Inc. 1. Average annual total return. The five year average annual return of Growth Investors, as quoted in the Statement of Additional Information, was 9.32%. This return was calculated as follows: P(1+T)n=ERV where, P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of the hypothetical $1,000 payment at the end of 5 years. Applying the actual return figures of Growth Investors for the 5 year period ended October 31, 1996: 1,000 (1+9.32%)5 = $1,561.34 T = 1,561.34 1/5 - 1 -------- 1,000.00 T = 9.32% 2. Cumulative total return. The cumulative total return of Growth Investors from 6/30/71 to 10/31/96 as quoted in the Statement of Additional Information, was 6,728.19% This return was calculated as follows: C = (ERV - P) -------- P where, C = cumulative total return P = a hypothetical initial payment of $1,000 ERV = ending redeemable value of the hypothetical $1,000 payment at the end of the 25.3 year period Applying the actual return figures of Growth Investors for the 25.3 year period ended October 31, 1996: C = (68,281.90 - 1,000) ------------------- 1,000 C = 6,728.19% B. Yield Calculations Set forth below are representative calculations of each type of yield quotation included in the Statement of Additional Information of Twentieth Century Investors, Inc. 1. Cash Reserve Yield. The yield for Cash Reserve for the current seven days ended October 31, 1996, as quoted in the Statement of Additional Information, was 4.74%. The yield was computed as follows: Y = I x 365 --- --- B 7 where, Y = yield I = total income of hypothetical account of one share over seven day period B = beginning account value ($1) Applying the actual figures of Cash Reserve for the seven day period ended October 31, 1996: Y = .000908361 x 365 ---------- --- 1 7 Y = 4.74% Thirty-day yields are calculated similarly, with the appropriate substitutions. 2. Cash Reserve Effective Yield. The effective yield for Cash Reserve for the seven days ended October 31, 1996 as quoted in the Statement of Additional Information, was 4.85%. The effective yield was computed as follows: ( I ) 365/7 EF = (1 + ---) -1 ( B ) where, EF - effective yield I = total income of hypothetical account of one share over seven day period B = beginning account value ($1) Applying the actual figures of Cash Reserve for the seven day period ended October 31, 1996 EF = 1 + .000908361 365 - 1 ---------- --- 1 7 EF = 4.85% 3. Other Fixed-Income Funds and the Balanced Fund Yield. The yield for U.S. Governments for the thirty days ended October 31, 1996, as quoted in the Statement of Additional Information, was 5.36%. The yield was calculated as follows: Y = a - b + 1 6 - 1 *2 ----- c*d where, Y = yield a = total income during thirty day period b = expense accrued for the period c = average daily number of shares outstanding during the period d = maximum offering price per share on last day of period Applying the actual figures of U.S. Governments for the thirty day period ended October 31, 1996: 1,753,770.87 - 201,080.32 +1 6 - 1 *2 ------------------------- 37,099,103.513 * 9.47 Y = 5.36% 4. Tax-Equivalent Yield. The tax-equivalent yield for Tax-Exempt Intermediate Term for the thirty days ended October 31, 1995, as quoted in the Statement of Additional Information, was 6.58%. The tax-equivalent yield was calculated as follows: EY = Y - Yt ------ + Yt 1 - A where, EY = tax-equivalent yield Y = yield (as computed above) A = assumed tax rate of 36% Yt = portion of the yield that was not tax-exempt Applying the actual figures of Tax-Exempt Intermediate Term for the thirty days ended October 31, 1996: EY = 4.34 ------ 1-.36 EY = 6.78% Cumulative total return and average annual total return quotations for the fixed-income funds (other than Cash Reserve) are calculated in the same manner as cumulative total return and average annual total return quotations for the Twentieth Century common stock funds and the Balanced Fund as described under paragraphs A1 and A2 of this Schedule. EX-99.B17 12 POWER OF ATTORNEY POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, American Century Mutual Funds, Inc., hereinafter called the "Corporation", and certain directors and officers of the Corporation, do hereby constitute and appoint James E. Stowers, Jr., James E. Stowers III, William M. Lyons, and Patrick A. Looby, and each of them individually, their true and lawful attorneys and agents to take any and all action and execute any and all instruments which said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Act of 1933 and/or the Investment Company Act of 1940, as amended, and any rules, regulations, orders, or other requirements of the United States Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of 1933 and/or the Investment Company Act of 1940, as amended, including specifically, but without limitation of the foregoing, power and authority to sign the name of the Corporation in its behalf and to affix its corporate seal, and to sign the names of each of such directors and officers in their capacities as indicated, to any amendment or supplement to the Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 and/or the Investment Company Act of 1940, as amended, and to any instruments or documents filed or to be filed as a part of or in connection with such Registration Statement; and each of the undersigned hereby ratifies and confirms all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the Corporation has caused this Power to be executed by its duly authorized officers on this the 15th day of February, 1997. AMERICAN CENTURY MUTUAL FUNDS, INC. By: /s/ James E. Stowers III James E. Stowers III, President SIGNATURE AND TITLE /s/ James E. Stowers III /s/ Robert W. Doering, M.D. James E. Stowers, Jr. Robert W. Doering, M.D. Chairman and Director Director /s/ James E. Stowers III /s/ Linsley L. Lundgaard James E. Stowers III Linsley L. Lundgaard President, Director and Director Principal Executive Officer /s/ Robert T. Jackson /s/ Donald H. Pratt Robert T. Jackson Donald H. Pratt Executive Vice President, Director Principal Financial Officer /s/ Maryanne Roepke /s/ Lloyd T. Silver Maryanne Roepke Lloyd T. Silver Vice President and Treasurer, Director Principal Accounting Officer /s/ Thomas A. Brown /s/ M. Jeannine Strandjord Thomas A. Brown M. Jeannine Strandjord Director Director Attest: /s/ D.D. ("Del") Hock D.D. ("Del") Hock By: /s/ William M. Lyons Director William M. Lyons, Secretary EX-27.1.1 13 FDS GROWTH FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 1 GROWTH FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 3,678,206 4,797,550 28,830 0 0 4,826,380 29,978 0 30,978 60,956 2,145 3,564,859 214,526 214,805 38,410 0 40,665 0 1,119,345 4,765,424 37,661 6,859 0 47,683 (3,163) 104,580 253,622 355,039 0 14,900 659,050 0 34,900 69,582 34,403 (364,470) 11,867 639,741 0 0 47,633 0 47,683 4,789,340 23.88 (0.01) 1.47 0.07 3.06 0.00 22.21 1.00 0 0
EX-27.1.2 14 FDS SELECT FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 2 SELECT FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 3,192,805 4,051,704 55,021 1,540 0 4,108,265 58,595 0 10,991 69,586 973 2,799,287 97,279 101,434 28,576 0 350,596 0 859,247 4,038,679 54,279 6,113 0 39,347 21,045 364,952 324,433 710,430 0 26,725 462,881 0 10,936 28,464 13,373 30,241 20,688 462,093 0 0 39,305 0 39,347 3,935,125 39.52 0.20 6.73 0.27 4.66 0.00 41.52 1.00 0 0.00
EX-27.1.3 15 FDS ULTRA FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUTAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. INFORMATION PRESENTED IS A TOTAL OF ALL CLASSES, EXCEPT WHERE SUCH PRESENTATION IS NOT POSSIBLE(SUCH AS PER SHARE DATE). IN THOSE CASES, ONLY THE INVESTOR CLASS INFORMATION IS PRESENTED. 3 ULTRA FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 12,355,552 18,301,798 125,087 20,725 0 18,447,610 123,446 0 45,218 168,664 6,192 11,314,849 619,157 512,810 0 0 1,010,641 0 5,947,264 18,278,946 110,875 20,035 0 162,378 (31,468) 1,037,212 777,976 1,783,720 0 0 683,461 0 194,542 114,977 26,782 3,903,044 0 669,968 0 0 162,208 0 162,378 16,286,748 28.03 (0.07) 2.84 0.00 1.30 0.00 29.52 1.00 0 0.00 SCHEDULE REFLECTS THE TOTAL FOR ALL CLASSES, EXCEPT WHERE INDICATED. INVESTOR CLASS INFORMATION ONLY.
EX-27.1.4 16 FDS VISTA FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. INFORMATION PRESENTED IS A TOTAL OF ALL CLASSES, EXCEPT WHERE SUCH PRESENTATION IS NOT POSSIBLE(SUCH AS PER SHARE DATE). IN THOSE CASES, ONLY THE INVESTOR CLASS INFORMATION IS PRESENTED. 4 VISTA FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 1,720,861 2,256,493 53,470 7,927 0 2,317,890 29,605 0 6,807 36,412 1,455 1,576,366 145,535 106,542 0 0 168,024 0 535,633 2,281,478 305 5,134 0 20,223 (14,784) 171,813 (24,182) 132,847 0 0 113,264 0 92,737 61,549 7,805 605,561 0 467 0 0 20,199 0 20,223 2,041,214 15.73 (0.13) 1.09 0.00 1.03 0.00 15.68 0.99 0 0.00 SCHEDULE RELFECTS THE TOTAL FOR ALL CLASSES, EXCEPT WHERE INDICATED. INVESTOR CLASS INFORMATION ONLY.
EX-27.1.5 17 FDS GIFTRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 5 GIFTRUST - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 663,441 860,048 14,044 455 0 874,547 7,958 0 839 8,797 336 642,866 33,572 21,896 0 0 25,941 0 196,607 865,750 18 1,413 0 7,170 (5,739) 25,992 51,469 71,722 0 0 48,106 0 10,014 413 2,075 304,638 0 48,055 0 0 7,162 0 7,170 731,222 25.63 (0.20) 2.46 0.00 2.10 0.00 25.79 0.98 0 0.00
EX-27.5.6 18 SHORT-TERM GOVERMENT FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 6 SHORT-TERM GOVERNMENT FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 345,317 347,730 3,822 0 0 351,552 0 0 1,780 1,780 369 366,948 36,941 41,168 0 0 (19,958) 0 2,413 349,772 0 22,514 0 2,574 19,940 (339) (1,269) 18,332 0 19,940 0 0 8,327 14,531 1,977 (41,559) 0 (19,619) 0 0 2,570 0 2,574 370,207 9.51 0.51 (0.04) 0.51 0.00 0.00 9.47 0.70 0 0.00
EX-27.4.7 19 FDS CASH RESERVE
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 7 CASH RESERVE FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 1,367,543 1,367,543 4,426 237 0 1,372,206 14,994 0 10,112 25,106 13,472 1,333,706 1,347,178 1,469,626 0 0 (78) 0 0 1,347,100 0 76,713 0 9,609 67,104 2 0 67,106 0 67,104 0 0 2,137,139 2,324,195 64,608 (122,448) 0 0 0 0 9,594 0 9,609 1,375,449 1.00 0.05 0.00 0.05 0.00 0.00 1.00 0.70 0 0.00
EX-27.5.8 20 FDS BENHAM BOND FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 8 BENHAM BOND FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 136,320 138,317 4,957 0 0 143,274 0 0 707 707 148 139,118 14,801 15,251 0 0 1,304 0 1,997 142,567 0 10,174 0 1,150 9,024 1,341 (3,546) 6,819 0 9,024 228 0 6,596 7,937 891 (6,656) 0 191 0 0 1,148 0 1,150 146,072 9.78 0.60 (0.14) 0.60 0.01 0.00 9.63 0.79 0 0.00
EX-27.5.9 21 FDS INTERMEDIATE-TERM TAX-EXEMPT
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 9 BENHAM INTERMEDIATE-TERM TAX-EXEMPT - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 77,976 79,959 1,333 0 0 81,292 0 0 724 724 78 78,323 7,788 7,677 0 0 184 0 1,983 80,568 0 4,273 0 486 3,787 185 (538) 3,434 0 3,787 549 0 1,701 1,949 359 320 0 548 0 0 485 0 486 81,297 10.45 0.48 (0.03) 0.48 0.07 0.00 10.35 0.60 0 0.00
EX-27.5.10 22 FDS LONG-TERM TAX-EXEMPT FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 10 LONG-TERM TAX-EXEMPT FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 57,253 60,223 1,023 0 0 61,246 0 0 474 474 57 57,745 5,744 5,503 0 0 0 0 2,970 60,772 0 3,361 0 354 3,007 27 134 3,168 0 3,007 0 0 1,920 1,925 245 2,775 0 (27) 0 0 353 0 354 59,479 10.54 0.53 0.04 0.53 0.00 0.00 10.58 0.59 0 0.00
EX-27.1.11 23 FDS HERITAGE FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 11 HERITAGE FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 874,929 1,091,552 6,536 1,219 0 1,099,307 13,011 0 3,145 16,156 885 797,806 88,484 85,837 7,938 0 59,758 0 216,764 1,083,151 8,549 1,910 0 10,584 (125) 69,544 34,728 104,147 0 4,182 53,228 0 22,820 25,302 5,129 74,828 3,755 51,932 0 0 10,573 0 10,584 1,065,352 11.75 0.00 1.15 0.05 0.61 0.00 12.24 0.99 0 0.00
EX-27.7.12 24 FDS BALANCED FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 12 BALANCED FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 742,244 863,690 58,164 3,279 0 925,133 39,990 0 5,975 45,965 474 689,723 47,404 46,083 2,912 0 64,614 0 121,445 879,168 5,264 24,471 0 8,354 21,381 66,241 24,176 111,798 0 21,812 46,792 0 11,553 14,226 3,994 63,598 2,054 46,454 0 0 8,345 0 8,354 844,937 17.70 0.44 1.88 0.46 1.01 0.00 18.55 0.99 0 0.00
EX-27.5.13 25 FDS BENHAM LIMITED-TERM TAX-EXEMPT
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 13 BENHAM LIMITED-TERM TAX-EXEMPT FUND - 1996 1000 YEAR OCT-31-1996 OCT-31-1996 51,197 51,590 815 0 0 52,405 2,020 0 519 2,539 49 49,408 4,949 5,829 0 0 16 0 393 49,866 0 2,513 0 207 2,306 23 (100) 2,229 0 2,306 0 0 2,064 3,148 204 (8,971) 0 (7) 0 0 321 0 207 53,836 10.09 0.43 (0.01) 0.43 0.00 0.00 10.08 0.38 0 0.00
EX-27.5.14 26 FDS BENHAM LIMITED-TERM BOND FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 14 BENHAM LIMITED-TERM BOND FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 7,974 8,026 91 0 0 8,117 0 0 25 25 8 8,030 815 722 0 0 2 0 52 8,092 0 484 0 52 432 13 (31) 414 0 432 0 0 300 249 42 899 0 (11) 0 0 52 0 52 7,681 9.96 0.56 (0.03) 0.56 0.00 0.00 9.93 0.68 0 0.00
EX-27.5.15 27 FDS INTERMEDIATE-TERM BOND FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 15 INTERMEDIATE-TERM BOND FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 15,402 15,478 482 0 0 15,960 260 0 74 334 16 15,539 1,577 1,274 0 0 (5) 0 76 15,626 0 983 0 109 874 (4) (131) 739 0 874 132 0 1,005 792 90 2,799 0 131 0 0 109 0 109 14,807 10.07 0.58 (0.06) 0.58 0.10 0.00 9.91 0.74 0 0.00
EX-27.5.16 28 BENHAM INTERMEDIATE-TERM GOVERNMENT FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 16 BENHAM INT-TERM GOVERNMENT FUND - 1996 PORTFOLIO 1000 YEAR OCT-31-1996 OCT-31-1996 24,380 24,214 331 0 0 24,545 0 0 123 123 25 24,226 2,481 2,190 0 0 337 0 (166) 24,422 0 1,511 0 180 1,331 338 (720) 949 0 1,331 131 0 2,025 1,877 143 2,441 0 130 0 0 180 0 180 24,216 10.04 0.54 (0.14) 0.54 0.06 0.00 9.84 0.74 0 0.00
EX-27.1.17 29 NEW OPPORTUNITIES FUND
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 17 NEW OPPORTUNITIES 1-MO OCT-31-1996 JAN-31-1997 119,093,317 119,847,813 126,575 5,029,586 0 125,003,974 21,621,743 0 44,186 21,665,929 208,405 102,835,896 20,840,529 0 27,913 0 (488,665) 0 754,496 103,338,045 2,340 70,129 0 44,556 27,913 (488,665) 754,496 293,744 0 0 0 0 20,852,883 12,354 0 103,338,045 0 0 0 0 44,428 0 44,556 29,330,028 5.00 0.00 0.04 0.00 0.00 0.00 4.96 1.50 0 0.00
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