As filed with the Securities and Exchange Commission on July 17, 1997
1933 Act File No. 2-14213; 1940 Act File No. 811-0816
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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._77_ _X__
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _X__
Amendment No._77_
(check appropriate box or boxes.)
AMERICAN CENTURY MUTUAL FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
American Century Tower, 4500 Main Street, Kansas City, MO 64111
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 816-531-5575
James E. Stowers III
American Century Tower, 4500 Main Street, Kansas City, MO 64111
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(Name and address of Agent for service)
Approximate Date of Proposed Public Offering: October 1, 1997
It is proposed that this filing will become effective (check appropriate box)
_____ 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
__X__ on September 30, 1997 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.
<PAGE>
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CROSS REFERENCE SHEET
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N-1A Item No. Location
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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
American Century
Item 5. Management of the Management
Fund
Item 6. Capital Stock and Further Information About
Other Securities American 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
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PART B
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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
<PAGE>
PROSPECTUS
SEPTEMBER 30, 1997
High Yield
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 from our Benham
Group that invests primarily in high-yield fixed income or debt instruments is
described in 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 September 30, 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.
INVESTMENT OBJECTIVE OF THE FUND
AMERICAN CENTURY - BENHAM HIGH YIELD FUND
High Yield seeks high current income by investing in a diversified
portfolio of high-yielding corporate bonds, debentures and notes. As a secondary
objective, the Fund seeks capital appreciation, but only when consistent with
the primary objective of maximizing current income. The Fund invests primarily
in lower-rated bonds, which are subject to greater credit risk and consequently
offer higher yield. Securities of this type are subject to substantial risks
including price volatility, liquidity risk and default risk. You should
carefully assess the risks associated with an investment in the Fund.
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.
Page 2
Transaction And Operating Expense Table.......................5
INFORMATION REGARDING THE FUND
Investment Policies Of The Fund...............................6
Investment Strategy...........................................6
Generally.................................................6
High Yield And Corporate Bonds............................6
Zero-Coupon, Step-Coupon And Pay-In-Kind Securities.......7
Convertible Securities....................................7
Foreign Securities........................................8
Loan Interests............................................8
Money Market Instruments..................................8
United States Government Securities.......................9
Fundamentals Of Fixed Income Investing........................9
Other Investment Practices, Their Characteristics And Risks..10
Portfolio Turnover.......................................10
Derivative Securities....................................10
Covered Call Options.....................................11
Portfolio Lending........................................12
Repurchase Agreements....................................12
When-Issued Securities...................................13
Rule 144a Securities.....................................13
Interest Rate Futures Contracts And Options Thereon......14
Performance Advertising......................................15
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..................................................18
By Telephone.............................................18
By Online Access.........................................18
By Wire..................................................18
In Person................................................18
Automatic Investment Plan................................18
How To Exchange From One Account To Another..................18
By Mail..................................................19
By Telephone.............................................19
By Online Access.........................................19
How To Redeem Shares.........................................19
By Mail..................................................19
By Telephone.............................................19
By Check-A-Month.........................................19
Other Automatic Redemptions..............................19
Redemption Proceeds......................................20
By Check.................................................20
By Wire And Ach..........................................20
Redemption Of Shares In Low-Balance Accounts.............20
Signature Guarantee..........................................20
Special Shareholder Services.................................21
Automated Information Line...............................21
Online Account Access....................................21
Tax-Qualified Retirement Plans...........................22
Important Policies Regarding Your Investments................22
Reports To Shareholders......................................23
Employer-Sponsored Retirement Plans
And Institutional Accounts...............................24
ADDITIONAL INFORMATION YOU SHOULD KNOW
Share Price..................................................25
When Share Price Is Determined...........................25
How Share Price Is Determined............................25
Where To Find Information About Share Price..............26
Distributions................................................26
Taxes........................................................27
Tax-Deferred Accounts....................................27
Taxable Accounts.........................................27
Management...................................................28
Investment Management....................................28
Code Of Ethics...........................................29
Transfer And Administrative Services.....................29
Distribution Of Fund Shares..................................30
Further Information About American Century...................30
Page 3
Transaction And Operating Expense Table
High Yield
Bond
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...........................................................0.90%
12b-1 Fees.................................................................none
Other Expenses(2).........................................................0.00%
Total Fund Operating Expenses.............................................0.90%
EXAMPLE
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You would pay the following expenses on a $1,000 1 year $9
investment, assuming a 5% annual return and redemption 3 year $29
at the end of each time period: 5 years $50
10 years $111
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(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, are expected to be less than 0.01 of
1% of average net assets for the current 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
fund 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 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 total fees will result in different performance for the
other classes. For additional information about the various classes, see
"Further Information About American Century," page 30.
Page 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.
INVESTMENT STRATEGY
GENERALLY
The fund seeks high current income by investing in a diversified portfolio
of high-yielding corporate bonds, debentures and notes. As a secondary
objective, the fund seeks capital appreciation, but only when consistent with
the primary objective of maximizing current income. The fund invests primarily
in lower-rated bonds, which are subject to greater credit risk and consequently
offer higher yield. Securities of this type are subject to substantial risks
including price volatility, liquidity risk and default risk. You should
carefully assess the risks associated with an investment in the fund. The fund
requires a minimum investment of $2,500 ($1,000 for IRAs).
Under normal market conditions, the fund will maintain at least 80% of the
value of its total assets in high-yielding corporate bonds, other debt
instruments (including income-producing convertible and preferred securities)
denominated in U.S. dollars or foreign currencies. Up to 40% of the Fund's total
assets may be invested in fixed income obligations of foreign issuers, and up to
20% of its total assets may be invested in common stock or other equity-related
securities, excluding convertible and preferred securities. The fund is not
restricted in the amount of income-producing convertible and preferred
securities it is allowed to own. Under normal market conditions, the fund may
invest up to 20% of its assets, and for temporary defensive purposes, up to 100%
of its assets, in short-term money market instruments.
HIGH YIELD AND CORPORATE BONDS
The securities purchased by the fund generally will be rated in the lower
rating categories of recognized rating agencies, as low as Caa by Moody's
Investors Service, Inc. ("Moody's") or D by Standard & Poor's Ratings Group
("S&P"), or in unrated securities that the Manager deems of comparable quality.
The Fund may hold securities with higher ratings when the yield differential
between low-rated and higher-rated securities narrows and the risk of loss may
be reduced substantially with only a relatively small reduction in yield.
Page 6
Issuers of high-yield securities are more vulnerable to real or perceived
economic changes (such as an economic downturn or a prolonged period of rising
interest rates), political changes or adverse developments specific to the
issuer. Adverse economic, political or other developments may impair the
issuer's ability to service principal and interest obligations, to meet
projected business goals and to obtain additional financing. In the event of a
default, the fund would experience a reduction of its income and could expect a
decline in the market value of the defaulted securities.
The market for lower quality securities is generally less liquid than the
market for higher quality securities. Adverse publicity and investor perceptions
as well as new or proposed laws may also have a greater negative impact on the
market for lower quality securities. Sovereign debt of foreign governments is
generally rated by country. Because these ratings do not take into account
individual factors relevant to each issue and may not be updated regularly, the
Manager may elect to treat such securities as unrated debt.
The fund will not purchase securities rated lower than B by both Moody's
and S&P unless, immediately after such purchase, no more than 10% of its total
assets are invested in such securities.
ZERO-COUPON, STEP-COUPON AND PAY-IN-KIND SECURITIES
The fund may invest in zero-coupon, step-coupon and pay-in-kind securities.
These securities are debt securities that do not make regular cash interest
payments. Zero-coupon and step-coupon securities are sold at a deep discount to
their face value. Pay-in-kind securities pay interest through the issuance of
additional securities. Because such securities do not pay current cash income,
the price of these securities can be volatile when interest rates fluctuate.
While these securities do not pay current cash income, federal income tax law
requires the holders of zero-coupon, step-coupon and pay-in-kind securities to
include in income each year the portion of the original issue discount and other
noncash income on such securities accrued during that year. In order to continue
to qualify for treatment as a "regulated investment company" under the Internal
Revenue Code and avoid certain excise tax, the fund may be required to dispose
of other portfolio securities, which may occur in periods of adverse market
prices, in order to generate cash to meet these distribution requirements. For
further information about taxes, see "TAXES" on page 27.
CONVERTIBLE SECURITIES
Convertible securities are fixed-income securities that may be converted at
either a stated price or stated rate into underlying shares of common stock.
Convertible securities have general characteristics similar to both fixed-income
and equity securities. Although to a lesser extent than with fixed-income
securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stocks and, therefore, also will react to
variations in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
stock
Page 7
declines, convertible securities tend to trade increasingly on a yield basis,
and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a reflection
of the value of the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
FOREIGN SECURITIES
The fund may invest 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.
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.
Because most foreign securities are denominated in non-United States
currencies, the investment performance of the fund could be affected by changes
in foreign currency exchange rates. The value of the fund's assets denominated
in foreign currencies will increase or decrease in response to fluctuations in
the value of those foreign currencies relative to the United States dollar.
Currency exchange rates can be volatile at times in response to supply and
demand in the currency exchange markets, international balances of payments,
governmental intervention, speculation, and other political and economic
conditions.
The fund may purchase and sell foreign currency on a spot basis and hay
engage in forward currency contracts, currency options and futures transactions
for hedging or any other lawful purpose. (See "Derivative Securities", on page
10.)
The fund may invest up to 40% of its total assets in the securities of
foreign issuers.
LOAN INTERESTS
The fund may invest a portion of its assets in loan interests, which are
interests in amounts owed by a corporate, governmental or other borrower to
lenders or lending syndicates. Loan interests purchased by the fund may have a
maturity of any number of days or years, and may be acquired from United States
and foreign banks, insurance companies, finance companies or other financial
institutions that have made loans or are members of a lending syndicate or from
the holders of loan interests. Loan interests involve the risk of loss in case
of default or bankruptcy of the borrower and, in the case of participation
interests, involve a risk of insolvency of the agent lending bank or other
financial intermediary. Loan interests are not rated by any NRSROs and are, at
present, not readily marketable and may be subject to contractual restrictions
on resale.
MONEY MARKET INSTRUMENTS
As noted, the fund may invest in the following short-term money market
instruments:
Page 8
(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.
The fund may invest up to 20% 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.
UNITED STATES GOVERNMENT SECURITIES
The government securities in which the fund 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.
FUNDAMENTALS OF FIXED INCOME INVESTING
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,
such as those in which the fund invests, tend to sell at higher yield levels
than top-rated bonds of similar maturity.
Authorized Credit Quality Range
A-1 A-2 A-3
Page 9
P-1 P-2 P-3
MIG-1 MIG-2 MIG-3
SP-1 SP-2 SP-2
AAA AA A BBB BB B CCC CC C D
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******* ****** ***** ###### ###### ##### ###### ****** ***** ******
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* Denotes authorized quality
# Denotes expected quality range of at least 80% of total assets of the fund
In addition, as economic, political and business developments unfold, these
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 the fund take into account these relationships.
The intermediate- to long-term maturity and the lower asset quality of the fund
have implications for the degree of price volatility and the yield level to be
expected from an investment in the fund. Investors should be aware that the fund
has higher price volatility potential and higher yield potential than funds that
invest in higher-quality debt securities.
OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS
For additional information, see "Additional Investment Restrictions" in the
Statement of Additional Information.
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.
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").
Page 10
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 the 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 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:
the risk that the underlying security, interest rate, market index or other
financial asset will not move in the direction the portfolio manager
anticipates;
the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a position
when desired;
the risk that adverse price movements in an instrument can result in a loss
substantially greater than the fund's initial investment; and
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.
COVERED CALL OPTIONS
The fund may write call options on securities. The fund realizes fees
(referred to as "premiums") for granting the rights evidenced by the options. A
call option embodies the right of its purchaser to compel the writer of the
option to sell to the option holder an underlying security at a specified price
at any time during the option period. Thus, the purchaser of a call option
written by the fund has the right to purchase from the fund the underlying
security owned by the fund at the agreed-upon price for a specified time period.
Upon the exercise of a call option written by the fund, the fund may suffer
a loss equal to the excess of the security's market value at the time of the
option exercise over the fund's acquisition cost of the security, less the
premium received for writing the option.
Page 11
The fund will write only covered options. Accordingly, whenever the fund
writes a call option, it will continue to own or have the present right to
acquire the underlying security for as long as it remains obligated as the
writer of the option.
The fund may engage in a closing purchase transaction to realize a profit
or to unfreeze an underlying security (thereby permitting its sale or the
writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the fund would purchase,
prior to the holder's exercise of an option the fund has written, an option of
the same series as that on which the fund desires to terminate its obligation.
The obligation of the fund under an option it has written would be terminated by
a closing purchase transaction, but the fund would not be deemed to own an
option as the result of the transaction. There can be no assurance the fund will
be able to effect closing purchase transactions at a time when it wishes to do
so. To facilitate closing purchase transactions, however, the fund ordinarily
will write options only if a secondary market for the options exists on a
domestic securities exchange or in the over-the-counter market.
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.
Loans may not exceed 33 1/3% of the fund's total 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).
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 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 interest-bearing obligation 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
Page 12
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 the
fund.
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 the 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.
Page 13
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).
INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON
The fund 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, 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.
The fund will deposit in a segregated account with its custodian bank
appropriate debt obligations or equity securities 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.
The 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. The 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 the fund invests without the large cash
investments required for dealing in such markets, they may subject the 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.
Page 14
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 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 the 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,
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. The value of fund
shares when redeemed may be more or less than their original cost.
Page 15
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
AMERICAN CENTURY INVESTMENTS
The fund offered by this Prospectus 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, 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 24.
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:
Page 16
(*) Receiving bank and routing number:
Commerce Bank, N.A. (101000019)
(*) Beneficiary (BNF):
American Century Services Corporation
4500 Main St., Kansas City, Missouri 64111
(*) Beneficiary account number (BNF ACCT):
2804918
(*) 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.
(*) Originator to Beneficiary (OBI):
Name and address of owner of account into which you are investing.
(*) Bank to Bank Information
(BBI or Free Form Text):
, Taxpayer identification or Social Security number
, If more than one account, account numbers and amount to be invested in
each account.
, 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.
Page 17
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 18 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 17.
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 25.
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
Page 18
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.
BY TELEPHONE
You may make exchanges over the telephone (either with an Investor Services
Representative or using our Automated Information Line -- see page 21) 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 20.
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.
Page 19
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.
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:
* redeeming more than $25,000; or
* 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.
Page 20
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 autho rized 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 per-son. These transactions are subject to
exchange limitations described in each fund's prospectus, except that orders and
cancellations received
Page 21
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:
* Individual Retirement Accounts (IRAs);
* 403(b) plans for employees of public school systems and non-profit
organizations; or
* 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.
Page 22
(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 semi-annual 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 semi-annual 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.
Page 23
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.
Page 24
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 we receive your investment, redemption or
exchange request. For example, investments and requests to redeem or exchange
shares of the 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 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
Page 25
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.
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 offered by this
Prospectus is 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 fund 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 25. 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
Page 26
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 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 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
Page 27
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 the 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 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 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 investment portfolio of the fund and
directs the purchase and sale of its investment securities. It utilizes teams of
portfolio
Page 28
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
fund's portfolio as they deem appropriate in pursuit of the fund's investment
objective. Individual portfolio manager members of the teams may also adjust
portfolio holdings of the fund 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. He is also a member of the
team that manages Limited-Term Bond, Intermediate-Term Bond, Benham Bond and the
fixed income portion of Balanced and the Strategic Allocation Funds.
Theresa Fennell, Portfolio Manager, joined American Century in June 1997.
Prior to joining American Century, she was an Assistant Portfolio Manager with
Smith Barney Mutual Funds Management, Inc.
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 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 fund, the manager
receives an annual fee at the rate of 0.90% of the average net assets of High
Yield.
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 funds and is paid for
such services by the manager.
Page 29
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 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 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 fund's 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 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.
Page 30
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 18 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 two classes of the fund offered by this Prospectus:
an Investor 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 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.
Page 31
<PAGE>
PROSPECTUS
SEPTEMBER 30, 1997
High Yield
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
from our Benham Group that invests primarily in high-yield fixed income or debt
instruments is described in 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 a Rule 12b-1 shareholder services fee and
distribution fee 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 September 30, 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.
Page 2
INVESTMENT OBJECTIVE OF THE FUND
AMERICAN CENTURY - BENHAM HIGH YIELD FUND
High Yield seeks high current income by investing in a diversified
portfolio of high-yielding corporate bonds, debentures and notes. As a secondary
objective, the Fund seeks capital appreciation, but only when consistent with
the primary objective of maximizing current income. The Fund invests primarily
in lower-rated bonds, which are subject to greater credit risk and consequently
offer higher yield. Securities of this type are subject to substantial risks
including price volatility, liquidity risk and default risk. You should
carefully assess the risks associated with an investment in the Fund.
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.
Page 3
TABLE OF CONTENTS
Transaction And Operating Expense Table.......................5
INFORMATION REGARDING THE FUND
Investment Policies Of The Fund...............................7
Investment Strategy...........................................7
Generally.................................................7
High Yield And Corporate Bonds............................7
Zero-Coupon, Step-Coupon And Pay-In-Kind Securities.......8
Convertible Securities....................................8
Foreign Securities........................................9
Loan Interests............................................9
Money Market Instruments..................................9
United States Government Securities......................10
Fundamentals Of Fixed Income Investing.......................10
Other Investment Practices, Their Characteristics And Risks..11
Portfolio Turnover.......................................11
Derivative Securities....................................11
Covered Call Options.....................................12
Portfolio Lending........................................13
Repurchase Agreements....................................13
When-Issued Securities...................................14
Rule 144a Securities.....................................14
Interest Rate Futures Contracts And Options Thereon......15
Performance Advertising......................................16
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
How To Purchase And Sell American Century Funds..............17
How To Exchange From One American Century Fund To Another....17
How To Redeem Shares.........................................17
Telephone Services...........................................18
Investors Line...........................................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........................................................21
Tax-Deferred Accounts....................................21
Taxable Accounts.........................................21
Management...................................................22
Investment Management....................................22
Code Of Ethics...........................................23
Transfer And Administrative Services.....................23
Distribution Of Fund Shares..................................24
Service And Distribution Fees............................24
Further Information About American Century...................25
Page 4
TRANSACTION AND OPERATING EXPENSE TABLE
High Yield
Bond
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...........................................................0.65%
12b-1 Fees(1)..............................................................none
Other Expenses(2).........................................................0.50%
Total Fund Operating Expenses.............................................1.15%
EXAMPLE
-------------------
You would pay the following expenses on a $1,000 1 year $12
investment, assuming a 5% annual return and redemption 3 year $37
at the end of each time period: 5 years $63
10 years $140
-------------------
(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 24.
(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, are expected to be less than 0.01 of
1% of average net assets for the current 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
fund 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 one other classes of shares which is primarily made available to retail
investors. The other class has a different fee structure 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
Page 5
different performance for those classes. For additional information about the
various classes, see "Further Information About American Century," page 25.
Page 6
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 3 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.
INVESTMENT STRATEGY
GENERALLY
The fund seeks high current income by investing in a diversified portfolio
of high-yielding corporate bonds, debentures and notes. As a secondary
objective, the fund seeks capital appreciation, but only when consistent with
the primary objective of maximizing current income. The fund invests primarily
in lower-rated bonds, which are subject to greater credit risk and consequently
offer higher yield. Securities of this type are subject to substantial risks
including price volatility, liquidity risk and default risk. You should
carefully assess the risks associated with an investment in the fund. The fund
requires a minimum investment of $2,500 ($1,000 for IRAs).
Under normal market conditions, the fund will maintain at least 80% of the
value of its total assets in high-yielding corporate bonds, other debt
instruments (including income-producing convertible and preferred securities)
denominated in U.S. dollars or foreign currencies. Up to 40% of the Fund's total
assets may be invested in fixed income obligations of foreign issuers, and up to
20% of its total assets may be invested in common stock or other equity-related
securities, excluding convertible and preferred securities. The fund is not
restricted in the amount of income-producing convertible and preferred
securities it is allowed to own. Under normal market conditions, the fund may
invest up to 20% of its assets, and for temporary defensive purposes, up to 100%
of its assets, in short-term money market instruments.
HIGH YIELD AND CORPORATE BONDS
The securities purchased by the fund generally will be rated in the lower
rating categories of recognized rating agencies, as low as Caa by Moody's
Investors Service, Inc. ("Moody's") or D by Standard & Poor's Ratings Group
("S&P"), or in unrated securities that the Manager deems of comparable quality.
The Fund may hold securities with higher ratings when the yield differential
between low-rated and higher-rated securities narrows and the risk of loss may
be reduced substantially with only a relatively small reduction in yield.
Page 7
Issuers of high-yield securities are more vulnerable to real or perceived
economic changes (such as an economic downturn or a prolonged period of rising
interest rates), political changes or adverse developments specific to the
issuer. Adverse economic, political or other developments may impair the
issuer's ability to service principal and interest obligations, to meet
projected business goals and to obtain additional financing. In the event of a
default, the fund would experience a reduction of its income and could expect a
decline in the market value of the defaulted securities.
The market for lower quality securities is generally less liquid than the
market for higher quality securities. Adverse publicity and investor perceptions
as well as new or proposed laws may also have a greater negative impact on the
market for lower quality securities. Sovereign debt of foreign governments is
generally rated by country. Because these ratings do not take into account
individual factors relevant to each issue and may not be updated regularly, the
Manager may elect to treat such securities as unrated debt.
The fund will not purchase securities rated lower than B by both Moody's
and S&P unless, immediately after such purchase, no more than 10% of its total
assets are invested in such securities.
ZERO-COUPON, STEP-COUPON AND PAY-IN-KIND SECURITIES
The fund may invest in zero-coupon, step-coupon and pay-in-kind securities.
These securities are debt securities that do not make regular cash interest
payments. Zero-coupon and step-coupon securities are sold at a deep discount to
their face value. Pay-in-kind securities pay interest through the issuance of
additional securities. Because such securities do not pay current cash income,
the price of these securities can be volatile when interest rates fluctuate.
While these securities do not pay current cash income, federal income tax law
requires the holders of zero-coupon, step-coupon and pay-in-kind securities to
include in income each year the portion of the original issue discount and other
noncash income on such securities accrued during that year. In order to continue
to qualify for treatment as a "regulated investment company" under the Internal
Revenue Code and avoid certain excise tax, the fund may be required to dispose
of other portfolio securities, which may occur in periods of adverse market
prices, in order to generate cash to meet these distribution requirements. For
further information about taxes, see "TAXES" on page 21.
CONVERTIBLE SECURITIES
Convertible securities are fixed-income securities that may be converted at
either a stated price or stated rate into underlying shares of common stock.
Convertible securities have general characteristics similar to both fixed-income
and equity securities. Although to a lesser extent than with fixed-income
securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stocks and, therefore, also will react to
variations in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
stock
Page 8
declines, convertible securities tend to trade increasingly on a yield basis,
and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a reflection
of the value of the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
FOREIGN SECURITIES
The fund may invest 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.
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.
Because most foreign securities are denominated in non-United States
currencies, the investment performance of the fund could be affected by changes
in foreign currency exchange rates. The value of the fund's assets denominated
in foreign currencies will increase or decrease in response to fluctuations in
the value of those foreign currencies relative to the United States dollar.
Currency exchange rates can be volatile at times in response to supply and
demand in the currency exchange markets, international balances of payments,
governmental intervention, speculation, and other political and economic
conditions.
The fund may purchase and sell foreign currency on a spot basis and hay
engage in forward currency contracts, currency options and futures transactions
for hedging or any other lawful purpose. (See "Derivative Securities", on page
11)
The fund may invest up to 40% of its total assets in the securities of
foreign issuers.
LOAN INTERESTS
The fund may invest a portion of its assets in loan interests, which are
interests in amounts owed by a corporate, governmental or other borrower to
lenders or lending syndicates. Loan interests purchased by the fund may have a
maturity of any number of days or years, and may be acquired from United States
and foreign banks, insurance companies, finance companies or other financial
institutions that have made loans or are members of a lending syndicate or from
the holders of loan interests. Loan interests involve the risk of loss in case
of default or bankruptcy of the borrower and, in the case of participation
interests, involve a risk of insolvency of the agent lending bank or other
financial intermediary. Loan interests are not rated by any NRSROs and are, at
present, not readily marketable and may be subject to contractual restrictions
on resale.
MONEY MARKET INSTRUMENTS
As noted, the fund may invest in the following short-term money market
instruments:
Page 9
(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.
The fund may invest up to 20% 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
UNITED STATES GOVERNMENT SECURITIES
The government securities in which the fund 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.
FUNDAMENTALS OF FIXED INCOME INVESTING
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,
such as those in which the fund invests, tend to sell at higher yield levels
than top-rated bonds of similar maturity.
Authorized Credit Quality Range
A-1 A-2 A-3
Page 10
P-1 P-2 P-3
MIG-1 MIG-2 MIG-3
SP-1 SP-2 SP-2
AAA AA A BBB BB B CCC CC C D
- --------------------------------------------------------------------------------
***** ***** ***** ##### ##### ##### ##### ***** ***** *****
- --------------------------------------------------------------------------------
* Denotes authorized quality
# Denotes expected quality range of at least 80% of total assets of the
fund
In addition, as economic, political and business developments unfold, these
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 the fund take into account these relationships.
The intermediate- to long-term maturity and the lower asset quality of the fund
have implications for the degree of price volatility and the yield level to be
expected from an investment in the fund. Investors should be aware that the fund
has higher price volatility potential and higher yield potential than funds that
invest in higher-quality debt securities.
OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS
For additional information, see "Additional Investment Restrictions" in the
Statement of Additional Information.
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.
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").
Page 11
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 the 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 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:
* the risk that the underlying security, interest rate, market index or other
financial asset will not move in the direction the portfolio manager
anticipates;
* the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a position
when desired;
* the risk that adverse price movements in an instrument can result in a loss
substantially greater than the fund's initial investment; and
* 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.
COVERED CALL OPTIONS
The fund may write call options on securities. The fund realizes fees
(referred to as "premiums") for granting the rights evidenced by the options. A
call option embodies the right of its purchaser to compel the writer of the
option to sell to the option holder an underlying security at a specified price
at any time during the option period. Thus, the purchaser of a call option
written by the fund has the right to purchase from the fund the underlying
security owned by the fund at the agreed-upon price for a specified time period.
Upon the exercise of a call option written by the fund, the fund may suffer
a loss equal to the excess of the security's market value at the time of the
option exercise over the fund's acquisition cost of the security, less the
premium received for writing the option.
Page 12
The fund will write only covered options. Accordingly, whenever the fund
writes a call option, it will continue to own or have the present right to
acquire the underlying security for as long as it remains obligated as the
writer of the option.
The fund may engage in a closing purchase transaction to realize a profit
or to unfreeze an underlying security (thereby permitting its sale or the
writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the fund would purchase,
prior to the holder's exercise of an option the fund has written, an option of
the same series as that on which the fund desires to terminate its obligation.
The obligation of the fund under an option it has written would be terminated by
a closing purchase transaction, but the fund would not be deemed to own an
option as the result of the transaction. There can be no assurance the fund will
be able to effect closing purchase transactions at a time when it wishes to do
so. To facilitate closing purchase transactions, however, the fund ordinarily
will write options only if a secondary market for the options exists on a
domestic securities exchange or in the over-the-counter market.
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.
Loans may not exceed 33 1/3% of the fund's total 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).
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 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 interest-bearing obligation 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
Page 13
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 the
fund.
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 the 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.
Page 14
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).
INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON
The fund 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, 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.
The fund will deposit in a segregated account with its custodian bank
appropriate debt obligations or equity securities 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.
The 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. The 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 the fund invests without the large cash
investments required for dealing in such markets, they may subject the 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.
Page 15
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 and yield.
Performance data may be quoted separately for the Advisor Class and for the
other class.
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 the 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,
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. The value of fund
shares when redeemed may be more or less than their original cost.
Page 16
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 Fund,"
page 7, 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 19.
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.
Page 17
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.
Page 18
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 we receive your investment, redemption or
exchange request. For example, investments and requests to redeem or exchange
shares of the 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 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
Page 19
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.
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 offered by this
Prospectus 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
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 fund 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 19. 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
Page 20
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 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 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
Page 21
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 the 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 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.
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.
Page 22
The manager supervises and manages the investment portfolio of the 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 fund's portfolio as they deem appropriate in pursuit of the fund's
investment objective. Individual portfolio manager members of the teams may also
adjust portfolio holdings of the fund 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. He is also a member of the
team that manages Limited-Term Bond, Intermediate-Term Bond, Benham Bond and the
fixed income portion of Balanced and the Strategic Allocation Funds.
Theresa Fennell, Portfolio Manager, joined American Century in June 1997.
Prior to joining American Century, she was an Assistant Portfolio Manager with
Smith Barney Mutual Funds Management, Inc.
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 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 fund, the manager
receives an annual fee at the rate of 0.65% 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 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
Page 23
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 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 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 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
Page 24
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, 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 18 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 two classes of the fund offered by this Prospectus:
an Investor 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 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.
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
Page 25
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 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.
Page 26
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
MARCH 1, 1997
AMERICAN CENTURY MUTUAL FUNDS, INC.
[FRONT COVER]
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 30, 1997
AMERICAN CENTURY MUTUAL FUNDS, INC.
This statement is not a prospectus but should be read in conjunction
with those American Century prospectuses dated September 30, 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.............................................3
Fundamental Policies Of The Funds..............................................3
Additional Investment Restrictions.............................................7
Forward Currency Exchange Contracts............................................9
An Explanation Of Fixed Income Securities Ratings.............................11
Short Sales...................................................................13
Portfolio Turnover............................................................13
Interest Rate Futures Contracts And Related Options...........................14
Municipal Leases..............................................................19
Officers And Directors........................................................20
Management....................................................................23
Custodians....................................................................25
Independent Accountants.......................................................26
Capital Stock.................................................................26
Multiple Class Structure......................................................27
Brokerage.....................................................................30
Performance Advertising.......................................................31
Redemptions In Kind...........................................................35
Holidays......................................................................35
Financial Statements..........................................................35
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.]
Page 3
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 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
Page 4
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.
HIGH YIELD
The manager will invest the portfolio of cash reserve in a diversified
portfolio of high-yielding corporate bonds, debentures and notes. The fund seeks
current income as a primary objective and capital appreciation as a secondary
objective. The fund invests primarily in lower-rated bonds, which are subject to
greater credit risk and consequently offer higher yield than investment grade
bonds. The securities purchased by the fund include notes, corporate, sovereign
government and municipal bonds in any rating category. The fund may also
purchase convertible and preferred securities in any amount and purchase and
sell interest rate futures contracts and related options. See "Interest Rate
Futures Contracts and Related Options," page 9.
As fixed-income securities, convertible securities in which the fund
may invest are investments which provide for a stable stream of income with
generally higher yields than common stocks. Of course, like all fixed-income
securities, there can be no assurance of current income because the issuers of
the convertible securities may default on their obligations. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation. A convertible security, in addition to providing fixed
income, offers the potential for capital appreciation through the conversion
feature, which enables the holder to benefit from increases in the market price
of the underlying common stock. However, there can be no assurance of capital
appreciation because securities prices fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible
Page 5
preferred stock is senior to common stock of the same issuer. Because of the
subordination feature, however, convertible securities typically have lower
ratings than similar non-convertible securities.
Unlike a convertible security which is a single security, a synthetic
convertible security is comprised of two distinct securities that together
resemble convertible securities in certain respects. Synthetic convertible
securities are created by combining non-convertible bonds or preferred stocks
with warrants or stock call options. The options that will form elements of
synthetic convertible securities will be listed on a securities exchange or on
the National Association of Securities Dealers Automated Quotation Systems. The
two components of a synthetic convertible security, which will be issued with
respect to the same entity, generally are not offered as a unit, and may be
purchased and sold by the fund at different times. Synthetic convertible
securities differ from convertible securities in certain respects, including
that each component of a synthetic convertible security has a separate market
value and responds differently to market fluctuations. Investing in synthetic
convertible securities involves the risk normally involved in holding the
securities comprising the synthetic convertible security.
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 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.
Page 6
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 As a fundamental policy, each fund shall not:
1) issue senior securities, except as permitted under the Investment
Company Act.
2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33-1/3% of the fund's total assets (including the amount
borrowed) less liabilities (other than borrowings).
3) lend any security or make any other loan if, as a result, more than
33-1/3% of the fund's total assets would be lent to other parties,
except, (i) through the purchase of debt securities in accordance with
its investment objective, policies and
Page 7
limitations, or (ii) by engaging in repurchase agreements with respect
to portfolio securities.
4) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments. This policy shall not prevent the
fund from investment in securities or other instruments backed by real
estate or securities of companies that deal in real estate or are
engaged in the real estate business.
5) concentrate its investments in securities of issuers in a particular
industry (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities).
6) act as an underwriter of securities issued by others, except to the
extent that the fund may be considered an underwriter within the
meaning of the Securities Act of 1933 in the disposition of restricted
securities.
7) (a) [all funds except Cash Reserve] purchase or sell physical
commodities unless acquired as a result of ownership of securities or
other instruments; provided that this limitation shall not prohibit the
fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities.
(b) [Cash Reserve only] purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments.
8) invest for purposes of exercising control over management.
9) [Select and Heritage only] Eighty percent (80%) of the total 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.
In addition, the funds are subject to the following additional
investment restrictions which are not fundamental and may be changed by the
Board of Trustees.
As an operating policy, each fund:
a) shall not purchase additional investment securities at any time during
which outstanding borrowings exceed 5% of the total assets of the fund
b) shall not purchase any securities which would cause 25% or more of the
value of the fund's total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal
business activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
government, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and repurchase agreements
secured by such instruments, (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of the parents, (c)
utilities will be divided according to their services, for example,
gas, gas transmission, electric and gas, electric and telephone will
Page 8
each be considered a separate industry, and (d) personal credit and
business credit businesses will be considered separate industries.
c) [Cash Reserve only] shall not purchase or sell futures contracts or
call options. This limitation does not apply to options attached to, or
acquired or traded together with, their underlying securities, and does
not apply to securities that incorporate features similar to options or
futures contracts.
d) shall not purchase any security or enter into a repurchase agreement
if, as a result, more than 15% of its net assets (10% for Cash Reserve)
would be invested in repurchase agreements not entitling the holder to
payment of principal and interest within seven days and in securities
that are illiquid by virtue of legal or contractual restrictions on
resale or the absence of a readily available market.
e) shall not sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold
short, and provided that transaction in futures contracts and options
are not deemed to constitute selling securities short.
f) shall not purchase securities on margin, except that the fund may
obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
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.
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
Page 9
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 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.
Page 10
AN EXPLANATION OF FIXED INCOME SECURITIES RATINGS
As described in the Prospectus, the funds may invest in fixed income
securities. Fixed income securities ratings provide the manager with a current
assessment of the credit rating of an issuer with respect to a specific fixed
income security. The following is a description of the rating categories
utilized by the rating services referenced in the Prospectus disclosure.
The following summarizes the 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 to 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.
BB -- Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions that
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category also is used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC -- Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
CC -- The rating CC typically is applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C typically is applied to debt subordinated to senior
debt, which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
Page 11
CI -- The rating CI is reserved for income bonds on which no interest
is being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
D rating also will be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
To provide more detailed indications of credit quality, the ratings
from AA to CCC may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the 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 generally
are 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 that make the long-term risk appear
somewhat larger than the Aaa securities.
A -- Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to
impairment some time in the future.
Baa -- Bonds that are rated Baa are considered as medium-grade
obligations (i.e., they are 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 bonds
lack outstanding investment characteristics and in fact have
speculative characteristics, as well.
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded, during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds that are rated Caa are of poor standing. Such issues may
be in default, or there may be present elements of danger with respect
to principal or interest.
Page 12
Ca -- Bonds that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
category from Aa through B. 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 indicates a ranking in the lower end of
that generic rating category.
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
Page 13
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 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, High Yield,
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
Page 14
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 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.
Page 15
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 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.,
Page 16
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,
Page 17
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 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,
Page 18
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 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.
Page 19
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.
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.
Page 20
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
Page 21
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 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.
Page 22
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
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
Page 23
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
Page 24
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 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
Page 25
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%
Intermediate-Term
Page 26
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 12B-1
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
Page 27
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 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
Page 28
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 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
Page 29
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
Page 30
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.
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.
Page 31
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.
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
Page 32
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
Page 33
- - ------------------------------------------------------------------------
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
- - ------------------------------------------------------------------------
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
Page 34
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.
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.
Page 35
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
Page 36
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
Page 37
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
Page 38
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.
Page 39
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.
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
- - ------------------------------------------------------------------------
Page 40
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
Page 41
<PAGE>
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. None.
(ii) Financial Statements filed in Part B of the Registration Statement:
1. None.
(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 electronically as an Exhibit to
Post-Effective Amendment No. 76 on Form N-1A on February 28,
1997.).
(k) Articles Supplementary of American Century Mutual Funds, Inc.,
dated December 2, 1996 (filed electronically as an Exhibit
to Post-Effective Amendment No. 76 on Form N-1A on February
28, 1997).
(l) Articles Supplementary of American Century Mutual Funds, Inc.,
dated July __, 1997 (to be filed with post-effective
amendment).
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
electronically as an Exhibit to Post-Effective Amendment No. 76
on Form N-1A on February 28, 1997.).
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).
(f) Management Agreement between American Century Mutual Funds,
Inc. and American Century Investment Management, Inc. dated
August 1, 1997 (to be filed with post-effective amendment.)
6. (a) 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 Exhibit 6.1
to Post-Effective Amendment No. 21 to the Registration
Statement on Form N-1A of American Century Variable
Portfolios, Inc., Commission File No. 811-5188).
(b) Amendment No. 1 to Distribution Agreement between American
Century Variable Portfolios, Inc., American Century Capital
Portfolios, Inc., American Century Mutual Funds, Inc.,
American Century Premium Reserves, Inc., American Century
Strategic Asset Allocations, Inc., American Century World
Mutual Funds, Inc. and American Century Investment Services,
Inc. dated June 13, 1997 (filed as Exhibit 6.2 to Post-
Effective Amendment No. 21 to the Registration Statement on
Form N-1A of American Century Variable Portfolios, Inc.,
Commission File No. 811-5188).
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) Amendment No. 2 to Custody Agreement dated June 4, 1997,
between UMB Bank, N.A., American Century Investment
Management, Inc., American Century Mutual Funds, Inc.,
American Century World Mutual Funds, Inc., American Century
Variable Portfolios, Inc., American Century Capital
Portfolios, Inc. and American Century Strategic Asset
Allocations, Inc. (filed herewith as EX-99.B8d)
(e) 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).
(f) Master Agreement between Commerce Bank, N.A. and Twentieth
Century Services, Inc. dated January 22, 1997 (filed
electronically as an Exhibit to Post-Effective Amendment No.
76 on Form N-1A on February 28, 1997).
9. Transfer Agency Agreement between Twentieth Century Investors,
Inc. and Twentieth Century Services, Inc. dated March 1, 1991
(filed electronically as an Exhibit to Post-Effective Amendment
No. 76 on Form N-1A on February 28, 1997).
10. Opinion and Consent of Counsel (filed herewith as EX-99.B10).
11. Consent of Auditors - None.
12. Annual Report - None.
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 No. 75 on Form
N-1A on June 14, 1996).
(b) Amendment No. 1 to Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc.,
American Century Mutual Funds, Inc., American Century
Strategic Asset Allocations, Inc. and American Century World
Mutual Funds, Inc.(Advisor Class) dated June 13, 1997 (filed
herewith as EX-99.B15b).
(c) 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 No. 75 on Form N-1A on June 14, 1996).
16. Schedules For Computation of Advertising Performance Quotations
- None.
17. Power of Attorney (filed electronically as an Exhibit to Post-
Effective Amendment No. 76 on Form N-1A on February 28, 1997).
18. (a) 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).
(b) Amendment No. 1 to Multiple Class Plan of American Century
Capital Portfolios, Inc., American Century Mutual Funds,
Inc., American Century Strategic Asset Allocations, Inc. and
American Century World Mutual Funds, Inc. dated June 13,
1997 (filed herewith as EX-99.B18b).
27. Financial Data Schedule For Benham High Yield Fund (EX-27.5.18).
ITEM 25. Persons Controlled by or Under Common Control with Registrant - None.
ITEM 26. Number of Holders of Securities - The High Yield Fund has no holders of
securities.
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. The Registrant hereby undertakes to file a Post-Effective Amendment to
this Registration Statement, using reasonably current financial
statements which need not be certified, within four to six months from
the effective date of the Registrant's 1933 Act Registration Statement.
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).
<PAGE>
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. 77 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 17th day
of July, 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. 77 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 July 17, 1997
James E. Stowers, Jr. Principal Executive Officer
*James E. Stowers III President and Director July 17, 1997
James E. Stowers III
*Robert T. Jackson Executive Vice President July 17, 1997
Robert T. Jackson and Principal Financial Officer
*Maryanne Roepke Vice President, Treasurer and July 17, 1997
Maryanne Roepke Principal Accounting Officer
*Thomas A. Brown Director July 17, 1997
Thomas A. Brown
*Robert W. Doering, M.D. Director July 17, 1997
Robert W. Doering, M.D.
*Linsley L. Lundgaard Director July 17, 1997
Linsley L. Lundgaard
*Donald H. Pratt Director July 17, 1997
Donald H. Pratt
*Lloyd T. Silver, Jr. Director July 17, 1997
Lloyd T. Silver, Jr.
*M. Jeannine Strandjord Director July 17, 1997
M. Jeannine Strandjord
*D. D. (Del) Hock Director July 17, 1997
D. D. (Del) Hock
*By /s/James E. Stowers III
James E. Stowers III
Attorney-in-Fact
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
No. 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 No.
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 No. 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 No.
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 No.
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 No. 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 No.
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 No.
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 No. 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. (filed as a part of Post-Effective Amendment No.
76 to the Registration Statement on Form N-1A of the Registrant,
Commission File No. 2-14213, filed on February 28, 1997, and
incorporated herein by reference.)
EX-99.B1k Articles Supplementary of American Century Mutual Funds, Inc. dated
December 2, 1996. (filed as a part of Post-Effective Amendment No.
76 to the Registration Statement on Form N-1A of the Registrant,
Commission File No. 2-14213, filed on February 28, 1997, and
incorporated herein by reference.)
EX-99.B1l Articles Supplementary of American Century Mutual Funds, Inc. dated
July __, 1997 (to be filed with post-effective amendment).
EX-99.B2 Bylaws of Twentieth Century Investors, Inc. (filed as a part of
Post-Effective Amendment No. 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. (filed as a part of
Post-Effective Amendment No. 76 to the Registration Statement on
Form N-1A of the Registrant, Commission File No. 2-14213, filed on
February 28, 1997, and incorporated herein by reference.)
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 No. 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 No. 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 No. 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 No. 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
No. 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.B5f Management Agreement between American Century Mutual Funds, Inc.
and American Century Investment Management, Inc. dated August 1,
1997 (to be filed with post-effective amendment.)
EX-99.B6a 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 Exhibit 6.1 to Post-Effective Amendment
No. 21 to the Registration Statement on Form N-1A of American
Century Variable Portfolios, Inc., Commission File No. 811-5188,
filed on July 1, 1997.)
EX-99.B6b Amendment No. 1 to Distribution Agreement between American Century
Variable Portfolios, Inc., American Century Capital Portfolios,
Inc., American Century Mutual Funds, Inc., American Century Premium
Reserves, Inc., American Century Strategic Asset Allocations, Inc.,
American Century World Mutual Funds, Inc. and American Century
Investment Services, Inc. dated June 13, 1997 (filed as Exhibit 6.2
to Post-Effective Amendment No. 21 to the Registration Statement on
Form N-1A of American Century Variable Portfolios, Inc., Commission
File No. 811-5188, filed on July 1, 1997.)
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 Amendment No. 2 to Custody Agreement dated June 4, 1997, between
UMB Bank, N.A., American Century Investment Management, Inc.,
American Century Mutual Funds, Inc., American Century World Mutual
Funds, Inc., American Century Variable Portfolios, Inc., American
Century Capital Portfolios, Inc. and American Century Strategic
Asset Allocations, Inc. is included herein.
EX-99.B8e 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 Government
Income Trust, Commission File No. 2-99222, filed February 7, 1997,
and incorporated herein by reference.)
EX-99.B8f Master Agreement between Commerce Bank, N.A. and Twentieth Century
Services, Inc. dated January 22, 1997 (filed as a part of
Post-Effective Amendment No. 76 to the Registration Statement on
Form N-1A of the Registrant, Commission File No. 2-1421113, filed
on February 28, 1997, and incorporated herein by reference).
EX-99.B9 Transfer Agency Agreement dated as of March 1, 1991, by and between
Twentieth Century Investors, Inc. and Twentieth Century Services,
Inc. (filed as a part of Post-Effective Amendment No. 76 to the
Registration Statement on Form N-1A of the Registrant, Commission
File No. 2-1421113, filed on February 28, 1997, and incorporated
herein by reference).
EX-99.B10 Opinion and Consent of Charles A. Etherington, Esq.
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 No.
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 Amendment No. 1 to Master Distribution and Shareholder Services
Plan of American Century Capital Portfolios, Inc., American Century
Mutual Funds, Inc., American Century Strategic Asset Allocations,
Inc. and American Century World Mutual Funds, Inc. (Advisor Class)
dated June 13, 1997 is included herein.
EX-99.B15c 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 No. 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.B17 Power of Attorney dated February 15, 1997 (filed as a part of
Post-Effective Amendment No. 76 to the Registration Statement on
Form N-1A of the Registrant, Commission File No. 2-14213, filed on
February 28, 1997, and incorporated herein by reference.)
EX-99.B18a 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 No. 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.B18b Amendment No. 1 to Multiple Class Plan of American Century Capital
Portfolios, Inc., American Century Mutual Funds, Inc., American
Century Strategic Asset Allocations, Inc. and American Century
World Mutual Funds, Inc. dated June 13, 1997 is included herein.
EX-27.5.17 Financial Data Schedule for Benham High Yield Fund.
AMENDMENT NO. 2 TO CUSTODY AGREEMENT
THIS AMENDMENT NO. 2 TO CUSTODY AGREEMENT is made as of the 4th day of
June, 1997, by and among UMB Bank, N.A., a national banking association
("Custodian"), AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. ("ACIM") (formerly
known as Investors Research Corporation), and each of the registered investment
companies that have executed this Amendment below (each, individually referred
to as a "Fund Company" and collectively referred to as the "Fund Companies").
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Custody Agreement (defined below).
RECITALS
WHEREAS, Custodian, ACIM and the Fund Companies are parties to a
certain Custody Agreement dated September 12, 1995, as amended January 25, 1996,
(the "Custody Agreement"); and
WHEREAS, in January 1997, ACIM and the Fund Companies changed their
names; and
WHEREAS, the parties desire to amend the Custody Agreement to reflect
the new names of ACIM and each of the Fund Companies;
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the parties hereto agree as follows:
1. Appendix B to Amendment No. 1 to Custody Agreement is hereby amended
by deleting the text thereof in its entirety and inserting in lieu therefor the
Appendix B attached hereto.
2. After the date hereof, all references to the Custody Agreement shall
be deemed to mean the Custody Agreement, as further amended by this Amendment
No. 2.
3. In the event of a conflict between the terms of this Amendment No. 2
and the Custody Agreement, it is the intention of the parties that the terms of
this Amendment No. 2 shall control and the Custody Agreement shall be
interpreted on that basis. To the extent the provisions of the Custody Agreement
have not been amended by this Amendment No. 2, the parties hereby confirm and
ratify the Custody Agreement.
4. This Amendment No. 2 may be executed in two or more counterparts,
each of which shall be an original and all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2
as of the date first above written.
UMB BANK, N.A. AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC.
By: /s/ Ralph R. Santoro By: /s/ William M. Lyons
Name: Ralph R. Santoro William M. Lyons
Title: Vice President Executive Vice President
AMERICAN CENTURY MUTUAL FUNDS, INC.
AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
AMERICAN CENTURY STRATEGIC ASSET
ALLOCATIONS, INC.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
BY: /s/ William M. Lyons
William M. Lyons
Executive Vice President of each
APPENDIX B
Custody Agreement
The following open-end management investment companies ("Fund
Companies") are hereby made parties to the Custody Agreement dated September 12,
1995, with UMB Bank,n.a. ("Custodian") and AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC., and agree to be bound by all the terms and conditions
contained in said Agreement:
FUND COMPANIES
American Century Mutual Funds, Inc.
American Century Capital Portfolios, Inc.
American Century World Mutual Funds, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Variable Portfolios, Inc.
ATTEST: American Century Mutual Funds, Inc.
American Century Capital Portfolios, Inc.
/s/ Charles A. Etherington American Century World Mutual Funds, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Variable Portfolios, Inc.
By: /s/ William M. Lyons
Name: William M. Lyons
Title: Executive Vice President of each
Date: June 4, 1997
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
--------------------------
July 17, 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. 77 to its Registration
Statement on Form N-1A, to be filed with the Securities and Exchange Commission
on July 17, 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. 77.
Very truly yours,
/s/Charles A. Etherington
Charles A. Etherington
AMENDMENT NO. 1 TO MASTER DISTRIBUTION
AND SHAREHOLDER SERVICES PLAN
OF
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
AMERICAN CENTURY MUTUAL FUNDS, INC.
AMERICAN CENTURY STRATEGIC ASSET ALLOCATIONS, INC.
AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
Advisor Class
THIS AMENDMENT NO. 1 TO MASTER DISTRIBUTION AND SHAREHOLDER SERVICES
PLAN is made as of the 13th day of June, 1997, by each of the above named
corporations (the "Issuers"). Capitalized terms not otherwise defined herein
shall have the meaning ascribed to them in the Master Distribution and
Shareholder Services Plan.
RECITALS
WHEREAS, the Issuers are parties to a certain Master Distribution and
Shareholder Services Plan dated September 3, 1996 (the "Plan"); and
WHEREAS, in January 1997, the Issuers and the Funds changed their
names; and
WHEREAS, American Century Capital Portfolios, Inc., has added a series,
the American Century Real Estate Fund (the "Fund"), for which the Fund's board
has established an Advisor Class of shares; and
WHEREAS, the parties desire to amend the Plan to reflect the new names
of the Issuers and the Funds, and to adopt the Plan on behalf of the Fund.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the parties hereto agree as follows:
1. American Century Capital Portfolios, Inc. hereby adopts the Plan on
behalf of the Fund, in accordance with Rule 12b-1 under the 1940 Act and on the
terms and conditions contained in the Plan.
2. Schedule A to the Plan is hereby amended by deleting the text
thereof in its entirety and inserting in lieu therefor the Schedule A attached
hereto.
3. After the date hereof, all references to the Plan shall be deemed to
mean the Master Distribution and Shareholder Services Plan, as amended by this
Amendment No. 1.
4. In the event of a conflict between the terms of this Amendment No.1
and the Plan, it is the intention of the parties that the terms of this
Amendment No. 1 shall control and the Plan shall be interpreted on that basis.
To the extent the provisions of the Plan have not been amended by this Amendment
No. 1, the parties hereby confirm and ratify the Plan.
5. This Amendment No. 1 may be executed in two or more counterparts,
each of which shall be an original and all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date first above written.
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
AMERICAN CENTURY MUTUAL FUNDS, INC.
AMERICAN CENTURY STRATEGIC ASSET
ALLOCATIONS, INC.
AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
BY: /s/ William M. Lyons
William M. Lyons
Executive Vice President of each of the Issuers
SCHEDULE A
Series Offering Advisor Class Shares
Fund Date Plan Adopted
- --------------------------------------------------------------------------------
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
American Century Equity Income Fund September 3, 1996
American Century Value Fund September 3, 1996
American Century Real Estate Fund June 13, 1997
AMERICAN CENTURY MUTUAL FUNDS, INC.
American Century Balanced Fund September 3, 1996
Benham Cash Reserve Fund September 3, 1996
Twentieth Century Growth Fund September 3, 1996
Twentieth Century Heritage Fund September 3, 1996
Benham Intermediate-Term Bond Fund September 3, 1996
Benham Limited-Term Bond Fund September 3, 1996
Benham Bond Fund September 3, 1996
Twentieth Century Select Fund September 3, 1996
Benham Intermediate-Term Government Fund September 3, 1996
Benham Short-Term Government Fund September 3, 1996
Twentieth Century Ultra Fund September 3, 1996
Twentieth Century Vista Fund September 3, 1996
AMERICAN CENTURY STRATEGIC ASSET ALLOCATIONS, INC.
American Century Strategic Allocation: Aggressive September 3, 1996
American Century Strategic Allocation: Conservative September 3, 1996
American Century Strategic Allocation: Moderate September 3, 1996
AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
Twentieth Century International Growth Fund September 3, 1996
Twentieth Century International Discovery Fund September 3, 1996
AMENDMENT NO. 1 TO MULTIPLE CLASS PLAN
OF
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
AMERICAN CENTURY MUTUAL FUNDS, INC.
AMERICAN CENTURY STRATEGIC ASSET ALLOCATIONS, INC.
AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
THIS AMENDMENT NO. 1 TO MULTIPLE CLASS PLAN is made as of the 13th day
of June, 1997, by each of the above named corporations (the "Issuers").
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Multiple Class Plan.
RECITALS
WHEREAS, the Issuers are parties to a certain Multiple Class Plan dated
as of May 31, 1996, and effective September 3, 1996 (the "Plan"); and
WHEREAS, in January 1997, the Issuers and the Funds changed their
names; and
WHEREAS, American Century Capital Portfolios, Inc., has added a series,
American Century Real Estate Fund (the "Fund"), offering multiple classes; and
WHEREAS, the Plan designates four classes of shares: the Retail Class,
the Institutional Class, the Service Class, and the Advisor Class; and
WHEREAS, the parties desire to amend the Plan to reflect the new names
of the Issuers and the Funds, to adopt the Plan for the Fund and to change the
name of the Retail Class to Investor Class.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the parties hereto agree as follows:
1. American Century Capital Portfolios, Inc. hereby adopts the Plan on
behalf of the Fund, in accordance with Rule 18f-3 under the 1940 Act and on the
terms and conditions contained in the Plan.
2. Schedule A to the Plan is hereby amended by deleting the text
thereof in its entirety and inserting in lieu therefor the Schedule A attached
hereto.
3. After the date hereof, all reference to the "Retail Class" in the
Plan shall be deemed to mean the "Investor Class."
4. After the date hereof, all references to the Plan shall be deemed to
mean the Multiple Class Plan, as amended by this Amendment No. 1.
5. In the event of a conflict between the terms of this Amendment No.1
and the Plan, it is the intention of the parties that the terms of this
Amendment No. 1 shall control and the Plan shall be interpreted on that basis.
To the extent the provisions of the Plan have not been amended by this Amendment
No. 1, the parties hereby confirm and ratify the Plan.
6. This Amendment No. 1 may be executed in two or more counterparts,
each of which shall be an original and all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date first above written.
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
AMERICAN CENTURY MUTUAL FUNDS, INC.
AMERICAN CENTURY STRATEGIC ASSET
ALLOCATIONS, INC.
AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
BY: /s/ William M. Lyons
William M. Lyons
Executive Vice President of each of the Issuers
<TABLE>
<CAPTION>
SCHEDULE A
Companies and Funds Covered by this Multiclass Plan
Investor Institutional Services Advisor
Fund Class Class Class Class
- ------------------------------------------------------------------------------------------------------------------------------------
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
<S> <C> <C> <C> <C>
American Century Equity Income Fund Yes Yes Yes Yes
American Century Value Fund Yes Yes Yes Yes
American Century Real Estate Fund Yes Yes No Yes
AMERICAN CENTURY MUTUAL FUNDS, INC.
American Century Balanced Fund Yes Yes Yes Yes
Benham Cash Reserve Fund Yes No Yes Yes
Twentieth Century Growth Fund Yes Yes Yes Yes
Twentieth Century Heritage Fund Yes Yes Yes Yes
Benham Intermediate-Term Bond Fund Yes No Yes Yes
Benham Limited-Term Bond Fund Yes No Yes Yes
Benham Bond Fund Yes No Yes Yes
Twentieth Century Select Fund Yes Yes Yes Yes
Benham Intermediate-Term Government Fund Yes No Yes Yes
Benham Short-Term Government Fund Yes No Yes Yes
Twentieth Century Ultra Fund Yes Yes Yes Yes
Twentieth Century Vista Fund Yes Yes Yes Yes
Twentieth Century Giftrust Yes No No No
Benham Limited-Term Tax-Exempt Fund Yes No No No
Benham Intermediate-Term Tax-Exempt Fund Yes No No No
Benham Long-Term Tax-Exempt Fund Yes No No No
AMERICAN CENTURY STRATEGIC ASSET ALLOCATIONS, INC.
American Century Strategic Allocation: Aggressive Yes No Yes Yes
American Century Strategic Allocation: Conservative Yes No Yes Yes
American Century Strategic Allocation: Moderate Yes No Yes Yes
AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
Twentieth Century International Growth Fund Yes Yes Yes Yes
Twentieth Century International Discovery Fund Yes Yes Yes Yes
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 18
<NAME> BENHAM HIGH YIELD FUND - 1997 PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
