AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
PROSPECTUS SUPPLEMENT
Value
Equity Income
Investor Class o Institutional Class o Advisor Class
SUPPLEMENT DATED JULY 31, 1997
Prospectus dated May 21, 1997
The disclosure set forth below replaces the paragraph under the heading
"Portfolio Lending" found on page 12 of the Investor and Institutional Class
Prospectuses and page 14 of the Advisor Class Prospectus:
"In order to realize additional income, a fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities."
The disclosure set forth below replaces the first paragraph under the heading
"Short Sales" found on page 12 of the Investor and Institutional Class
Prospectuses and page 14 of the Advisor Class Prospectus:
"A fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire securities equivalent in kind and amount
to the securities being sold short. Such transactions allow the fund to hedge
against price fluctuations by locking in a sale price for securities it does not
wish to sell immediately."
The disclosure set forth below should be inserted as the second paragraph under
the heading "American Century Investments" found on page 14 of the Investor and
Institutional Class Prospectuses and as the last paragraph under the heading
"How to Purchase and Sell American Century Funds" found on page 16 of the
Advisor Class Prospectus:
"To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced telephone number."
The second paragraph under the heading "Investment Management," found on page 24
of the Investor Class Prospectus, pages 22-23 of the Institutional Class
Prospectus, and page 20-21 of the Advisor Class Prospectus is deleted.
P.O. Box 419200 [american century logo]
Kansas City, Missouri American
64141-6200 Century(sm)
1-800-345-2021 or 816-531-5575
SH-SPL-9434 9707
<PAGE>
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
PROSPECTUS SUPPLEMENT
American Century Real Estate Fund
Investor Class o Institutional Class o Advisor Class
SUPPLEMENT DATED JULY 31, 1997
Prospectus dated May 21, 1997 (revised June 16, 1997)
The disclosure set forth below replaces the paragraph under the heading
"Portfolio Lending" found on page 8 of each Prospectus:
"In order to realize additional income, the fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities."
The disclosure set forth in the following paragraph should be inserted as the
second paragraph under the heading "American Century Investments" found on page
11 of the Investor and Institutional Class Prospectuses and as the last
paragraph under the heading "How to Purchase and Sell American Century Funds"
found on page 11 of the Advisor Class Prospectus:
"To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced telephone number."
P.O. Box 419200 [american century logo]
Kansas City, Missouri American
64141-6200 Century(sm)
1-800-345-2021 or 816-531-5575
SH-SPL-9435 9707
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
MAY 21, 1997
REVISED JULY 31, 1997
AMERICAN
CENTURY
GROUP
Value
Equity Income
Real Estate Fund
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
MAY 21, 1997
REVISED JULY 31, 1997
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
This Statement is not a prospectus but should be read in conjunction with the
current prospectuses of American Century Capital Portfolios, Inc., and its three
series of shares, American Century Value, American Century Equity Income and
American Century Real Estate Fund. Each of such prospectuses is dated May 21,
1997. Please retain this document for future reference. To obtain a prospectus,
call American Century at 1-800-345-2021 (international calls: 816-531-5575), or
write to P.O. Box 419200, Kansas City, Missouri 64141-6200.
TABLE OF CONTENTS
Investment Objectives of the Funds.............................................2
Investment Restrictions....................................................... 2
Forward Currency Exchange Contracts............................................3
Index Futures Contracts........................................................4
An Explanation of Fixed Income Securities Ratings..............................5
Short Sales....................................................................7
Portfolio Turnover ............................................................7
Officers and Directors.........................................................8
Management....................................................................10
Custodians....................................................................11
Independent Auditors..........................................................11
Capital Stock.................................................................11
Multiple Class Structure......................................................11
Taxes.........................................................................14
Brokerage.....................................................................16
Performance Advertising.......................................................17
Redemptions in Kind...........................................................18
Holidays......................................................................18
Financial Statements..........................................................18
Statement of Additional Information 1
INVESTMENT OBJECTIVES OF THE FUNDS
The investment objective of each fund comprising American Century Capital
Portfolios, Inc. is described on page 2 of the applicable prospectus. In
achieving its objective, a fund must conform to certain policies, some of which
are designated in its prospectus or in this Statement of Additional Information
as "fundamental" and cannot be changed without shareholder approval. The
following paragraph is also a statement of fundamental policy with respect to
selection of investments for Value and Equity Income.
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 fund will generally
consist of equity securities. However, subject to the specific limitations
applicable to a fund, the manager may invest the assets of a fund 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.
Neither the Securities and Exchange Commission nor any other federal or
state agency participates in or supervises the management of the funds or their
investment practices or policies.
INVESTMENT RESTRICTIONS
Additional fundamental policies that may be changed only with shareholder
approval provide as follows:
(1) The funds shall not issue senior securities, except as permitted under
the Investment Company Act of 1940.
(2) The funds shall not borrow money, except that the funds may borrow
money for temporary or emergency purposes (not for leveraging or investment) in
an amount not exceeding 33 1/3% of a fund's total assets (including the amount
borrowed) less liabilities (other than borrowings).
(3) The funds shall not lend any security or make any other loan if, as a
result, more than 33 1/3% of a fund's total assets would be lent to other
parties, except, (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
(4) The funds shall not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments. This policy shall not
prevent the funds 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) The funds shall not act as an underwriter of securities issued by
others, except to the extent that a fund may be considered an underwriter within
the meaning of the Securities Act of 1933 in the disposition of restricted
securities.
(6) The funds shall not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments; provided
that this limitation shall not prohibit the funds from purchasing or selling
options and futures contracts or from investing in securities or other
instruments backed by physical commodities.
(7) The funds shall not invest for purposes of exercising control over
management.
(8) Value and Equity Income shall not concentrate their 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).
In addition, the funds have adopted the following non-fundamental
investment restrictions:
(1) As an operating policy, a fund shall not purchase additional investment
securities at any time during which outstanding borrowings exceed 5% of the
total assets of the fund.
(2) As an operating policy, a fund may not purchase any security or enter
into a repurchase
2 American Century Investments
agreement if, as a result, more than 15% of its net assets (10% for money market
funds) 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.
(3) As an operating policy, a fund 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.
(4) As an operating policy, a fund shall not purchase securities on margin,
except that a 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 fund of securities issued by insurance companies, brokers,
dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership.
Neither Value nor Equity Income may concentrate their investments in the
securities of issuers engaged in a single industry. In determining industry
groups for purposes of this restriction, the SEC ordinarily uses the Standard
Industry Classification codes developed by the United States Office of
Management and Budget. In the interest of ensuring adequate diversification, the
funds monitor industry concentration using a more restrictive list of industry
groups than that the recommended by the SEC. The funds believe that these
classifications are reasonable and are not so broad that the primary economic
characteristics of the companies in a single class are materially different. The
use of these more restrictive industry classifications may, however, cause the
funds to forego investment possibilities which may otherwise be available to
them under the Investment Company Act.
Neither the SEC nor any other agency of the federal or state government
participates in or supervises the funds' management or their investment
practices or policies.
FORWARD CURRENCY EXCHANGE CONTRACTS
A fund conducts its foreign currency exchange transactions either on a spot
(ie., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into forward currency exchange contracts to purchase
or sell foreign currencies.
A fund expects 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; or
(2) When the manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, a fund would
be able to enter into a forward contract tosell foreign currency for a fixed
U.S. dollar amount approximating the value of some or all of its portfolio
securities either denominated in, or whose value is tied to, such foreign
currency.
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
and 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 forward 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
Statement of Additional Information 3
fund will place cash or high-grade liquid securities in a separate account with
its custodian in an amount equal to the value of the forward contracts entered
into under the second circumstance. 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 generally would not 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 a 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.
INDEX FUTURES CONTRACTS
As described in the applicable Prospectus, Value and Equity Income may
enter into domestic stock index futures contracts. Unlike when a fund purchases
securities, no purchase price for the underlying securities is paid by the fund
at the time it purchases a futures contract. When an index futures contract is
entered into, both the buyer and seller of the contract are required to deposit
with a futures commission merchant ("FCM") cash or high-grade debt securities in
an amount equal to a percentage of the contract's value, as set by the exchange
on which the contract is traded. This amount is known as "initial margin" and is
held by the fund's custodian for the benefit of the FCM in the event of any
default by the fund in the payment of any future obligations.
The value of the index futures contract is adjusted daily to reflect the
fluctuation of the value of the underlying securities that comprise the index.
This is a process known as marking the contract to market. If the value of a
party's position declines, that party is required to make additional "variation
margin" payments to the FCM to settle the change in value. The party that has a
gain may be entitled to receive all or a portion of this amount. The FCM may
have access to a fund's margin account only under specified conditions of
default.
The funds maintain from time to time a percentage of their assets in cash
or high-grade liquid securities to provide for redemptions or to hold for future
investment in securities consistent with the funds' investment objectives. The
funds may enter into index futures contracts as an efficient means to expose the
funds' cash position to the domestic equity market. The manager believes that
the purchase of futures contracts is an efficient means to effectively be fully
invested in equity securities.
The funds intend to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the
Commodity Futures Trading Commission and the National Futures Association, which
regulate trading in the futures markets. To do so, the aggregate initial margin
required to establish such positions may not exceed 5% of the fair market value
of a fund's net assets, after taking into account unrealized profits and
4 American Century Investments
unrealized losses on any contracts it has entered into.
The principal risks generally associated with the use of futures include:
o the possible absence of a liquid secondary market for any particular
instrument may make it difficult or impossible to close out a position
when desired (liquidity risk);
o the risk that the counter party to the contract may fail to perform its
obligations or the risk of bankruptcy of the FCM holding margin
deposits (counter party risk);
o the risk that the index of securities to which the futures contract
relates may go down in value (market risk); and
o adverse price movements in the underlying index can result in losses
substantially greater than the value of a fund's investment in that
instrument because only a fraction of a contract's value is required to
be deposited as initial margin (leverage risk); provided, however, that
the funds may not purchase leveraged futures, so there is no leverage
risk involved in the funds' use of futures.
A liquid secondary market is necessary to close out a contract. A fund may
seek to manage liquidity risk by investing only in exchange-traded futures.
Exchange-traded index futures pose less risk that there will not be a liquid
secondary market than privately negotiated instruments. Through their clearing
corporations, the futures exchanges guarantee the performance of the contracts.
Futures contracts are generally settled within a day from the date they are
closed out, as compared to three days for most types of equity securities. As a
result, futures contracts can provide more liquidity than an investment in the
actual underlying securities. Nevertheless, there is no assurance that a liquid
secondary market will exist for any particular futures contract at any
particular time. Liquidity may also be influenced by an exchange-imposed daily
price fluctuation limit, which halts trading if a contract's price moves up or
down more than the established limit on any given day. On volatile trading days
when the price fluctuation limit is reached, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a futures contract is not liquid because of price fluctuation limits
or otherwise, a fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until liquidity in the market is re-established. As a result, such
fund's access to other assets held to cover its futures positions also could be
impaired until liquidity in the market is re-established.
A fund manages counter-party risk by investing in exchange-traded index
futures. In the event of the bankruptcy of the FCM that holds margin on behalf
of a fund, that fund may be entitled to the return of margin owed to such fund
only in proportion to the amount received by the FCM's other customers. The
manager will attempt to minimize the risk by monitoring the creditworthiness of
the FCMs with which the funds do business.
The prices of futures contracts depend primarily on the value of their
underlying instruments. As a result, the movement in market price of index
futures contracts will reflect the movement in the aggregate market price of the
entire portfolio of securities comprising the index. Since the funds are not
index funds, a fund's investment in futures contracts will not correlate
precisely with the performance of such fund's other equity investments. However,
the manager believes that an investment in index futures will more closely
reflect the investment performance of the funds than an investment in U.S.
government or other highly liquid, short-term debt securities, which is where
the cash position of the funds would otherwise be invested.
The policy of the manager is to remain fully invested in equity securities.
There may be times when the manager deems it advantageous to the funds not to
invest excess cash in index futures, but such decision will generally not be the
result of an active effort to use futures to time or anticipate market movements
in general.
AN EXPLANATION OF FIXED INCOME SECURITIES RATINGS
As described in the applicable prospectuses, the funds may invest in fixed
income securities. With the exception of convertible securities and all fixed
income investments of the Real Estate Fund, the funds may invest only in
investment grade obligations.
Fixed income securities ratings provide the investment manager with
current assessment of the credit
Statement of Additional Information 5
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, which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also 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
that 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.
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 exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may
6 American Century Investments
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 in 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.
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
Value and Equity Income 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.
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. 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.
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, all or some part of any future losses in
the fund's long position in substantially identical securities may not become
deductible for tax purposes until all or some part of the short position has
been closed.
PORTFOLIO TURNOVER
In order to achieve each fund's investment objective, the manager will
purchase and sell securities without regard to the length of time the security
has been held. Accordingly, the funds' 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 a fund, even if the same security
has only recently been sold. In selling a given security, the manager keeps in
mind that (1) profits from sales of securities held less than three months must
be limited in order to meet the requirements of
Statement of Additional Information 7
Subchapter M of the Internal Revenue Code, and (2) profits from sales of
securities are taxed to shareholders. Subject to those considerations, the
corporation will sell a given security, no matter for how long or how short a
period it has been held in the portfolio and no matter whether the sale is at a
gain or at a loss, if management believes that the security 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, a fund may
decrease or eliminate entirely its equity position and increase its cash
position, and when a rise in price levels is anticipated, a fund may increase
its equity position and decrease its cash position. It should be expected,
however, that the funds will, under most circumstances, be essentially fully
invested in equity securities and equity equivalents.
Since investment decisions are based on the anticipated contribution of the
security in question to a fund's objectives, management believes that the rate
of portfolio turnover is irrelevant when management believes a change is in
order to achieve those objectives.
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
funds' investment manager, American Century Investment Management, Inc. and its
transfer agent, American Century Services Corporation, are listed below. The
address at which each director and officer below may be contacted 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;
Chief Executive Officer and Director, American Century Companies, Inc.;
President, Chief Executive Officer and Director, American Century Investment
Management, Inc. and American Century Services Corporation.
THOMAS A. BROWN, Director; Chief Executive Officer, Associated Bearing
Company, a corporation engaged in the sale of bearings and power transmission
products.
ROBERT W. DOERING, M.D., Director; retired, formerly general surgeon.
D. D. (DEL) HOCK, Director; Chairman, Public Service of Colorado;
Director, Service Tech, Inc. and Hathaway Corporation.
LINSLEY L. LUNDGAARD, Vice Chairman of the Board and Director; retired;
formerly Vice President and National Sales Manager, Flour Milling Division,
Cargill, Inc.
DONALD H. PRATT, Director; President and Director, Butler Manufacturing
Company.
LLOYD T. SILVER JR., Director; President, LSC, Inc., manufacturer's
representative.
M. JEANNINE STRANDJORD, Director; Senior Vice President and Treasurer,
Sprint Corporation; Director, DST Systems, Inc.
WILLIAM M. LYONS, Executive Vice President, Chief Operating Officer,
Secretary and General Counsel; President, Chief Operating Officer and General
Counsel, American Century Companies, Inc.; Executive Vice President, Chief
Operating Officer and General Counsel, 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
8 American Century Investments
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.
The Board of Directors has established four standing committees, the
Executive Committee, the Audit Committee, the Compliance Committee and the
Nominating Committee.
Messrs. Stowers Jr., Stowers III, and Lundgaard constitute the Executive
Committee of the Board of Directors. The committee performs the functions of the
Board of Directors between meetings of the Board, subject to the limitations on
its power set out in the Maryland General Corporation Law, and except for
matters required by the Investment Company Act to be acted upon by the whole
Board.
Messrs. Lundgaard (chairman), Doering and Hock and Ms. Strandjord
constitute the Audit Committee. The functions of the Audit Committee include
recommending the engagement of the funds' independent accountants, reviewing the
arrangements for and scope of the annual audit, reviewing comments made by the
independent accountants with respect to internal controls and the considerations
given or the corrective action taken by management, and reviewing nonaudit
services provided by the independent accountants.
Messrs. Brown (chairman), Pratt and Silver constitute the Compliance
Committee. The functions of the Compliance Committee include reviewing the
results of the funds' compliance testing program, reviewing quarterly reports
from the manager to the Board regarding various compliance matters and
monitoring the implementation of the funds' Code of Ethics, including violations
thereof.
The Nominating Committee has as its principal role the consideration and
recommendation of individuals for nomination as directors. The names of
potential director candidates are drawn from a number of sources, including
recommendations from members of the Board, management and shareholders. This
committee also reviews and makes recommendations to the Board with respect to
the composition of Board committees and other Board-related matters, including
its organization, size, composition, responsibilities, functions and
compensation. The members of the nominating committee are Messrs. Pratt
(chairman), Lundgaard and Stowers III.
The Directors of the corporation also serve as Directors for other funds
advised by the manager. Each Director who is not an "interested person" as
defined in the Investment Company Act receives for service as a member of the
Board of six of such companies an annual director's fee of $44,000, a 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" who 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 on page 10 is the aggregate compensation paid for the periods
indicated by the corporation and by the American Century family of funds as a
whole to each director of the corporation who is not an "interested person" as
defined in the Investment Company Act.
Aggregate Total Compensation from
Compensation the American Century
Director from the corporation1 Family of Funds2
- -----------------------------------------------------------------------------
Thomas A. Brown $2,411 $46,333
Robert W. Doering, M.D. 2,260 42,833
Linsley L. Lundgaard 2,436 46,333
Donald H. Pratt 2,352 44,667
Lloyd T. Silver Jr. 2,310 44,333
M. Jeannine Strandjord 2,310 43,833
John M. Urie3 1,318 37,167
D.D. (Del) Hock 1,075 8,833
- -----------------------------------------------------------------------------
1Includes compensation actually paid by the corporation during the fiscal year
ended March 31, 1997.
2Includes compensation paid by the fifteen investment company members of the
American Century family of funds for the calendar year ended December 31, 1996.
3 Mr. Hock replaced Mr. Urie as a director effective October 31, 1996.
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 also are officers of the funds, are paid by the manager.
Statement of Additional Information 9
MANAGEMENT
A description of the responsibilities and method of compensation of the
funds' manager, American Century Investment Management, Inc., appears in each
Prospectus under the caption "Management."
During the three most recent fiscal years, the management fees paid by
Value and Equity Income were as follows:
FUND Years Ended March 31,
- -----------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------
VALUE
Management fees $ 13,047,153 $ 5,747,940 $ 1,514,154
Average net assets 1,307,953,436 590,608,755 151,415,400
EQUITY INCOME
Management fees $ 1,579,957 $ 831,887 $ 145,270*
Average net assets 158,249,137 84,610,230 14,527,000*
- -----------------------------------------------------------------------------
* Since inception (August 1, 1994) through March 31, 1995.
The Advisor Class of Value commenced October 2, 1996, and the Advisor Class
of Equity Income commenced March 7, 1997. The management fees shown above
include $106,780 paid on Advisor Class shares of Value and $9 paid on Advisor
Class shares of Equity Income for the period ended March 31, 1997.
The management agreements between Value, Equity Income and the Real Estate
Fund and the manager 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 outstanding votes (as defined
in the Investment Company Act) and (ii) by the vote of a majority of the
Directors 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.
Each 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
the funds' shareholders, on 60 days' written notice to the manager and that it
shall be automatically terminated if it is assigned.
Each management agreement provides that the manager shall not be liable to
the funds or their shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties.
Each management agreement also provides that the manager and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
The management agreement between the Real Estate Fund and the manager
contemplates the retention of a subadvisor by the manager.
Certain investments may be appropriate for the 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 in different amounts and
at different times for more than one but less than all clients. In addition,
purchases or sales of the same security may be made for two or more clients on
the same date. Such transactions will be allocated among clients 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 to additional compensation or remuneration as a result of such
aggregation.
In addition to managing the funds the manager is also acting as an
investment adviser to twelve institu-
10 American Century Investments
tional accounts and to five registered investment companies: American Century
Mutual Funds, Inc., American Century Premium Reserves, Inc., American Century
World Mutual Funds, Inc., American Century Strategic Asset Allocations, Inc.,
and American Century Variable Portfolios, Inc.
American Century Services Corporation provides physical facilities,
including computer hardware and software and personnel, for the day-to day
administration of the funds and the manager pays American Century Services
Corporation for such services.
As stated in each Prospectus, all of the stock of American Century
Investment Management, Inc. and American Century Services Corporation is owned
by American Century Companies, Inc.
CUSTODIANS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York
10003-9598, and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105,
each serves as custodian of the assets of the funds. The custodians take no part
in determining the investment policies of the funds or in deciding which
securities are purchased or sold by the funds. The funds, however, may invest in
certain obligations of the custodians and may purchase or sell certain
securities from or to the custodians.
INDEPENDENT AUDITORS
At a meeting held on December 12, 1996, the Board of Directors of the
corporation appointed Deloitte & Touche LLP, 1010 Grand Avenue, Suite 400,
Kansas City, Missouri 64106 as the independent auditors of the funds to examine
the financial statements of the funds for the fiscal year ending March 31, 1998.
The appointment of Deloitte & Touche was recommended by the Audit Committee of
the Board of Directors. As the independent auditors of the funds, Deloitte &
Touche will provide 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 by
American Century.
Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas City,
Missouri 64105, served as independent auditors for the funds for all fiscal
years ending prior to March 31, 1998.
CAPITAL STOCK
The funds' capital stock is described in the Prospectuses under the heading
"Further Information About American Century."
The corporation currently has two series of shares outstanding, and a third
series is planned to be authorized. Each series of shares is further divided
into four classes, and the contemplated third series will be divided into three
classes. The funds may in the future issue one or more additional series or
class of shares without a vote of the shareholders. The assets belonging to each
series or class of shares are held separately by the custodian and the shares of
each series or class represent a beneficial interest in the principal, earnings
and profits (or losses) of investment and other assets held for that series or
class. Your rights as a shareholder are the same for all series or classes of
securities unless otherwise stated. Within their respective series or class, all
shares will 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 the funds,
shareholders of each series or class of shares will be entitled to receive, pro
rata, all of the assets less the liabilities of that series or class.
As of May 5, 1997, in excess of 5% of the outstanding shares of either
series of the funds were owned of record as follows: Charles Schwab & Co., San
Francisco, California, owned 12.5% of Value and 13.7% of Equity Income.
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 shares: an Investor Class, an
Institutional Class, a Service Class and an Advisor Class.
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,
Statement of Additional Information 11
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
Investment Company 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 beginning on this page.
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
Investment Company Act), hereafter referred to as the "independent directors")
determined that there was a reasonable likelihood that the Plans would benefit
the funds and the shareholders of the affected classes. Pursuant to Rule 12b-1,
information with respect to revenues and expenses under the Plans is presented
to the Board of Directors quarterly for its consideration in connection with its
deliberations as to the continuance of the Plans. Continuance of the Plans must
be approved by the Board of Directors (including a majority of the independent
directors) annually. The Plans may be amended by a vote of the Board of
Directors (including a majority of the independent directors), except that the
Plans may not be amended to materially increase the amount to be spent for
distribution without majority approval of the shareholders of the affected
class. The Plans terminate automatically in the event of an assignment and may
be terminated upon a vote of a majority of the independent directors or by vote
of a majority of the outstanding voting securities of the affected class.
All fees paid under the plans will be made in accordance with Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers.
SHAREHOLDER SERVICES PLAN
As described in the Prospectuses, the funds' Service Class of shares is
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 record
keeping 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 net assets of the
funds' Service Class shares.
American Century Investment Services, Inc. enters into contracts with each
financial intermediary for the provision of certain shareholder services and
utilizes the shareholder services fees 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, (1) 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 medium) of shares and placing purchase, exchange and
redemption orders with the Distributor; (2) providing shareholders with a
service that invests the assets of their accounts in shares
12 American Century Investments
pursuant to specific or pre-authorized instructions; (3) processing dividend
payments from a fund on behalf of shareholders and assisting shareholders in
changing dividend options, account designations and addresses; (4) providing and
maintaining elective services such as check writing and wire transfer services;
(5) acting as shareholder of record and nominee for beneficial owners; (6)
maintaining account records for shareholders and/or other beneficial owners; (7)
issuing confirmations of transactions; (8) 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; (9) 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;
(10) providing other similar administrative and sub-transfer agency services;
and (11) 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 is
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 record keeping and administrative
services that are provided by the funds' transfer agent of 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 a fee of 0.50%
annually of the aggregate average daily net 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, (1) the payment of sales
commissions, ongoing commissions and other payments to brokers, dealers,
financial institutions or others who sell Advisor Class shares pursuant to
Selling Agreements; (2) compensation to registered representatives or other
employees of Distributor who engage in or support distribution of the funds'
Advisor Class shares; (3) compensation to, and expenses (including overhead and
telephone expenses) of, Distributor; (4) the printing of prospectuses,
statements of additional information and reports for other than existing
shareholders; (5) the preparation, printing and distribution of sales literature
and advertising materials provided to the funds' shareholders and prospective
shareholders; (6) receiving and answering correspondence from prospective
shareholders including distributing prospectuses, statements of additional
information, and shareholder reports; (7) the providing of facilities to answer
questions from prospective investors about fund shares; (8) complying with
federal and state securities laws pertaining to the sale of fund shares; (9)
assisting investors in completing application forms and selecting dividend and
other account options: (10) the providing of other reasonable assistance in
connection with the distribution of fund shares; (11) the organizing and
conducting of sales seminars and payments in the form of transactional
compensation or promotional incentives; (12) profit on the foregoing; (13) the
Statement of Additional Information 13
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 (14)
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.
TAXES
Each fund has elected to be taxed under the Internal Revenue Code as a
regulated investment company. If they qualify, they will not be subject to U.S.
federal income tax on net investment income and net capital gains, which are
distributed to its shareholders within certain time periods specified in the
Code. Amounts not distributed on a timely basis would be subject to federal and
state corporate income tax and to a nondeductible 4% excise tax.
Distributions by the funds from net investment income and net short-term
capital gains are taxable to shareholders as ordinary income. The dividends
received deduction available to corporate shareholders for dividends received
from a fund will apply to ordinary income distributions only to the extent that
they are attributable to the fund's dividend income from U.S. corporations. In
addition, the dividends received deduction will be limited if the shares with
respect to which the dividends are received are treated as debt-financed or are
deemed to have been held less than 46 days by a fund.
Distributions by the funds from net long-term capital gains are taxable to
a shareholder 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, shareholders 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 the
shareholder with respect to such shares.
Redemption of shares of a fund 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 Internal Revenue Code, resulting in a postponement of
the recognition of such loss for federal income tax purposes.
In addition to the federal income tax consequences described above relating
to an investment in shares of the funds, there may be other federal, state or
local tax considerations that depend upon the circumstances of each particular
investor. Prospective shareholders are therefore urged to consult their tax
advisers with respect to the effect of this investment on their own situations.
TAXATION OF CERTAIN MORTGAGE REITS
The funds may invest in REITs that hold residual interests in real estate
mortgage investment conduits. Under Treasury regulations that have not yet been
issued, but may apply retroactively, a portion of a fund's income from a REIT
that is attributable to the REIT's residual interest in a REMIC (referred to in
the Code as an "excess inclusion") will be subject to Federal income tax in all
events. These regulations are also expected to provide that excess inclusion
income of a regulated investment company, such as a fund, will be allocated to
shareholders of the regulated investment company in proportion to the dividends
received by them with the same consequences as if the shareholders held the
related REMIC residual interest directly. In general, excess inclusion income
allocated to shareholders (i) cannot be offset by net operating losses (subject
to a limited exception for certain thrift institutions) and (ii) will constitute
unrelated business taxable income to entities (including a qualified pension
plan, an individual retirement account, a 401(k) plan, a Keogh plan or other
tax-exempt entity) subject to tax on unrelated business income, thereby
potentially requiring such an entity that is allocated excess inclusion income,
and otherwise might be required to file a tax return, to file a tax return and
pay tax on some income. In addition, if at any time during any taxable year a
"disqualified organization" (as defined in the Code) is a record holder
14 American Century Investments
of a share in a regulated investment company, then the regulated investment
company will be subject to a tax equal to that portion of its excess inclusion
income for the taxable year that is allocable to the disqualified organization,
multiplied by the highest Federal income tax rate imposed on corporations.
TAXATION OF DEBT INSTRUMENTS
For Federal income tax purposes, debt securities purchased by the funds may
be treated as having original issue discount. Original issue discount can
generally be defined as the excess of the stated redemption price at maturity of
a debt obligation over the issue price. Original issue discount is treated as
interest earned by the fund for Federal income tax purposes, whether or not any
income is actually received, and therefore is subject to the distribution
requirements of the Code. However, original issue discount with respect to
tax-exempt obligations generally will be excluded from a fund's taxable income.
Original issue discount with respect to tax-exempt securities is accrued and
added to the adjusted tax basis of such securities for purposes of determining
gain or loss upon sale or at maturity. Generally, the amount of original issue
discount for any period is determined on the basis of a constant yield to
maturity which takes into account the compounding of accrued interest. Under
section 1286 of the Code, an investment in a stripped bond or stripped coupon
will result in original issue discount.
A fund may purchase debt securities at a discount which exceeds the
original issue price plus previously accrued original issue discount remaining
on the securities, at the time of purchase. This additional discount represents
market discount for income tax purposes. Generally, market discount is accrued
on a daily basis.
A fund may purchase debt securities at a premium, i.e., at a purchase price
in excess of face amount. With respect to tax-exempt securities, the premium
must be amortized to the maturity date but no deduction is allowed for the
premium amortization. Instead, the amortized bond premium will reduce the fund's
adjusted tax basis in the securities. For taxable securities, the premium may be
amortized if the fund so elects. The amortized premium on taxable securities is
allowed as a deduction, and, generally for securities issued after September 27,
1985, must be amortized under an economic accrual method.
FOREIGN HOLDERS
A foreign holder is a person or entity that, for U.S. Federal income tax
purposes, is a nonresident alien individual, a foreign corporation, a foreign
partnership, or a non-resident fiduciary of a foreign estate or trust. If a
distribution of a fund's taxable income (without regard to its net capital gain)
to a foreign holder is not effectively connected with a U.S. trade of business
carried on by the investor, such distribution will be subject to withholding tax
at a 30% rate or such lower rate as may be specified by an applicable income tax
treaty. In addition, distributions from the Fund will generally be subject to
information reporting.
If at least 50% of the value of the Real Estate Fund is represented by
shares of REITs that are "domestically controlled" within the meaning of Section
897(h) of the Code, or is represented by shares of classes of REIT stock that
(i) represent not more than 5% of such classes and (ii) are "regularly traded on
an established securities market" within the meaning of Section 897(c)(3) of the
Code, a foreign holder should not be subject to withholding tax under the
Foreign Investment in Real Property Tax Act with respect to gain arising from
the sale or redemption of units. In addition, based upon advice of counsel as to
existing law, the fund does not intend to withhold under FIRPTA on distributions
of the fund's net capital gain (designated as capital gain by the fund). Such
income generally will not be subject to federal income tax unless the income is
effectively connected with a trade or business of such foreign holder in the
United States. In the case of a foreign holder who is a non-resident alien
individual, however, gain arising from the sale or redemption of shares or
distributions of the fund's net capital gain ordinarily will be subject to
federal income tax at a rate of 30% if such individual is physically present in
the U.S. for 183 days or more during the taxable year and, in the case of the
gain arising from the sale or redemption of units, either the gain is
attributable to an office or other fixed place of business maintained by the
holder in the
Statement of Additional Information 15
United States or the holder has a "tax home" in the United States. In addition,
shares held by individual who is not a citizen or resident of the United States
at the time of his death will generally be subject to United States federal
estate tax.
The tax consequences to a foreign holder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
Holders should consult their own tax advisers to determine whether investment in
the Fund is appropriate.
BROKERAGE
Under the terms of the management agreements 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 below when
selecting brokers.
For brokerage services related to the Real Estate Fund, the manager has
delegated responsibility for selecting brokers to execute portfolio transactions
to the subadvisor under the terms of the Investment Subadvisory Agreement.
The manager or the subadvisor, as the case may be, receives statistical and
other information and services without cost from brokers and dealers. The
manager or the subadvisor evaluates such information and services, together with
all other information that it may have, in supervising and managing the
investments 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 and the subadvisor propose to
continue to place some of the funds' brokerage business with one or more brokers
who provide information and services. Such information and services provided to
the manager and the subadvisor will be in addition to and not in lieu of the
services required to be performed for the funds by the manager and subadvisor.
Neither the manager nor the subadvisor utilizes brokers who provide such
information and services for the purpose of reducing the expense of providing
required services to the funds.
In the years ended March 31, 1997, 1996 and 1995, the brokerage commissions
of Value and Equity Income were as follows:
FUND Years Ended March 31,
- -----------------------------------------------------------------------------
1997 1996 1995
VALUE $4,841,179 $2,929,681 $607,139
EQUITY INCOME 537,710 325,185 51,4271
- -----------------------------------------------------------------------------
1Since inception.
The brokerage commissions paid by the funds may exceed those that another
broker might have charged for effecting the same transactions because of the
value of the brokerage and/or 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 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 normally place their
over-the-counter transactions with principal market makers but also may deal on
a brokerage basis when utilizing electronic trading networks or as circumstances
warrant.
On occasions when the manager deems the purchase or sale of a security to
be in the best interests of the funds as well as other fiduciary accounts, the
manager may aggregate the security to be sold or purchased for the fund with
those to be sold or purchased for other accounts in order to obtain the best net
price and most favorable execution. In such event, the allocation will be made
by the manager in the manner considered to be most equitable and consistent with
its fiduciary obligations to all such fiduciary accounts, including the funds.
16 American Century Investments
PERFORMANCE ADVERTISING
FUND PERFORMANCE
Individual fund performance may be compared to various indices, including
the Standard & Poor's 500 Index, the Consumer Price Index, the Dow Jones
Industrial Average and the S&P/Barra Value (with regard to Value), the Lipper
Equity Income Fund Index (with regard to Equity Income), and the Morgan Stanley
REIT Index, NAREIT Equity-Less Health Care Index , and Wilshire REIT Only Index
(with regard to the Real Estate Fund). Fund performance also may be compared to
the rankings prepared by Lipper Analytical Services, Inc.
The following table sets forth the average annual total return of the
Investor class of the funds for the periods indicated. 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. Annualization of a
fund's return assumes that the partial year performance will be constant
throughout the period. Actual return through the period may be greater or less
than the annualized data.
Average Annual
Value Total Return
- -----------------------------------------------------------------------------
Year ended March 31, 1997 15.92%
September 1, 1993 (Inception)
through March 31, 1997 17.39%
Average Annual
Equity Income Total Return
- -----------------------------------------------------------------------------
Year Ended March 31, 1997 16.24%
August 1, 1994 (Inception)
through March 31, 1997 19.78%
- -----------------------------------------------------------------------------
The funds also may elect to advertise cumulative total return and average
annual total return, computed as described above, 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 returns and the average
annual returns for the Investor Class of the funds since their respective dates
of inception.
Cumulative Total Average Annual
Fund Return Since Inception Compound Rate
- -----------------------------------------------------------------------------
Value 77.47% 17.39%
Equity Income 61.71% 19.78%
- -----------------------------------------------------------------------------
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, NAREIT Equity-Less Health Care
Index and Wilshire REIT Only 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, Realty
Stock Review, Changing Times, Institutional Investor, 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 applicable 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 statisti-
Statement of Additional Information 17
cal data to supplement such discussions; (4) descriptions of past or anticipated
portfolio holdings for one or more of the funds; (5) descriptions of investment
strategies for one or more of the funds; (6) descriptions or comparisons of
various savings and investment products (including, but not limited to,
qualified retirement plans and individual stocks and bonds), which may or may
not include the funds; (7) comparisons of investment products (including the
funds) with relevant market or industry indices or other appropriate benchmarks;
(8) discussions of fund rankings or ratings by recognized rating organizations;
and (9) testimonials describing the experience of persons that have invested in
one or more of the funds. The funds may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any of
the funds.
DISTRIBUTION RATES
In its sales literature, the Real Estate Fund may also quote its
distribution rate along with the above described standard total return and yield
information. The distribution rate is calculated by annualizing the latest
distribution and dividing the result by the offering price per share as of the
end of the period to which the distribution relates. A distribution can include
gross investment income from debt obligations purchased at a premium and in
effect include a portion of the premium paid. A distribution can also include
gross short-term capital gains without recognition of any unrealized capital
losses. Further, a distribution can include income from the sale of options by
the fund even though such option income is not considered investment income
under generally accepted accounting principals.
Because a distribution can include such premiums, capital gains and option
income, the amount of the distribution may be susceptible to control by the
manager through transactions designed to increase the amount of such items.
Also, because the distribution rate is calculated in part by dividing the latest
distribution by net asset value ,the distribution rate will increase as the net
asset value declines. A distribution rate can be greater than the yield rate
calculated as described above.
REDEMPTIONS IN KIND
In order to protect the investments of the remaining shareholders, the
funds have adopted a policy regarding large redemptions. That policy is
described in detail in the applicable fund prospectuses 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 a fund
during any 90-day period for any one shareholder. Should redemptions by any
shareholder exceed such limitation, the funds will have the option of redeeming
the excess in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage costs in converting the assets to cash. The
securities delivered will be selected at the sole discretion of the manager.
Such securities will not necessarily be representative of the entire portfolio
and may be securities that the manager regards as least desirable. The method of
valuing securities used to make redemptions in kind will be the same as the
method of valuing portfolio securities described in each prospectus under the
heading "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 their 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, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
FINANCIAL STATEMENTS
The financial statements of the funds for the fiscal year ended March 31,
1997, are included in the Annual Report to shareholders, which is incorporated
herein by reference. In addition, the fund's unaudited financial statements for
the six months ended
18 American Century Investments
September 30, 1996, are included in the Semiannual Report to shareholders which
is incorporated herein by reference. With respect to the unaudited financial
statements incorporated herein, all adjustments, in the opinion of management,
necessary for a fair presentation of the financial position and results of
operation for the periods indicated have been made. The results of operations of
the funds for the respective periods indicated are not necessarily indicative of
the results for the entire year. You may receive copies of the Annual and
Semiannual Reports without charge upon request to the funds at the address and
phone numbers shown on the cover of this Statement.
Statement of Additional Information 19
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
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 816-444-3485
Fax: 816-340-7962
www.americancentury.com
[american century logo]
American
Century(sm)
9707 [recycled logo]
SH-BKT-9272 Recycled
<PAGE>
AMERICAN CENTURY MUTUAL FUNDS, INC.
PROSPECTUS SUPPLEMENT
Twentieth Century Growth o Twentieth Century Select o Twentieth Century Ultra
Twentieth Century Vista o Twentieth Century Heritage
Investor Class o Institutional Class o Advisor Class
SUPPLEMENT DATED JULY 31, 1997
Prospectus dated March 1, 1997
The disclosure set forth below replaces the third sentence of the paragraph
under the heading "American Century - Twentieth Century Heritage Fund" on page 2
of each Prospectus:
"As a matter of fundamental policy, 80% of the assets of the Select fund
and 60% of the assets of the Heritage fund must be invested in securities of
companies that have a record of paying dividends or have committed themselves to
the payment of regular dividends, or otherwise produce income."
The disclosure set forth below replaces the second and third sentences of the
first paragraph under the heading "Select and Heritage" found on page 10 of the
Investor and Institutional Class Prospectuses and page 12 of the Advisor Class
Prospectus:
"Additionally, as a matter of fundamental policy, 80% of the assets of the
Select fund and 60% of the assets of the Heritage fund must be invested in
securities of companies that have a record of paying dividends or have committed
themselves to the payment of regular dividends, or otherwise produce income. The
remaining 20% of the Select fund and 40% of the Heritage fund may be invested in
any otherwise permissible securities that the manager believes will contribute
to the funds' stated investment objectives."
The disclosure set forth in the following paragraph replaces the paragraph under
the heading "Portfolio Lending" found on page 13 of the Investor and
Institutional Class Prospectuses and page 15 of the Advisor Class Prospectus:
"In order to realize additional income, a fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities."
The disclosure set forth below replaces the first paragraph under the heading
"Short Sales" found on page 14 of the Investor and Institutional Class
Prospectuses and page 16 of the Advisor Class Prospectus:
"A fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire securities equivalent in kind and amount
to the securities being sold short. Such transactions allow the fund to hedge
against price fluctuations by locking in a sale price for securities it does not
wish to sell immediately."
The disclosure set forth in the following paragraph should be inserted as the
second paragraph under the heading "American Century Investments" found on page
16 of the Investor and Institutional Class Prospectuses and as the last
paragraph under the heading "How to Purchase and Sell American Century Funds"
found on page 18 of the Advisor Class Prospectus:
"To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced telephone number."
The second paragraph under the heading "Investment Management," found on page 26
of the Investor Class Prospectus, page 25 of the Institutional Class Prospectus,
and page 23 of the Advisor Class Prospectus, is deleted.
P.O. Box 419200 [american century logo]
Kansas City, Missouri American
64141-6200 Century(sm)
1-800-345-2021 or 816-531-5575
SH-SPL-9423 9707
<PAGE>
AMERICAN CENTURY MUTUAL FUNDS, INC.
PROSPECTUS SUPPLEMENT
Twentieth Century Giftrust
SUPPLEMENT DATED JULY 31, 1997
Prospectus dated March 1, 1997
The disclosure set forth below replaces the paragraph under the heading
"Portfolio Lending" found on page 9 of the Prospectus:
"In order to realize additional income, the fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities."
The disclosure set forth below replaces the first paragraph under the heading
"Short Sales" found on page 10 of the Prospectus:
"The fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire securities equivalent in kind and amount
to the securities being sold short. Such transactions allow the fund to hedge
against price fluctuations by locking in a sale price for securities it does not
wish to sell immediately."
The disclosure set forth below should be inserted as the second paragraph under
the heading "American Century Investments" found on page 11 of the Prospectus:
"To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced telephone number."
P.O. Box 419200 [american century logo]
Kansas City, Missouri American
64141-6200 Century(sm)
1-800-345-2021 or 816-531-5575
SH-SPL-9427 9707
<PAGE>
AMERICAN CENTURY MUTUAL FUNDS, INC.
PROSPECTUS SUPPLEMENT
Benham Limited-Term Bond o Benham Intermediate-Term Bond o Benham Bond
Investor Class o Advisor Class
SUPPLEMENT DATED JULY 31, 1997
Prospectus dated March 1, 1997
The disclosure set forth below replaces the paragraph under the heading
"Portfolio Lending" found on page 12 of each Prospectus:
"In order to realize additional income, a fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities."
The disclosure set forth in the following paragraph should be inserted as the
second paragraph under the heading "American Century Investments" found on page
15 of the Investor Class Prospectus and as the last paragraph under the heading
"How to Purchase and Sell American Century Funds" found on page 15 of the
Advisor Class Prospectus:
"To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced telephone number."
The second paragraph under the heading "Investment Management," found on page 23
of the Investor Class Prospectus and page 18 of the Advisor Class Prospectus, is
deleted.
P.O. Box 419200 [american century logo]
Kansas City, Missouri American
64141-6200 Century(sm)
1-800-345-2021 or 816-531-5575
SH-SPL-9426 9707
<PAGE>
AMERICAN CENTURY MUTUAL FUNDS, INC.
PROSPECTUS SUPPLEMENT
Benham Cash Reserve
Investor Class o Advisor Class
SUPPLEMENT DATED JULY 31, 1997
Prospectus dated March 1, 1997
The table found on page 4 of the Investor Class Prospectus is deleted and
replaced in its entirety with the following:
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 OPERATING EXPENSES
(as a percentage of net assets)
Management Fees........................................................ 0.60%
12b-1 Fees............................................................. none
Other Expenses(2)...................................................... 0.00%
Total Fund Operating Expenses.......................................... 0.60%
EXAMPLE:
You would pay the following expenses on a $1,000 1 year $ 6
investment, assuming a 5% annual return and 3 years 19
redemption at the end of each time period: 5 years 33
10 years 75
(1) Redemption proceeds sent by wire are subject to a $10 processing charge.
(2) Other expenses, which include the fees and expenses (including legal
counsel fees) of those directors who are not "interested persons" as
defined in the Investment Company Act, were less than .01 of 1% of average
net assets for the most recent fiscal year.
The table found on page 4 of the Advisor Class Prospectus is deleted and
replaced in its entirety with the following:
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 OPERATING EXPENSES
(as a percentage of net assets)
Management Fees........................................................ 0.35%
12b-1 Fees(1).......................................................... 0.50%
Other Expenses(2)...................................................... 0.00%
Total Fund Operating Expenses.......................................... 0.85%
EXAMPLE:
You would pay the following expenses on a $1,000 1 year $ 9
investment, assuming a 5% annual return and 3 years 27
redemption at the end of each time period: 5 years 47
10 years 105
(1) The 12b-1 fee is designed to permit investors to purchase Advisor Class
shares through broker-dealers, banks, insurance companies and other
financial intermediaries. A portion of the fee is used to compensate them
for ongoing recordkeeping and administrative services that would otherwise
be performed by an affiliate of the manager, and a portion is used to
compensate them for distribution and other shareholder services.
See "Service and Distribution Fees," page 14.
(2) Other expenses, which include the fees and expenses (including legal
counsel fees) of those directors who are not "interested persons" as
defined in the Investment Company Act, were less than 0.01 of 1% of average
net assets for the most recent fiscal year.
The disclosure set forth below replaces the paragraph under the heading
"Portfolio Lending" found on pages 7-8 of each Prospectus:
"In order to realize additional income, the fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities."
The disclosure set forth below should be inserted as the second paragraph under
the heading "American Century Investments" found on page 10 of the Investor
Class Prospectus and as the last paragraph under the heading "How to Purchase
and Sell American Century Funds" found on page 10 of the Advisor Class
Prospectus:
"To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced telephone number."
The second paragraph under the heading "Investment Management," found on page 18
of the Investor Class Prospectus and pages 12-13 of the Advisor Class Prospectus
is deleted.
The disclosure set forth below replaces the sixth paragraph under the heading
"Investment Management" found on page 18 of the Investor Class Prospectus and
page 13 of the Advisor Class Prospectus:
"AMY O'DONNELL, Portfolio Manager, joined American Century in 1988,
becoming a member of its portfolio department in 1988. In 1992 she assumed her
current position as a Portfolio Manager of three other funds."
The disclosure set forth below replaces the eighth paragraph under the heading
"Investment Management" found on page 18 of the Investor Class Prospectus:
"For the services provided to the fund, the manager receives an annual
fee of 0.60% of the average net assets of Cash Reserve."
The disclosure set forth below replaces the eighth paragraph under the heading
"Investment Management" found on page 18 of the Advisor Class Prospectus:
"For the services provided to the fund, the manager receives an annual
fee of 0.35% of the average net assets of Cash Reserve."
P.O. Box 419200 [american century logo]
Kansas City, Missouri American
64141-6200 Century(sm)
1-800-345-2021 or 816-531-5575
SH-SPL-9425 9707
<PAGE>
AMERICAN CENTURY MUTUAL FUNDS, INC.
PROSPECTUS SUPPLEMENT
American Century Balanced
Investor Class o Institutional Class o Advisor Class
SUPPLEMENT DATED JULY 31, 1997
Prospectus dated March 1, 1997
The disclosure set forth below replaces the paragraph under the heading
"Portfolio Lending" found on page 9 of each Prospectus:
"In order to realize additional income, the fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities."
The disclosure set forth below replaces the first paragraph under the heading
"Short Sales" found on page 10 of each Prospectus:
"The fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire securities equivalent in kind and amount
to the securities being sold short. Such transactions allow the fund to hedge
against price fluctuations by locking in a sale price for securities it does not
wish to sell immediately."
The disclosure set forth below should be inserted as the second paragraph under
the heading "American Century Investments" found on page 12 of the Investor
Class and Institutional Class Prospectuses and as the last paragraph under the
heading "How to Purchase and Sell American Century Funds" found on page 12 of
the Advisor Class Prospectus:
"To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced telephone number."
The second paragraph under the heading "Investment Management," found on page 22
of the Investor Class Prospectus, page 21 of the Institutional Class Prospectus,
and page 17 of the Advisor Class Prospectus, is deleted.
P.O. Box 419200 [american century logo]
Kansas City, Missouri American
64141-6200 Century(sm)
1-800-345-2021 or 816-531-5575
SH-SPL-9424 9707
<PAGE>
AMERICAN CENTURY MUTUAL FUNDS, INC.
PROSPECTUS SUPPLEMENT
Twentieth Century New Opportunities
SUPPLEMENT DATED JULY 31, 1997
Prospectus dated March 1, 1997
The disclosure set forth below replaces the paragraph under the heading
"Portfolio Lending" found on page 9 of the Prospectus:
"In order to realize additional income, the fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities."
The disclosure set forth below replaces the first paragraph under the heading
"Short Sales" found on page 10 of the Prospectus:
"The fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire securities equivalent in kind and amount
to the securities being sold short. Such transactions allow the fund to hedge
against price fluctuations by locking in a sale price for securities it does not
wish to sell immediately."
The disclosure set forth below should be inserted as the second paragraph under
the heading "American Century Investments" found on page 11 of the Prospectus:
"To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced telephone number."
The second paragraph under the heading "Investment Management," found on page 21
of the Prospectus, is deleted.
P.O. Box 419200 [american century logo]
Kansas City, Missouri American
64141-6200 Century(sm)
1-800-345-2021 or 816-531-5575
SH-SPL-9428 9707
<PAGE>
AMERICAN CENTURY
MUTUAL FUNDS, INC.
PROSPECTUS SUPPLEMENT
Short-Term Government
Intermediate-Term Government
SUPPLEMENT DATED AUGUST 1, 1997
Prospectus dated March 1, 1997
The Board of Directors of the funds offered by this Prospectus unanimously
agreed to enter into an Agreement and Plan of Reorganization with the American
Century Government Income Trust. The Agreement provides for the consolidation of
these funds with other American Century funds that have similar investment
objectives and policies. The proposed consolidation of funds will not decrease
the dollar value of any shareholder's account.
The Agreement was approved by shareholders of the funds at an Annual Meeting of
Shareholders held on July 30, 1997. The reorganization is expected to occur on
August 30, 1997. Following the reorganization, shareholders of the Short-Term
Government Fund will own shares of the Adjustable Rate Government Fund, which
will change its name to Short-Term Government Fund, and shareholders of the
Intermediate-Term Government Fund will own shares of the Intermediate-Term
Treasury Fund, all in the same dollar amount as their shares held in the merging
funds at the close of business on the date of the merger.
[american century logo]
American
Century(sm)
P.O. Box 419200 o Kansas City, Missouri 64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
www.americancentury.com
American Century Investment Services, Inc.
(C) 1997 American Century Services Corporation
SH-SPL-9429 9708
<PAGE>
AMERICAN CENTURY
MUTUAL FUNDS, INC.
PROSPECTUS SUPPLEMENT
Limited-Term Tax Exempt
Intermediate-Term Tax Exempt
Long-Term Tax-Exempt
SUPPLEMENT DATED AUGUST 1, 1997
Prospectus dated March 1, 1997
The Board of Directors of the funds offered by this Prospectus unanimously
agreed to enter into an Agreement and Plan of Reorganization with the American
Century Government Income Trust. The Agreement provides for the consolidation of
these funds with other American Century funds that have similar investment
objectives and policies. The proposed consolidation of funds will not decrease
the dollar value of any shareholder's account.
The Agreement was approved by shareholders of the funds at an Annual Meeting of
Shareholders held on July 30, 1997. The reorganization is expected to occur on
August 30, 1997. Following the reorganization, shareholders of the Limited-Term
Tax-Exempt Fund will own shares of the Limited-Term Tax-Free Fund, shareholders
of the Intermediate-Term Tax-Exempt Fund will own shares of the
Intermediate-Term Tax-Free Fund, and shareholders of Long-Term Tax-Exempt Fund
will own shares of the Long-Term Tax-Free Fund, all in the same dollar amount as
their shares held in the merging funds at the close of business on the date of
the merger.
[american century logo]
American
Century(sm)
P.O. Box 419200 o Kansas City, Missouri 64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
www.americancentury.com
American Century Investment Services, Inc.
(C) 1997 American Century Services Corporation
SH-SPL-9430 9707
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
March 1, 1997
Revised JULY 31, 1997
AMERICAN CENTURY
MUTUAL FUNDS, INC.
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1997
REVISED JULY 31, 1997
AMERICAN CENTURY MUTUAL FUNDS, INC.
This statement is not a prospectus but should be read in conjunction with
American Century's current prospectuses dated March 1, 1997. Please retain this
document for future reference. To obtain a prospectus, call American Century
toll-free at 1-800-345-2021 (international calls: 816-531-5575), or write to
P.O. Box 419200, Kansas City, Missouri 64141-6200.
TABLE OF CONTENTS
Investment Objectives of the Funds...............................2
Fundamental Policies of the Funds................................2
Additional Investment Restrictions...............................4
Forward Currency Exchange Contracts..............................5
An Explanation of Fixed Income Securities Ratings................6
Short Sales......................................................8
Portfolio Turnover...............................................8
Interest Rate Futures Contracts and Related Options..............9
Municipal Leases................................................12
Officers and Directors..........................................13
Management......................................................15
Custodians......................................................17
Independent Accountants.........................................17
Capital Stock...................................................17
Multiple Class Structure........................................18
Brokerage.......................................................20
Performance Advertising.........................................21
Redemptions in Kind.............................................23
Holidays........................................................23
Financial Statements............................................23
Statement of Additional Information 1
INVESTMENT OBJECTIVES OF THE FUNDS
The investment objective of each fund comprising American Century Mutual Funds,
Inc. is described on page 2 of the applicable prospectus. One feature of the
various series of shares (funds) merits further explanation. As described in the
Growth Funds Prospectus, the chief investment difference among Growth, Ultra and
Vista, and between Select and Heritage, is the size of the fund, which affects
the nature of the investments in the fund's portfolio. A smaller fund tends to
be more responsive to changes in the value of its portfolio securities. For
example, if a $1,000,000 fund buys $5,000 of stock which then doubles in value,
the value of the fund increases by only one-half of 1%. However, if a $100,000
fund buys $5,000 of such stock which then doubles in value, the value of the
fund increases by 5%, or at a rate 10 times as great. By the same token, if the
value of such stock declines by one-half, the small fund would decline in value
by 2.5%, while the larger fund would decline in value by only one-half of 1% or
at a rate only one-tenth as great. Thus, a small fund with the same objective as
a large fund, and similarly managed, likely will have a greater potential for
profit and for loss as well.
FUNDAMENTAL POLICIES OF THE FUNDS
In achieving its objective, a fund must conform to certain fundamental policies
that may not be changed without shareholder approval, as follows:
SELECT, HERITAGE, GROWTH, ULTRA, VISTA, GIFTRUST, NEW OPPORTUNITIES AND THE
EQUITY INVESTMENTS OF BALANCED
In general, within the restrictions outlined herein, American Century has broad
powers with respect to investing funds or holding them uninvested. Investments
are varied according to what is judged advantageous under changing economic
conditions. It is our policy to retain maximum flexibility in management without
restrictive provisions as to the proportion of one or another class of
securities that may be held subject to the investment restrictions described
below. It is the manager's intention that each of these portfolios will
generally consist of common stocks. However, the manager may invest the assets
of each series in varying amounts in other instruments and in senior securities,
such as bonds, debentures, preferred stocks and convertible issues, when such a
course is deemed appropriate in order to attempt to attain its financial
objective. Senior securities that, in the opinion of the manager, are high-grade
issues may also be purchased for defensive purposes. [Note: The above statement
of fundamental policy gives American Century authority to invest in securities
other than common stocks and traditional debt and convertible issues. Though the
funds have not made such investments in the past, the manager may invest in
master limited partnerships (other than real estate partnerships) and royalty
trusts which are traded on domestic stock exchanges when such investments are
deemed appropriate for the attainment of the funds' investment objectives.]
BALANCED
The manager will invest approximately 60% of the Balanced portfolio in common
stocks and the balance in fixed income securities. Common stock investments are
described above. At least 80% of the fixed income assets will be invested in
securities that are rated at the time of purchase by a nationally recognized
statistical rating organization to be within the three highest categories. The
fund may invest in securities of the United States government and its agencies
and instrumentalities, corporate, sovereign government, municipal,
mortgage-backed, and other asset-backed securities. It can be expected that
management will invest from time to time in bonds and preferred stock
convertible into common stock.
CASH RESERVE
The manager will invest the Cash Reserve portfolio in debt securities payable in
United States currency. Such securities may be obligations issued or guaranteed
by the United States government or its agencies and instrumentalities or
obligations issued by corporations and others, including repurchase agreements,
of such quality and with such maturities to permit Cash Reserve to be designated
as a money market fund and to enable it to maintain a stable offering price per
share.
The fund operates pursuant to a rule under the Investment Company Act that
permits valuation of portfolio securities on the basis of amortized cost. As
required by the rule, the Board of Directors has
2 American Century Investments
adopted procedures designed to stabilize, to the extent reasonably possible, the
fund's price per share as computed for the purpose of sales and redemptions at
$1.00. While the day-to-day operation of the fund has been delegated to the
manager, the quality requirements established by the procedures limit
investments to certain United States dollar-denominated instruments which the
board of directors has determined present minimal credit risks and which have
been rated in one of the two highest rating categories as determined by a
nationally recognized statistical rating organization or, in the case of an
unrated security, of comparable quality. The procedures require review of the
fund's portfolio holdings at such intervals as are reasonable in light of
current market conditions to determine whether the fund's net asset value
calculated by using available market quotations deviates from the per-share
value based on amortized cost. The procedures also prescribe the action to be
taken if such deviation should occur.
SHORT-TERM GOVERNMENT FUND AND
INTERMEDIATE-TERM GOVERNMENT FUND
The manager will invest the portfolios of Short-Term Government Fund and
Intermediate-Term Government Fund in direct obligations of the United States,
such as Treasury bills, Treasury notes and U.S. government bonds, that are
supported by the full faith and credit of the United States. The manager may
also invest in agencies and instrumentalities of the United States government
that are established under the authority of an act of Congress. The securities
of some of such agencies and instrumentalities are supported by the full faith
and credit of the United States Treasury; others are supported by the right of
the issuer to borrow from the Treasury; still others are supported only by the
credit of the instrumentality. Such agencies and instrumentalities include, but
are not limited to, the Government National Mortgage Association, Federal
National Mortgage Association, Federal Home Loan Mortgage Corporation, Student
Loan Marketing Association, Federal Farm Credit Banks, Federal Home Loan Banks,
and Resolution Funding Corporation. Purchase of such securities may be made
outright or on a when-issued basis and may be made subject to repurchase
agreements.
LIMITED-TERM BOND, INTERMEDIATE-TERM BOND AND BENHAM BOND
The manager will invest the portfolios of the corporate bond funds in high- and
medium-grade debt securities payable in United States currency. The funds may
invest in securities that, at the time of purchase, are rated by a nationally
recognized statistical rating organization or, if not rated, are of equivalent
investment quality as determined by the management, as follows: short-term notes
within the two highest categories; corporate, sovereign government and municipal
bonds within the four highest categories; securities of the United States
government and its agencies and instrumentalities; and other types of securities
rated at least P-2 by Moody's or A-2 by S&P. The funds may also purchase
securities under repurchase agreements as described in the prospectus and
purchase and sell interest rate futures contracts and related options. See
"Interest Rate Futures Contracts and Related Options," page 9.
LIMITED-TERM TAX-EXEMPT, INTERMEDIATE-TERM TAX-EXEMPT AND LONG-TERM TAX-EXEMPT
The manager will invest the tax-exempt portfolios in high- and medium-grade
securities. At least 80% of each fund's net assets will be invested in
securities whose income is not subject to federal income taxes, including the
alternative minimum tax.
The two principal classifications of tax-exempt securities are notes and bonds.
Tax-exempt notes are of short maturity, generally less than three years, and are
issued to provide for short-term capital needs. These include tax anticipation
notes and revenue anticipation notes, among others, as well as tax-exempt
commercial paper. Tax-exempt bonds, which meet long-term capital needs,
generally have maturities longer than one year. The two categories of tax-exempt
bonds, general obligation and revenue, may be held by the funds in any
proportion. General obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenue derived from a project or facility or
from the proceeds of a specific revenue source, but not from the general taxing
power. Industrial development revenue bonds are a type of revenue bond secured
by payments from a private user, and generally do not
Statement of Additional Information 3
enjoy a call upon the resources of the municipality that issued the bond on
behalf of the user.
The funds may invest in fixed-, floating- and variable-rate securities.
Fixed-rate securities pay interest at the fixed rate until maturity. Floating-
and variable-rate securities normally have a stated maturity in excess of one
year, but may have a provision permitting the holder to demand payment of
principal and interest upon not more than seven days' notice. Floating rates of
interest are tied to a percentage of a designated base rate, such as rates on
Treasury bills or the prime rate at a major bank, and change whenever the
designated rate changes. Variable-rate securities provide for a periodic
adjustment in the rate.
For the purpose of determining the maturity of an individual security or the
average weighted portfolio maturity of one of the funds, the manager shall
consider the maturity to be the shorter of final maturity, the remaining
expected average life of a sinking fund bond, the remaining time until a
mandatory put date, the time until payment as the result of exercising a put or
demand-for-payment option, or the remaining time until the pre-refunding payment
date of a security whose redemption on a call date in advance of final maturity
is assured through contractual agreement and with high-quality collateral in
escrow.
The funds may invest in securities that, at the time of purchase, are rated by a
nationally recognized statistical rating organization or, if not rated, are of
equivalent investment quality as determined by the management, as follows:
short-term notes within the two highest categories, bonds within the four
highest categories, and other types of securities rated at least P-2 by Moody's
or A-2 by S&P. The funds may invest more than 25% of their assets in industrial
development revenue bonds. Each of the funds may invest in interest rate futures
contracts and related options. See "Interest Rate Futures Contracts and Related
Options," page 9.
BENHAM BOND, LIMITED-TERM TAX-EXEMPT,
INTERMEDIATE-TERM TAX-EXEMPT AND LONG-TERM TAX-EXEMPT
Benham Bond, Limited-Term Tax-Exempt, Intermediate-Term Tax-Exempt and Long-Term
Tax-Exempt (the funds) may buy and sell interest rate futures contracts relating
to debt securities ("debt futures," i.e., futures relating to debt securities,
and "bond index futures," i.e., futures relating to indexes on types or groups
of bonds) and write and buy put and call options relating to interest rate
futures contracts for the purpose of hedging against (i) declines or possible
declines in the market value of debt securities or (ii) inability to participate
in advances in the market values of debt securities at times when the funds are
not fully invested in long-term debt securities; provided that, the funds may
not purchase or sell futures contracts or related options if immediately
thereafter the sum of the amount of margin deposits on a fund's existing futures
positions and premiums paid for related options would exceed 5% of the fund's
assets.
ADDITIONAL INVESTMENT RESTRICTIONS
Additional fundamental policies that may be changed only with shareholder
approval provide as follows:
(1) The funds shall not issue senior securities, except as permitted under the
Investment Company Act of 1940.
(2) The funds shall not borrow money, except that the funds may borrow money for
temporary or emergency purposes (not for leveraging or investment) in an amount
not exceeding 331/3% of a fund's total assets (including the amount borrowed)
less liabilities (other than borrowings).
(3) The funds shall not lend any security or make any other loan if, as a
result, more than 331/3% of a fund's total assets would be lent to other
parties, except, (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
(4) The funds shall not concentrate their 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).
(5) The funds shall not purchase or sell real estate unless acquired as a result
of ownership of securities or other instruments. This policy shall not prevent a
fund from investment in securities or other instruments backed by real
4 American Century Investments
estate or securities of companies that deal in real estate or are engaged in the
real estate business.
(6) The funds shall not act as an underwriter of securities issued by others,
except to the extent that a fund may be considered an underwriter within the
meaning of the Securities Act of 1933 in the disposition of restricted
securities.
(7) The funds shall not purchase or sell physical commodities unless acquired as
a result of ownership of securities or other instruments; provided that this
limitation shall not prohibit a fund from purchasing or selling options and
futures contracts or from investing in securities or other instruments backed by
physical commodities.
(8) The funds shall not invest for purposes of exercising control over
management.
In addition, the funds have adopted the following non-fundamental investment
restrictions:
(1) As an operating policy, a fund shall not purchase additional investment
securities at any time during which outstanding borrowings exceed 5% of the
total assets of the fund.
(2) As an operating policy, a fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 15% of its net assets (10% for
money market funds) 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.
(3) As an operating policy, a fund 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.
(4) As an operating policy, a fund shall not purchase securities on margin,
except that a 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.
The Investment Company Act also provides that the funds may not invest more than
25% of their assets in the securities of issuers engaged in a single industry.
In determining industry groups for purposes of this standard, the Securities and
Exchange Commission ordinarily uses the Standard Industry Classification codes
developed by the United States Office of Management and Budget. In the interest
of ensuring adequate diversification, the funds monitor industry concentration
using a more restrictive list of industry groups than that recommended by the
SEC. The funds believe that these classifications are reasonable and are not so
broad that the primary economic characteristics of the companies in a single
class are materially different. The use of these restrictive industry
classifications may, however, cause the funds to forego investment possibilities
which may otherwise be available to them under the Investment Company Act.
Neither the SEC nor any other agency of the federal or state government
participates in or supervise the funds' management or their investment practices
or policies.
FORWARD CURRENCY EXCHANGE CONTRACTS
The funds conduct their foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward foreign currency exchange contracts to
purchase or sell foreign currencies.
The funds expect to use forward contracts under two circumstances:
(1) When the manager wishes to "lock in" the U.S. dollar price of a security
when a fund is pur-
Statement of Additional Information 5
chasing or selling a security denominated in a foreign currency, the fund would
be able to enter into a forward contract to do so;
(2) When the manager believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, a fund would be able
to enter into a forward contract to sell foreign currency for a fixed U.S.
dollar amount approximating the value of some or all of its fund's portfolio
securities either denominated in, or whose value is tied to, such foreign
currency.
As to the first circumstance, when a fund enters into a trade for the purchase
or sale of a security denominated in a foreign currency, it may be desirable to
establish (lock in) the U.S. dollar cost or proceeds. By entering into forward
contracts in U.S. dollars for the purchase or sale of a foreign currency
involved in an underlying security transaction, the fund will be able to protect
itself against a possible loss between trade and settlement dates resulting from
the adverse change in the relationship between the U.S. dollar at the subject
foreign currency.
Under the second circumstance, when the manager believes that the currency of a
particular country may suffer a substantial decline relative to the U.S. dollar,
a fund could enter into a foreign contract to sell for a fixed dollar amount the
amount in foreign currencies approximating the value of some or all of its
portfolio securities either denominated in, or whose value is tied to, such
foreign currency. The fund will place cash or high-grade liquid securities in a
separate account with its custodian in an amount sufficient to cover its
obligation under the contract. If the value of the securities placed in the
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account equals the amount of
the fund's commitments with respect to such contracts.
The precise matching of forward contracts in the amounts and values of
securities involved would not generally be possible since the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of short-term hedging strategy
is highly uncertain. The manager does not intend to enter into such contracts on
a regular basis. Normally, consideration of the prospect for currency parities
will be incorporated into the long-term investment decisions made with respect
to overall diversification strategies. However, the manager believes that it is
important to have flexibility to enter into such forward contracts when it
determines that a fund's best interests may be served.
Generally, a fund will not enter into a forward contract with a term of greater
than one year. At the maturity of the forward contract, the fund may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate the obligation to deliver the foreign currency
by purchasing an "offsetting" forward contract with the same currency trader
obligating the fund to purchase, on the same maturity date, the same amount of
the foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the forward contract. Accordingly, it
may be necessary for a fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency the fund is obligated to deliver.
AN EXPLANATION OF FIXED INCOME SECURITIES RATINGS
As described in the applicable prospectus, certain of the funds will have, at
any given time, investments in fixed income securities. Those investments,
however, are subject to certain credit quality restrictions, as noted in the
applicable prospectus. The following is a description of the rating categories
referenced in the prospectus fund disclosure.
The following summarizes the highest four ratings used by Standard & Poor's
Corporation for bonds:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA - Debt rated AA is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in a small degree.
6 American Century Investments
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to municipal notes and
indicates very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given a
plus (+) designation.
The following summarizes the highest four ratings used by Moody's Investors
Service, Inc. for bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Debt which is rated A possesses many favorable investment attributes and is
to be considered as an upper medium-grade obligation. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Debt which is rated Baa is considered as a medium-grade obligation, i.e.,
it is neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such debt lacks outstanding investment characteristics and in
fact has speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category.
The rating Prime-1 or P-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 or P-2 (or related supporting institutions)
are considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated, may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarized the highest rating used by Moody's for short-term notes
and variable rate demand obligations:
MIG-1; VMIG-1 - Obligations bearing these designations are of the best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
Statement of Additional Information 7
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.
In a short sale, the seller does not immediately deliver the securities sold and
is said to have a short position in those securities until delivery occurs. To
make delivery to the purchaser, the executing broker borrows the securities
being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If a fund engages in a short sale, the collateral account will be
maintained by the fund's custodian. While the short sale is open, the fund will
maintain in a segregated custodial account an amount of securities convertible
into, or exchangeable for, such equivalent securities at no additional cost.
These securities would constitute the fund's long position.
A fund may make a short sale, as described above, when it wants to sell the
security it owns at a current attractive price, but also wishes to defer
recognition of gain or loss for federal income tax purposes and for purposes of
satisfying certain tests applicable to regulated investment companies under the
Internal Revenue Code. In such a case, any future losses in the fund's long
position should be reduced by a gain in the short position. The extent to which
such gains or losses are reduced would depend upon the amount of the security
sold short relative to the amount the fund owns. There will be certain
additional transaction costs associated with short sales, but the fund will
endeavor to offset these costs with income from the investment of the cash
proceeds of short sales.
PORTFOLIO TURNOVER
The portfolio turnover rates of the funds are shown in the Financial Highlights
table in the prospectuses.
With respect to each series of shares, the manager will purchase and sell
securities without regard to the length of time the security has been held and,
accordingly, it can be expected that the rate of portfolio turnover may be
substantial.
The funds intend to purchase a given security whenever the manager believes it
will contribute to the stated objective of the series, even if the same security
has only recently been sold. In selling a given security, the manager keeps in
mind that (1) profits from sales of securities held less than three months must
be limited in order to meet the requirements of Subchapter M of the Internal
Revenue Code, and (2) profits from sales of securities are taxed to shareholders
as ordinary income. Subject to those considerations, the corporation will sell a
given security, no matter for how long or for how short a period it has been
held in the portfolio, and no matter whether the sale is at a gain or at a loss,
if the manager believes that it is not fulfilling its purpose, either because,
among other things, it did not live up to the manager's expectations, or because
it may be replaced with another security holding greater promise, or because it
has reached its optimum potential, or because of a change in the circumstances
of a particular company 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
8 American Century Investments
should not be considered as a representation of the rates which will be attained
in the future.
INTEREST RATE FUTURES CONTRACTS AND RELATED
OPTIONS
Limited-Term Bond, Intermediate-Term Bond, Benham Bond, Limited-Term Tax-Exempt,
Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt (the funds) may buy and
sell interest rate futures contracts relating to debt securities ("debt
futures," i.e., futures relating to debt securities, and "bond index futures,"
i.e., futures relating to indexes on types or groups of bonds) and write and buy
put and call options relating to interest rate futures contracts.
A fund will not purchase or sell futures contracts and options thereon for
speculative purposes but rather only for the purpose of hedging against changes
in the market value of its portfolio securities or changes in the market value
of securities that American Century Investment Management, Inc. (manager)
anticipates that it may wish to include in the portfolio of a fund. A fund may
sell a future or write a call or purchase a put on a future if the manager
anticipates that a general market or market sector decline may adversely affect
the market value of any or all of the fund's holdings. A fund may buy a future
or purchase a call or sell a put on a future if the manager anticipates a
significant market advance in the type of securities it intends to purchase for
the fund's portfolio at a time when the fund is not invested in debt securities
to the extent permitted by its investment policies. A fund may purchase a future
or a call option thereon as a temporary substitute for the purchase of
individual securities which may then be purchased in an orderly fashion. As
securities are purchased, corresponding futures positions would be terminated by
offsetting sales.
The "sale" of a debt future means the acquisition by the fund of an obligation
to deliver the related debt securities (i.e., those called for by the contract)
at a specified price on a specified date. The "purchase" of a debt future means
the acquisition by the fund of an obligation to acquire the related debt
securities at a specified time on a specified date. The "sale" of a bond index
future means the acquisition by the fund of an obligation to deliver an amount
of cash equal to a specified dollar amount times the difference between the
index value at the close of the last trading day of the future and the price at
which the future is originally struck. No physical delivery of the bonds making
up the index is expected to be made. The "purchase" of a bond index future means
the acquisition by the fund of an obligation to take delivery of such an amount
of cash.
Unlike when the fund purchases or sells a bond, no price is paid or received by
the fund upon the purchase or sale of the future. Initially, the fund will be
required to deposit an amount of cash or securities equal to a varying specified
percentage of the contract amount. This amount is known as initial margin. Cash
held in the margin account is not income producing. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying debt securities or index fluctuates, making the future
more or less valuable, a process known as mark to the market. Changes in
variation margin are recorded by the fund as unrealized gains or losses. At any
time prior to expiration 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
Statement of Additional Information 9
initial margin deposit.
For options sold, the fund will segregate cash or high-quality debt securities
equal to the value of securities underlying the option unless the option is
otherwise covered.
A fund will deposit in a segregated account with its custodian bank high-quality
debt obligations maturing in one year or less, or cash, in an amount equal to
the fluctuating market value of long futures contracts it has purchased less any
margin deposited on its long position. It may hold cash or acquire such debt
obligations for the purpose of making these deposits.
Changes in variation margin are recorded by a fund as unrealized gains or
losses. Initial margin payments will be deposited in the fund's custodian bank
in an account registered in the broker's name; access to the assets in that
account may be made by the broker only under specified conditions. At any time
prior to expiration of a futures contract or an option thereon, a fund may elect
to close the position by taking an opposite position that will operate to
terminate its position in the futures contract or option. A final determination
of variation margin is made at that time; additional cash is required to be paid
by or released to it and it realizes a loss or gain.
Although futures contracts by their terms call for the actual delivery or
acquisition of the underlying securities or cash, in most cases the contractual
obligation is so fulfilled without having to make or take delivery. The funds do
not intend to make or take delivery of the underlying obligation. All
transactions in futures contracts and options thereon are made, offset or
fulfilled through a clearinghouse associated with the exchange on which the
instruments are traded. Although the funds intend to buy and sell futures
contracts only on exchanges where there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for any
particular future at any particular time. In such event, it may not be possible
to close a futures contract position. Similar market liquidity risks occur with
respect to options.
The use of futures contracts and options thereon to attempt to protect against
the market risk of a decline in the value of portfolio securities is referred to
as having a "short futures position." The use of futures contracts and options
thereon to attempt to protect against the market risk that a fund might not be
fully invested at a time when the value of the securities in which it invests is
increasing is referred to as having a "long futures position." The funds must
operate within certain restrictions as to long and short positions in futures
contracts and options thereon under a rule (CFTC Rule) adopted by the Commodity
Futures Trading Commission under the Commodity Exchange Act to be eligible for
the exclusion provided by the CFTC Rule from registration by the fund with the
CFTC as a "commodity pool operator" (as defined under the CEA), and must
represent to the CFTC that it will operate within such restrictions. Under these
restrictions a fund will not, as to any positions, whether long, short or a
combination thereof, enter into futures contracts and options thereon for which
the aggregate initial margins and premiums exceed 5% of the fair market value of
the fund's assets after taking into account unrealized profits and losses on
options the fund has entered into; in the case of an option that is
"in-the-money" (as defined under the CEA), the in-the-money amount may be
excluded in computing such 5%. (In general, a call option on a futures contract
is in-the-money if the value of the future exceeds the strike, i.e., exercise,
price of the call; a put option on a futures contract is in-the-money if the
value of the futures contract that is the subject of the put is exceeded by the
strike price of the put.) Under the restrictions, a fund also must, as to short
positions, use futures contracts and options thereon solely for bona fide
hedging purposes within the meaning and intent of the applicable provisions
under the CEA. As to its long positions that are used as part of a fund's
portfolio strategy and are incidental to the fund's activities in the underlying
cash market, the "underlying commodity value" (see below) of the fund's futures
contract and options thereon must not exceed the sum of (i) cash set aside in an
identifiable manner, or short-term U.S. debt obligations or other U.S.
dollar-denominated, high-quality, short-term money market instruments so set
aside, plus any funds deposited as margin; (ii) cash proceeds from existing
investments due in 30 days; and (iii) accrued profits held at the futures
commission merchant. (There are described above the segregated accounts that a
fund must maintain with its custodian bank as to its options and
10 American Century Investments
futures contracts activities due to Securities and Exchange Commission
requirements. The fund will, as to its long positions, be required to abide by
the more restrictive of these SEC and CFTC requirements.) The underlying
commodity value of a futures contract is computed by multiplying the size
(dollar amount) of the futures contract by the daily settlement price of the
futures contract. For an option on a futures contract, that value is the
underlying commodity value of the future underlying the option.
Since futures contracts and options thereon can replicate movements in the cash
markets for the securities in which a fund invests without the large cash
investments required for dealing in such markets, they may subject a fund to
greater and more volatile risks than might otherwise be the case. The principal
risks related to the use of such instruments are (i) the offsetting correlation
between movements in the market price of the portfolio investments (held or
intended) being hedged and in the price of the futures contract or option may be
imperfect; (ii) possible lack of a liquid secondary market for closing out
futures or options positions; (iii) the need for additional portfolio management
skills and techniques; (iv) losses due to unanticipated market price movements;
and (v) the bankruptcy or failure of a futures commission merchant holding
margin deposits made by the funds and the funds' inability to obtain repayment
of all or part of such deposits. For a hedge to be completely effective, the
price change of the hedging instrument should equal the price change of the
security being hedged. Such equal price changes are not always possible because
the investment underlying the hedging instrument may not be the same investment
that is being hedged. The manager will attempt to create a closely correlated
hedge, but hedging activity may not be completely successful in eliminating
market value fluctuation. The ordinary spreads between prices in the cash and
futures markets, due to the differences in the natures of those markets, are
subject to the following factors which may create distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest trends by the manager may still not result in a successful transaction.
The manager may be incorrect in its expectations as to the extent of various
interest rate movements or the time span within which the movements take place.
The risk of imperfect correlation between movements in the price of a bond index
future and movements in the price of the securities that are the subject of the
hedge increases as the composition of a fund's portfolio diverges from the
securities included in the 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
Statement of Additional Information 11
securities against a decline in the market, the market may advance and the value
of securities held in the portfolio may decline. If this occurred, a fund would
lose money on the futures contract and also experience a decline in value in its
portfolio securities. However, while this could occur for a brief period or to a
very small degree, over time the value of a portfolio of debt securities will
tend to move in the same direction as the market indexes upon which the futures
contracts are based.
Where bond index futures are purchased to hedge against a possible increase in
the price of bonds before a fund is able to invest in securities in an orderly
fashion, it is possible that the market may decline instead; if the fund then
concludes not to invest in securities at that time because of concern as to
possible further market decline or for other reasons, it will realize a loss on
the futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
The risks of investment in options on bond indexes may be greater than options
on securities. Because exercises of bond index options are settled in cash, when
a fund writes a call on a bond index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. A fund can offset some of the risk of its writing position by
holding a portfolio of bonds similar to those on which the underlying index is
based. However, a fund cannot, as a practical matter, acquire and hold a
portfolio containing exactly the same securities as the underlying index and, as
a result, bears a risk that the value of the securities held will vary from the
value of the index. Even if a fund could assemble a portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, a fund, as the call writer, will not
learn that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security because there, the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
securities that exactly match the composition of the underlying index, it will
not be able to satisfy its assignment obligations by delivering those securities
against payment of the exercise price. Instead, it will be required to pay cash
in an amount based on the closing index value of the exercise date; and by the
time it learns that it has been assigned, the index may have declined with a
corresponding decline in the value of its portfolio. This "timing risk" is an
inherent limitation on the ability of index call writers to cover their risk
exposure by holding securities positions.
If a fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying 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
12 American Century Investments
will consider: (i) the credit quality of the obligor, (ii) whether the
underlying property is essential to a governmental function, and (iii) whether
the lease obligation contains covenants prohibiting the obligor from
substituting similar property if the obligor fails to make appropriations for
the lease obligation.
Municipal lease obligations may be determined to be liquid in accordance with
the guidelines established by the funds' board of directors for purposes of
complying with the funds' investment restrictions. In determining the liquidity
of a lease obligation, the manager will consider: (1) the frequency of trades
and quotes for the lease obligation, (2) the number of dealers willing to
purchase or sell the lease obligation and the number of other potential
purchasers, (3) dealer undertakings to make a market in the lease obligation,
(4) the nature of the marketplace trades, including the time needed to dispose
of the lease obligation, the method of soliciting offers, and the mechanics of
transfer, (5) whether the lease obligation is of a size that will be attractive
to institutional investors, (6) whether the lease obligation contains a
non-appropriation clause and the likelihood that the obligor will fail to make
an appropriation therefore, and (7) such other factors as the manager may
determine to be relevant to such determination.
OFFICERS AND DIRECTORS
The principal officers and directors of the corporation, their principal
business experience during the past five years, and their affiliations with the
fund's investment manager, American Century Investment Management, Inc. and its
transfer agent, American Century Services Corporation, are listed below. The
address at which each director and officer listed below may be contacted 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; Chief
Executive Officer and Director, American Century Companies, Inc.; President,
Chief Executive Officer and Director, American Century Investment Management,
Inc. and American Century Services Corporation.
THOMAS A. BROWN, Director; Chief Executive Officer, Associated Bearing Company,
a corporation engaged in the sale of bearings and power transmission products.
ROBERT W. DOERING, M.D., Director; retired, formerly general surgeon.
D. D. (DEL) HOCK, Director; Chairman, Public Service Company of Colorado;
Director, Service Tech, Inc. and Hathaway Corporation.
LINSLEY L. LUNDGAARD, Vice Chairman of the Board and Director; retired; formerly
Vice President and National Sales Manager, Flour Milling Division, Cargill, Inc.
DONALD H. PRATT, Director; President and Director, Butler Manufacturing Company.
LLOYD T. SILVER JR., Director; President, LSC, Inc., manufacturer's
representative.
M. JEANNINE STRANDJORD, Director; Senior Vice President and Treasurer, Sprint
Corporation; Director, DST Systems, Inc.
WILLIAM M. LYONS, Executive Vice President, Chief Operating Officer, Secretary
and General Counsel; President, Chief Operating Officer and General Counsel,
American Century Companies, Inc.; Executive Vice President, Chief Operating
Officer and General Counsel, 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.
Statement of Additional Information 13
PATRICK A. LOOBY, Vice President; Vice President, American Century Services
Corporation.
MERELE A. MAY, Controller.
C. JEAN WADE, CPA, Controller.
The Board of Directors has established four standing committees, the Executive
Committee, the Audit Committee, the Compliance Committee and the Nominating
Committee.
Messrs. Stowers Jr., Stowers III, and Lundgaard constitute the Executive
Committee of the Board of Directors. The committee performs the functions of the
Board of Directors between meetings of the Board, subject to the limitations on
its power set out in the Maryland General Corporation Law, and except for
matters required by the Investment Company Act to be acted upon by the whole
Board.
Messrs. Lundgaard (chairman), Doering and Hock and Ms. Strandjord constitute the
Audit Committee. The functions of the Audit Committee include recommending the
engagement of the funds' independent accountants, reviewing the arrangements for
and scope of the annual audit, reviewing comments made by the independent
accountants with respect to internal controls and the considerations given or
the corrective action taken by management, and reviewing nonaudit services
provided by the independent accountants.
Messrs. Brown (chairman), Pratt and Silver constitute the Compliance Committee.
The functions of the Compliance Committee include reviewing the results of the
funds' compliance testing program, reviewing quarterly reports from the manager
to the Board regarding various compliance matters and monitoring the
implementation of the funds' Code of Ethics, including violations thereof.
The Nominating Committee has as its principal role the consideration and
recommendation of individuals for nomination as directors. The names of
potential director candidates are drawn from a number of sources, including
recommendations from members of the Board, management and shareholders. This
committee also reviews and makes recommendations to the Board with respect to
the composition of Board committees and other Board-related matters, including
its organization, size, composition, responsibilities, functions and
compensation. The members of the nominating committee are Messrs. Pratt
(Chairman), Lundgaard and Stowers III.
The Directors of the corporation also serve as Directors for other funds advised
by the manager. Each Director who is not an "interested person" as defined in
the Investment Company Act receives for service as a member of the Board of all
Twentieth Century investment companies an annual director's fee of $44,000, and
an additional fee of $1,000 per regular Board meeting attended and $500 per
special Board meeting and committee meeting attended. In addition, those
Directors who are not "interested persons" and serve as chairman of a committee
of the Board of Directors receive an additional $2,000 for such services. These
fees and expenses are divided among the six investment companies based upon
their relative net assets. Under the terms of the management agreement with the
manager, the funds are responsible for paying such fees and expenses. Set 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 corporation1 Family of Funds2
- --------------------------------------------------------------------------------
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. Urie3 41,179.13 37,167
Del Hock3 0 7,500
- --------------------------------------------------------------------------------
1Includes compensation actually paid by the corporation during the fiscal year
ended October 31, 1996.
2Includes compensation paid by the fifteen investment company members of the
American Century family of funds for the calendar year ended December 31, 1996.
3Del 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 serv-
14 American Century Investments
ing as Directors of the corporation.
Under the Plan, all deferred fees are credited to an account established in the
name of the participating Directors. The amounts credited to the account then
increase or decrease, as the case may be, in accordance with the performance of
one or more of the American Century funds that are selected by the participating
Director. The account balance continues to fluctuate in accordance with the
performance of the selected fund or funds until final payment of all amounts
credited to the account. Directors are allowed to change their designation of
mutual funds from time to time.
No deferred fees are payable until such time as a participating Director
resigns, retires or otherwise ceases to be a member of the Board of Directors.
Directors may receive deferred fee account balances either in a lump sum payment
or in substantially equal installment payments to be made over a period not to
exceed 10 years. Upon the death of a Director, all remaining deferred fee
account balances are paid to the Director's beneficiary or, if none, to the
Director's estate.
The Plan is an unfunded plan and, accordingly, American Century has no
obligation to segregate assets to secure or fund the deferred fees. The rights
of Directors to receive their deferred fee account balances are the same as the
rights of a general unsecured creditor of the corporation. The Plan may be
terminated at any time by the administrative committee of the Plan. If
terminated, all deferred fee account balances will be paid in a lump sum.
No deferred fees were paid to any participating Directors under the Plan during
the fiscal year ended October 31, 1995.
Those Directors who are "interested persons," as defined in the Investment
Company Act, receive no fee as such for serving as a Director. The salaries of
such individuals, who are also officers of the funds, are paid by the manager.
MANAGEMENT
A description of the responsibilities and method of compensation of the funds'
investment manager, American Century Investment Management, Inc., appears in
each Prospectus under the caption, "Management."
During the three most recent fiscal years, the management fees paid to the
manager were as follows:
<TABLE>
FUND Years Ended October 31,
- -------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------
SELECT
<S> <C> <C> <C>
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 assets 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
FUND Years Ended October 31,
- -------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------
BALANCED
Management fees $ 8,345,585 $ 7,303,148 $ 6,861,248
Average net assets 844,937,283 743,379,550 687,079,027
CASH RESERVE
Management fees 9,593,595 9,546,843 10,282,495
Average net assets 1,375,448,677 1,367,481,447 1,294,838,404
SHORT-TERM GOVERNMENT FUND
Management fees 2,570,178 2,708,850 3,611,805
Average net assets 370,206,942 387,845,926 447,658,784
INTERMEDIATE-TERM
GOVERNMENT FUND
Management fees 179,763 104,141 19,566
Average net assets 24,215,896 14,092,947 3,821,083
LIMITED-TERM
TAX-EXEMPT
Management fees 205,918(1) 0 0
Average net assets 53,836,145 59,645,970 57,545,359
INTERMEDIATE-TERM
TAX-EXEMPT
Management fees 484,914 471,159 537,893
Average net assets 81,296,908 78,781,379 89,751,385
LONG-TERM TAX-EXEMPT
Management fees 352,945 317,622 361,732
Average net assets 59,479,341 53,244,618 60,383,665
LIMITED-TERM BOND
Management fees 52,116 40,530 17,509
Average net assets 7,680,716 5,906,790 3,690,814
INTERMEDIATE-TERM BOND
Management fees 108,870 59,552 17,532
Average net assets 14,807,295 8,128,357 3,458,399
BENHAM BOND
Management fees 1,148,428 1,038,120 1,233,251
Average net assets 146,071,676 132,239,065 141,750,838
- -------------------------------------------------------------------------------------------
1Net of fees waived by the manager.
</TABLE>
Statement of Additional Information 15
The Advisor Class of Ultra and Vista commenced operations on October 2, 1996.
The management fees shown above include $7,146 paid on Advisor Class shares of
Ultra and $3,127 paid on Advisor Class shares of Vista for the 29 day period
ended October 31, 1996.
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution, or until the first
meeting of shareholders following such execution, and for as long thereafter as
its continuance is specifically approved at least annually by (i) the funds'
Board of Directors, or by the vote of a majority of the outstanding votes (as
defined in the Investment Company Act), and (ii) by the vote of a majority of
the Directors of the funds who are not parties to the agreement or interested
persons of the manager, cast in person at a meeting called for the purpose of
voting on such approval.
The management agreement provides that it may be terminated at any time without
payment of any penalty by the funds' Board of Directors, or by a vote of a
majority of the funds' shareholders, on 60 days' written notice to the manager,
and that it shall be automatically terminated if it is assigned.
The management agreement provides that the manager shall not be liable to the
funds or its shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations or duties.
The management agreement also provides that the manager and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
Certain investments may be appropriate for one or more funds and also for other
clients advised by the manager. Investment decisions for the funds and other
clients are made with a view to achieving their respective investment objectives
after consideration of such factors as their current holdings, availability of
cash for investment, and the size of their investment generally. A particular
security may be bought or sold for only one client or series, or in different
amounts and at different times for more than one but less than all clients or
series. In addition, purchases or sales of the same security may be made for two
or more clients or series on the same date. Such transactions will be allocated
among clients or series in a manner believed by the manager to be equitable to
each. In some cases this procedure could have an adverse effect on the price or
amount of the securities purchased or sold by a fund.
The manager may aggregate purchase and sale orders of the funds with purchase
and sale orders of its other clients when the manager believes that such
aggregation provides the best execution for the funds. The funds' Board of
Directors has approved the policy of the manager with respect to the aggregation
of portfolio transactions. Where portfolio transactions have been aggregated,
the funds participate at the average share price for all transactions in that
security on a given day and share transaction costs on a pro rata basis. The
manager will not aggregate portfolio transactions of the funds unless it
believes such aggregation is consistent with its duty to seek best execution on
behalf of the funds and the terms of the 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.
16 American Century Investments
CUSTODIANS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York 10003-9598,
and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105, each serves
as custodian of the assets of the funds. The custodians take no part in
determining the investment policies of the funds or in deciding which securities
are purchased or sold by the funds. The funds, however, may invest in certain
obligations of the custodians and may purchase or sell certain securities from
or to the custodians.
INDEPENDENT ACCOUNTANTS
At a meeting held on December 12, 1996, the Board of Directors of the
corporation appointed Deloitte & Touche LLP, 1010 Grand Avenue, Kansas City,
Missouri 64106, as the independent auditors of the funds to examine the
financial statements of the funds for the fiscal year ending October 31, 1997.
The appointment of Deloitte & Touche was recommended by the Audit Committee of
the Board of Directors. As the independent auditors of the funds, Deloitte &
Touche will provide 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 by
American Century.
Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas City,
Missouri 64105, served as independent auditors for the funds for the period
ended October 31, 1996.
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%
NAME OF SHAREHOLDER
FUND AND PERCENTAGE
- --------------------------------------------------------------------------
Intermediate-Term
Bond Twentieth Century Companies, Inc.-- 17.6%
The Chase Manhattan Bank as Trustee for
Gza Geo Environmental Inc. Restated
401(k) Profit Sharing Plan and Trust
New York, New York -- 6.8%
The Chase Manhattan Bank as trustee for
Fujisawa USA Inc. Savings and Retirement
Plan Trust New York, New York -- 5.2%
Short-Term
Government Fund Nationwide Life Insurance Company-- 10.2%
Intermediate-Term
Government Fund The Chase Manhattan Bank as Trustee for
Robert Bosch Corporation Star Plan and Trust
New York, New York -- 14.1%
New Opportunities Trustees of Twentieth Century Profit Sharing and
401(k) Savings Distribution Reinvested Plan and
Trust -- 6.2%
- --------------------------------------------------------------------------
Statement of Additional Information 17
MULTIPLE CLASS STRUCTURE
The funds' Board of Directors has adopted a multiple class plan (the "Multiclass
Plan") pursuant to Rule 18f-3 adopted by the SEC. Pursuant to such plan, the
funds may issue up to four classes of funds: an Investor Class, an Institutional
Class, a Service Class and an Advisor Class. Not all funds offer all four
classes.
The Investor Class is made available to investors directly by the investment
manager through its affiliated broker-dealer, American Century Investment
Services, Inc., for a single unified management fee, without any load or
commission. The Institutional, Service and Advisor Classes are made available to
institutional shareholders or through financial intermediaries that do not
require the same level of shareholder and administrative services from the
manager as Investor Class shareholders. As a result, the manager is able to
charge these classes a lower management fee. In addition to the management fee,
however, Service Class shares are subject to a Shareholder Services Plan
(described below), and the Advisor Class shares are subject to a Master
Distribution and Shareholder Services Plan (also described below). Both plans
have been adopted by the funds' board of directors and initial shareholder in
accordance with Rule 12b-1 adopted by the SEC under the 1940 Act.
RULE 12-B1
Rule 12b-1 permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a plan adopted by the investment
company's Board of Directors and approved by its shareholders. Pursuant to such
rule, the Board of Directors and initial shareholder of the funds' Service Class
and Advisor Class have approved and entered into a Shareholder Services Plan,
with respect to the Service Class, and a Master Distribution and Shareholder
Services Plan, with respect to the Advisor Class (collectively, the "Plans").
Both Plans are described below.
In adopting the Plans, the Board of Directors (including a majority of directors
who are not "interested persons" of the funds (as defined in the 1940 Act),
hereafter referred to as the "independent directors") determined that there was
a reasonable likelihood that the Plans would benefit the funds and the
shareholders of the affected classes. Pursuant to Rule 12b-1, information with
respect to revenues and expenses under the Plans is presented to the Board of
Directors quarterly for its consideration in connection with its deliberations
as to the continuance of the Plans. Continuance of the Plans must be approved by
the Board of Directors (including a majority of the independent directors)
annually. The Plans may be amended by a vote of the Board of Directors
(including a majority of the independent directors), except that the Plans may
not be amended to materially increase the amount to be spent for distribution
without majority approval of the shareholders of the affected class. The Plans
terminate automatically in the event of an assignment and may be terminated upon
a vote of a majority of the independent directors or by vote of a majority of
the outstanding voting securities of the affected class.
All fees paid under the plans will be made in accordance with Section 26 of the
Rules of Fair Practice of the National Association of Securities Dealers.
SHAREHOLDER SERVICES PLAN
As described in the Prospectuses, the funds' Service Class of shares are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through financial 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.
18 American Century Investments
American Century Investment Services, Inc. (the "Distributor") enters into
contracts with each financial intermediary for the provision of certain
shareholder services and utilizes the shareholder services fees received under
the Shareholder Services Plan to pay for such services. Payments may be made for
a variety of shareholder services, including, but are not limited to, (a)
receiving, aggregating and processing purchase, exchange and redemption request
from beneficial owners (including contract owners of insurance products that
utilize the funds as underlying investment media) of shares and placing
purchase, exchange and redemption orders with the Distributor; (b) providing
shareholders with a service that invests the assets of their accounts in shares
pursuant to specific or pre-authorized instructions; (c) processing dividend
payments from a fund on behalf of shareholders and assisting shareholders in
changing dividend options, account designations and addresses; (d) providing and
maintaining elective services such as check writing and wire transfer services;
(e) acting as shareholder of record and nominee for beneficial owners; (f)
maintaining account records for shareholders and/or other beneficial owners; (g)
issuing confirmations of transactions; (h) providing subaccounting with respect
to shares beneficially owned by customers of third parties or providing the
information to a fund as necessary for such subaccounting; (i) preparing and
forwarding shareholder communications from the funds (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to shareholders and/or other beneficial owners;
(j) providing other similar administrative and sub-transfer agency services; and
(k) paying "service fees" for the provision of personal, continuing services to
investors, as contemplated by the Rules of Fair Practice of the NASD
(collectively referred to as "Shareholder Services"). Shareholder Services do
not include those activities and expenses that are primarily intended to result
in the sale of additional shares of the funds.
MASTER DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
As described in the Prospectuses, the funds' Advisor Class of shares are also
made available to participants in employer-sponsored retirement or savings plans
and to persons purchasing through financial intermediaries, such as banks,
broker-dealers and insurance companies. The Distributor enters into contracts
with various banks, broker-dealers, insurance companies and other financial
intermediaries with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
As with the Service Class, certain recordkeeping and 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 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 litera-
Statement of Additional Information 19
ture and advertising materials provided to the funds' shareholders and
prospective shareholders; (f) receiving and answering correspondence from
prospective shareholders, including distributing prospectuses, statements of
additional information, and shareholder reports; (g) the providing of facilities
to answer questions from prospective investors about fund shares; (h) complying
with federal and state securities laws pertaining to the sale of fund shares;
(i) assisting investors in completing application forms and selecting dividend
and other account options; (j) the providing of other reasonable assistance in
connection with the distribution of fund shares; (k) the organizing and
conducting of sales seminars and payments in the form of transactional
compensation or promotional incentives; (l) profit on the foregoing; (m) the
payment of "service fees" for the provision of personal, continuing services to
investors, as contemplated by the Rules of Fair Practice of the NASD and (n)
such other distribution and services activities as the manager determines may be
paid for by the funds pursuant to the terms of this Agreement and in accordance
with Rule 12b-1 of the 1940 Act.
BROKERAGE
SELECT, HERITAGE, GROWTH, ULTRA, VISTA, GIFTRUST AND THE EQUITY INVESTMENTS OF
BALANCED
Under the management agreement between the funds and the manager, the manager
has the responsibility of selecting brokers to execute portfolio transactions.
The funds' policy is to secure the most favorable prices and execution of orders
on its portfolio transactions. So long as that policy is met, the manager may
take into consideration the factors discussed under this caption when selecting
brokers.
The manager receives statistical and other information and services without cost
from brokers and dealers. The manager evaluates such information and services,
together with all other information that it may have, in supervising and
managing the investment portfolios of the funds. Because such information and
services may vary in amount, quality and reliability, their influence in
selecting brokers varies from none to very substantial. The manager proposes to
continue to place some of the funds' brokerage business with one or more brokers
who provide information and services. Such information and services will be in
addition to and not in lieu of services required to be performed by the manager.
The manager does not utilize brokers that provide such information and services
for the purpose of reducing the expense of providing required services to the
funds.
In the years ended October 31, 1996, 1995 and 1994, the brokerage commissions of
each fund were as follows:
Years Ended October 31,
- -------------------------------------------------------------------------
FUND 1996 1995 1994
- -------------------------------------------------------------------------
SELECT $8,157,658 $11,363,976 $14,844,437
HERITAGE 3,093,265 3,180,082 3,620,144
GROWTH 10,712,208 13,577,767 10,144,618
ULTRA 22,985,927 18,911,590 19,240,703
VISTA 2,246,175 1,750,665 1,895,400
GIFTRUST 886,460 571,349 588,145
BALANCED 1,038,530 875,207 979,903
- -------------------------------------------------------------------------
In 1996, $49,120,223 of the total brokerage commissions was paid to brokers and
dealers who provided information and services on transactions of $56,023,070,599
(92% of all transactions).
The brokerage commissions paid by the funds may exceed those which another
broker might have charged for effecting the same transactions, because of the
value of the brokerage and research services provided by the broker. Research
services furnished by brokers through whom the funds effect securities
transactions may be used by the manager in servicing all of its accounts, and
not all such services may be used by the manager in managing the portfolios of
the funds.
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
20 American Century Investments
makers, but may also deal on a brokerage basis when utilizing electronic trading
networks or as circumstances warrant.
CASH RESERVE, SHORT-TERM GOVERNMENT FUND, INTERMEDIATE-TERM GOVERNMENT FUND,
LIMITED-TERM BOND, INTERMEDIATE-TERM BOND, BENHAM BOND, LIMITED-TERM TAX-EXEMPT,
INTERMEDIATE-TERM TAX-EXEMPT, LONG-TERM TAX-EXEMPT AND THE FIXED INCOME
INVESTMENTS OF BALANCED
Under the management agreement between the funds and the manager, the manager
has the responsibility of selecting brokers and dealers to execute portfolio
transactions. In many transactions, the selection of the broker or dealer is
determined by the availability of the desired security and its offering price.
In other transactions, the selection of broker or dealer is a function of the
selection of market and the negotiation of price, as well as the broker's
general execution and operational and financial capabilities in the type of
transaction involved. The manager will seek to obtain prompt execution of orders
at the most favorable prices or yields. The manager may choose to purchase and
sell portfolio securities to and from dealers who provide services or research,
statistical and other information to the funds and to the manager. Such
information or services will be in addition to and not in lieu of the services
required to be performed by the manager, and the expenses of the manager will
not necessarily be reduced as a result of the receipt of such supplemental
information.
PERFORMANCE ADVERTISING
Individual fund performance may be compared to various indices including the
Standard & Poor's 500 Index, the Dow Jones Industrial Average, Donoghue's Money
Fund Average and the Bank Rate Monitor National Index of 21/2-year CD rates.
EQUITY FUNDS
The following table sets forth the average annual total return of the equity
funds and Balanced for the one-, five- and 10-year periods (or period since
inception) ended October 31, 1996, the last day of the funds' fiscal year.
Average annual total return is calculated by determining each fund's cumulative
total return for the stated period and then computing the annual compound return
that would produce the cumulative total return if the fund's performance had
been constant over that period. Cumulative total return includes all elements of
return, including reinvestment of dividends and capital gains distributions.
From
Fund 1 year 5 year 10 year Inception1
- ---------------------------------------------------------------
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%
- ---------------------------------------------------------------
1Data 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%
- ---------------------------------------------------------------
Statement of Additional Information 21
FIXED INCOME FUNDS AND BALANCED
Cash Reserve. The yield of Cash Reserve is calculated by measuring the income
generated by an investment in the fund over a seven-day period (net of fund
expenses). This income is then "annualized." That is, the amount of income
generated by the investment over the seven-day period is assumed to be generated
over each similar period throughout a full year and is shown as a percentage of
the investment. The "effective yield" is calculated in a similar manner but,
when annualized, the income earned by the investment is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of the assumed reinvestment.
Based upon these methods of computation, the yield and effective yield for Cash
Reserve for the seven days ended October 31, 1996, the last seven days of the
fund's fiscal year, was 4.74% and 4.85%, respectively.
Other Fixed Income Funds and Balanced. Yield is calculated by adding over a
30-day (or one-month) period all interest and dividend income (net of fund
expenses) calculated on each day's market values, dividing this sum by the
average number of fund shares outstanding during the period, and expressing the
result as a percentage of the fund's share price on the last day of the 30-day
(or one-month) period. The percentage is then annualized. Capital gains and
losses are not included in the calculation.
The following table sets forth yield quotations for the fixed income funds
(other than Cash Reserve) and Balanced for the 30-day period ended October 31,
1996, the last day of the fiscal year pursuant to computation methods prescribed
by the SEC.
Intermediate-
Short-Term Intermediate-Term Limited-Term Term
Government Fund Government Fund Bond Bond
- --------------------------------------------------------------------------------
5.36% 5.68% 5.55% 6.31%
- --------------------------------------------------------------------------------
Intermediate-
Benham Limited-Term Term Long-Term Balanced
Bond Tax-Exempt Tax-Exempt Tax-Exempt
- --------------------------------------------------------------------------------
6.30% 3.69% 4.34% 4.80% 2.29%
- --------------------------------------------------------------------------------
The following table sets forth tax-equivalent yields for the Limited-Term
Tax-Exempt, Intermediate-Term Tax-Exempt and the Long-Term Tax-Exempt funds for
the 30-day period ended October 31, 1996. The example assumes a 36% tax rate.
The tax-equivalent yield is computed as follows:
tax-
equivalent = tax-exempt yield + non tax-exempt yield
---------------------
yield 1-assumed tax rate
Tax-Exempt Tax-Exempt Tax-Exempt
Short-Term Intermediate-Term Long-Term
- --------------------------------------------------------------
5.77% 6.78% 7.50%
- --------------------------------------------------------------
The fixed income funds may also elect to advertise cumulative total return and
average annual total return, computed as described above.
The table below shows the cumulative total return and the average annual total
return of the fixed income funds since their respective dates of inception (as
noted below) through October 31, 1996.
Cumulative
Total Return Average Annual Date of
FUND Since Inception Total Return Inception
- --------------------------------------------------------------------------------
SHORT-TERM
GOVERNMENT FUND 167.78% 7.36% 12/15/82
INTERMEDIATE-TERM
GOVERNMENT FUND 15.01% 5.38% 3/1/94
LIMITED-TERM BOND 14.77% 5.30% 3/1/94
INTERMEDIATE-TERM BOND 16.74% 5.97% 3/1/94
BENHAM BOND 104.68% 7.69% 3/2/87
LIMITED-TERM
TAX-EXEMPT 16.40% 4.23% 3/1/93
INTERMEDIATE-TERM
TAX-EXEMPT 74.65% 5.94% 3/2/87
LONG-TERM TAX-EXEMPT 94.55% 7.13% 3/2/87
- --------------------------------------------------------------------------------
22 American Century Investments
ADDITIONAL PERFORMANCE COMPARISONS
Investors may judge the performance of the funds by comparing their performance
to the performance of other mutual funds or mutual fund portfolios with
comparable investment objectives and policies through various mutual fund or
market indices such as the EAFE(R) Index and those prepared by Dow Jones & Co.,
Inc., Standard & Poor's Corporation, Shearson Lehman Brothers, Inc. and The
Russell 2000 Index, and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. and the Consumer Price Index. Comparisons may also be made to
indices or data published in Money, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, Pensions and Investments, USA Today, and
other similar publications or services. In addition to performance information,
general information about the funds that appears in a publication such as those
mentioned above or in the Prospectus under the heading "Performance Advertising"
may be included in advertisements and in reports to shareholders.
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment products (including the funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
funds. The funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the funds.
REDEMPTIONS IN KIND
The funds' policy with regard to redemptions in excess of the lesser of one half
of 1% of a fund's assets or $250,000 from its equity funds and Balanced is
described in the applicable fund prospectus under the heading "Special
Requirements for Large Redemptions."
The funds have elected to be governed by Rule 18f-1 under the Investment Company
Act, pursuant to which the funds are obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of the net asset value of the fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting the assets to
cash. The method of valuing portfolio securities used to make redemptions in
kind will be the same as the method of valuing portfolio securities described in
the Prospectus under the caption "How Share Price is Determined," and such
valuation will be made as of the same time the redemption price is determined.
HOLIDAYS
The funds do not determine the net asset value of its shares on days when the
New York Stock Exchange is closed. Currently, the Exchange is closed on
Saturdays and Sundays, and on holidays, namely New Year's Day, Martin Luther
King Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
FINANCIAL STATEMENTS
The financial statements of the various series of shares of American Century
(other than New Opportunities) for the fiscal year ended October 31, 1996, are
included in the annual report to shareholders, which is incorporated herein by
reference. You may receive copies of the report without charge upon request to
American Century at the address and phone number shown on the cover of this
Statement of Additional Information.
Statement of Additional Information 23
The unaudited financial statements of Twentieth Century New Opportunities for
the period from December 26, 1996 (inception) to January 31, 1997 are included
in this Statement of Additional Information. While the financial statements
respecting such fund contained herein are unaudited, in the opinion of the
manager, all adjustments necessary for a fair presentation of the financial
position and the results of operation at January 31, 1997 and for the period
from December 26, 1996 (inception) to January 31, 1997, have been made. The
results of operations for the period indicated are not necessarily indicative of
the results for an entire year.
24 American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
NEW
JANUARY 31, 1997 (Unaudited) OPPORTUNITIES
ASSETS
<S> <C>
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
</TABLE>
See Notes to Financial Statements
Statement of Additional Information 25
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
NEW
DECEMBER 26, 1996 (INCEPTION) THROUGH JANUARY 31, 1997 (Unaudited) OPPORTUNITIES
INVESTMENT INCOME
INCOME:
<S> <C>
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
</TABLE>
See Notes to Financial Statements
26 American Century Investments
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
NEW
DECEMBER 26, 1996 (INCEPTION) THROUGH JANUARY 31, 1997 (Unaudited) OPPORTUNITIES
Increase in Net Assets
OPERATIONS
<S> <C>
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
</TABLE>
See Notes to Financial Statements
Statement of Additional Information 27
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997 (Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. Twentieth Century New Opportunities (the Fund) is
one of the seventeen series of funds issued by the Corporation. The Fund's
investment objective is capital growth. The Fund seeks to achieve its investment
objective by investing primarily in common stocks that are considered by
management to have better-than-average prospects for appreciation. The following
significant accounting policies, related to the Fund, are in accordance with
accounting policies generally accepted in the investment company industry.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. When valuations are
not readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income, less foreign taxes withheld (if any), is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of discounts and premiums.
REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with
institutions that the Fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the securities purchased in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable the
Fund to obtain those securities in the event of a default under the repurchase
agreement. ACIM monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the Fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the Fund, along with other registered investment
companies having management agreements with ACIM and Benham Management
Corporation, may transfer uninvested cash balances into a joint trading account.
These balances are invested in one or more repurchase agreements that are
collaterized by U.S. Treasury or Agency obligations.
INCOME TAX STATUS -- It is the policy of the Fund to distribute all taxable
income and capital gains to shareholders and to otherwise qualify as a regulated
investment company under provisions of the Internal Revenue Code. Accordingly,
no provision has been made for federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains are declared and paid annually.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are primarily due to differences
in the recognition of income and expense items for financial statement and tax
purposes.
SUPPLEMENTARY INFORMATION -- Certain officers and directors of the Corporation
are also officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Corporation's investment
manager, ACIM, the Corporation's distributor, American Century Investment
Services, Inc., and the Corporation's transfer agent, American Century Services
Corporation.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
28 American Century Investments
NOTES TO FINANCIAL STATEMENTS
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into a Management Agreement with ACIM that provides
the Fund with investment advisory and management services in exchange for a
single, unified fee. The Agreement provides that all expenses of the Fund,
except brokerage commissions, taxes, interest, expenses of those directors who
are not considered "interested persons" as defined in the Investment Company Act
of 1940 (including counsel fees) and extraordinary expenses, will be paid by
ACIM. The fee is computed daily and paid monthly based on the Fund's average
daily closing net assets during the previous month. The annual management fee
for the Fund is 1.5%.
3. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased (excluding short-term
investments) for the period December 26, 1996 (inception) through January 31,
1997, totaled $90,556,978 for common stocks. Proceeds from investment securities
sold (excluding short-term investments) totaled $2,065,528 for common stocks. As
of January 31, 1997, accumulated net unrealized appreciation on investments was
$754,496, consisting of unrealized appreciation of $2,651,084 and unrealized
depreciation of $1,896,588. The aggregate cost of investments for federal income
tax purposes was the same as the cost for financial reporting purposes.
4. AFFILIATED COMPANY TRANSACTIONS
A summary of transactions for each issuer who is or was an affiliate at or
during the period December 26, 1996 (inception) through January 31, 1997,
follows:
January 31, 1997
----------------
ISSUER PURCHASE SHARE MARKET
COST BALANCE VALUE
- --------------------------------------------------------------------
Brightpoint, Inc. $ 2,238,278 80,300 $ 2,263,456
NBTY Inc. 1,687,018 82,400 1,761,300
Pomeroy Computer
Resources, Inc. 1,761,427 53,900 1,677,638
Rational Software Corp. 3,269,444 113,200 2,851,225
Teledata Communication Ltd. 1,715,977 64,500 1,685,063
- --------------------------------------------------------------------
$10,672,144 $10,238,682
- --------------------------------------------------------------------
Statement of Additional Information 29
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
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 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
[american century logo]
American
Century(sm)
9707 [recycled logo]
SH-BKT-9274 Recycled
<PAGE>
AMERICAN CENTURY STRATEGIC ASSET ALLOCATIONS, INC.
PROSPECTUS SUPPLEMENT
Strategic Allocation: Conservative o Strategic
Allocation: Moderate o Strategic Allocation: Aggressive
Investor Class o Advisor Class
SUPPLEMENT DATED JULY 31, 1997
Prospectus dated April 1, 1997
The disclosure set forth below replaces the first paragraph under the heading
"Short Sales" found on page 14 of the Investor Class Prospectus and page 15 of
the Advisor Class Prospectus:
"A fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire securities equivalent in kind and amount
to the securities being sold short. Such transactions allow the fund to hedge
against price fluctuations by locking in a sale price for securities it does not
wish to sell immediately."
The disclosure set forth in the following paragraph should be inserted as the
second paragraph under the heading "American Century Investments" found on page
16 of the Investor Class Prospectuses and as the last paragraph under the
heading "How to Purchase and Sell American Century Funds" found on page 17 of
the Advisor Class Prospectus:
"To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced telephone number."
The second paragraph under the heading "Investment Management," found on page 26
of the Investor Class Prospectus and pages 21-22 of the Advisor Class Prospectus
is deleted.
P.O. Box 419200 [american century logo]
Kansas City, Missouri American
64141-6200 Century(sm)
1-800-345-2021 or 816-531-5575
SH-SPL-9433 9707
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
APRIL 1, 1997
Revised JULY 31, 1997
AMERICAN
CENTURY
GROUP
STRATEGIC ALLOCATION: CONSERVATIVE
STRATEGIC ALLOCATION: MODERATE
STRATEGIC ALLOCATION: AGGRESSIVE
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1997
REVISED JULY 31, 1997
AMERICAN CENTURY STRATEGIC ASSET ALLOCATIONS, INC.
This statement is not a prospectus but should be read in conjunction with the
current Prospectus of American Century Strategic Asset Allocations, Inc., dated
April 1, 1997. Please retain this document for future reference. To obtain the
Prospectus, call American Century toll-free at 1-800-345-2021 (international
calls: 816-531-5575), or write P.O. Box 419200, Kansas City, Missouri
64141-6200.
TABLE OF CONTENTS
Investment Objectives of the Funds...........................2
Additional Investment Restrictions...........................2
Forward Currency Exchange Contracts..........................3
Futures Contracts............................................4
An Explanation of Fixed Income Securities Ratings............5
Investing in Emerging Market Countries.......................7
Short Sales..................................................7
Portfolio Turnover...........................................7
Officers and Directors.......................................8
Management..................................................10
Custodians..................................................11
Independent Auditors........................................11
Capital Stock...............................................11
Multiple Class Structure....................................12
Taxes.......................................................14
Brokerage...................................................14
Performance Advertising.....................................15
Redemptions in Kind.........................................16
Holidays....................................................16
Financial Statements........................................16
Statement of Additional Information 1
INVESTMENT OBJECTIVES OF THE FUNDS
The investment objective of each fund comprising American Century Strategic
Asset Allocations, Inc. is described on page 2 of the Prospectus. In seeking to
achieve its objective, a fund must conform to certain policies, some of which
are designated in the Prospectus or in this Statement of Additional Information
as "fundamental" and cannot be changed without shareholder approval. The
following paragraph is also a statement of fundamental policy with respect to
selection of investments.
In general, within the restrictions outlined herein, each series 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.
ADDITIONAL INVESTMENT RESTRICTIONS
Additional fundamental policies that may be changed only with shareholder
approval provide as follows:
(1) The funds shall not issue senior securities, except as permitted under the
Investment Company Act of 1940.
(2) The funds shall not borrow money, except that the funds may borrow money for
temporary or emergency purposes (not for leveraging or investment) in an amount
not exceeding 331/3% of a fund's total assets (including the amount borrowed)
less liabilities (other than borrowings).
(3) The funds shall not lend any security or make any other loan if, as a
result, more than 331/3% of a fund's total assets would be lent to other
parties, except, (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
(4) The funds shall not concentrate their 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).
(5) The funds shall not purchase or sell real estate unless acquired as a result
of ownership of securities or other instruments. This policy shall not prevent
the funds from investment in securities or other instruments backed by real
estate or securities of companies that deal in real estate or any engaged in the
real estate business.
(6) The funds shall not act as an underwriter of securities issued by others,
except to the extent that a fund may be considered an underwriter within the
meaning of the Securities Act of 1933 in the disposition of restricted
securities.
(7) The funds shall not purchase or sell physical commodities unless acquired as
a result of ownership of securities or other instruments; provided that this
limitation shall not prohibit the funds from purchasing or selling options and
futures contracts or from investing in securities or other instruments backed by
physical commodities.
(8) The funds shall not invest for purposes of exercising control over
management.
In addition, the funds have adopted the following non-fundamental investment
restrictions:
(1) As an operating policy, a fund shall not purchase additional investment
securities at any time during which outstanding borrowings exceed 5% of the
total assets of the fund.
(2) As an operating policy, a fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 15% of its net assets (10% for
money market funds) 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.
(3) As an operating policy, a fund 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.
2 American Century Investments
(4) As an operating policy, a fund 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 funds of securities issued by insurance companies,
broker-dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership.
The Investment Company Act also provides that the funds may not invest more than
25% of their assets in the securities of issuers engaged in a single industry.
In determining industry groups for purposes of this standard, the Securities and
Exchange Commission ordinarily uses the Standard Industry Classification codes
developed by the United States Office of Management and Budget. In the interest
of ensuring adequate diversification, the funds monitor industry concentration
using a more restrictive list of industry groups than that recommended by the
SEC. The funds believe that these classifications are reasonable and are not so
broad that the primary economic characteristics of the companies in a single
class are materially different. The use of these more restrictive industry
classifications may, however, cause the funds to forego investment possibilities
which may otherwise be available to them under the Investment Company Act.
Neither the SEC nor any other agency of the federal or state government
participates in or supervises 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.
Each fund expects 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; or
(2) When the manager believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, a fund would be able
to enter into a forward contract to sell foreign currency for a fixed U.S.
dollar amount approximating the value of some or all of the 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 and 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 forward 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 entered into under the second circumstance. 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
Statement of Additional Information 3
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 a 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.
FUTURES CONTRACTS
As described in the Prospectus, each fund may enter into futures contracts.
Unlike when a fund purchases securities, no purchase price for the underlying
securities is paid by the fund at the time it purchases a futures contract. When
a futures contract is entered into, both the buyer and seller of the contract
are required to deposit with a futures commission merchant ("FCM") cash or
high-grade debt securities in an amount equal to a percentage of the contract's
value, as set by the exchange on which the contract is traded. This amount is
known as "initial margin" and is held by the fund's custodian for the benefit of
the FCM in the event of any default by the fund in the payment of any future
obligations.
The value of a futures contract is adjusted daily to reflect the fluctuation of
the value of the underlying securities. This is a process known as marking the
contract to market. If the value of a party's position declines, that party is
required to make additional "variation margin" payments to the FCM to settle the
change in value. The party that has a gain is generally entitled to receive all
or a portion of this amount.
The funds maintain from time to time a percentage of their assets in cash or
high-grade liquid securities to provide for redemptions or to hold for future
investment in securities consistent with the funds' investment objectives. The
funds may enter into index futures contracts as an efficient means to expose the
funds' cash position to the domestic equity market. The manager believes that
the purchase of futures contracts is an efficient means to effectively be fully
invested in equity securities.
The funds intend to comply with guidelines of eligibility for exclusion from the
definition of the term "commodity pool operator" adopted by the Commodity
Futures Trading Commission ("CFTC") and the National Futures Association, which
regulate trading in the futures markets. To do so, the aggregate initial margin
required to establish such positions may not exceed 5% of the fair market value
of a fund's net assets, after taking into account unrealized profits and
unrealized losses on any contracts it has entered into.
The principal risks generally associated with the use of futures include:
o the possible absence of a liquid secondary market for any particular
instrument may make it difficult or impossible to close out a position when
desired (liquidity risk);
o the risk that the counter party to the contract may fail to perform its
obligations or the risk of bankruptcy of the FCM holding margin deposits
(counter-party risk);
o the risk that the securities to which the futures contract relates may go down
in value (market risk); and
o adverse price movements in the underlying securities can result in losses
substantially
4 American Century Investments
greater than the value of a fund's investment in that instrument because only a
fraction of a contract's value is required to be deposited as initial margin
(leverage risk); provided, however, that the funds may not purchase leveraged
futures, so there is no leverage risk involved in the funds' use of futures.
A liquid secondary market is necessary to close out a contract. The funds may
seek to manage liquidity risk by investing in exchange-traded futures.
Exchange-traded futures pose less risk that there will not be a liquid secondary
market than privately negotiated instruments. Through their clearing
corporations, the futures exchanges guarantee the performance of the contracts.
Futures contracts are generally settled within a day from the date they are
closed out, as compared to three days for most types of equity securities. As a
result, futures contracts can provide more liquidity than an investment in the
actual underlying securities. Nevertheless, there is no assurance that a liquid
secondary market will exist for any particular futures contract at any
particular time. Liquidity may also be influenced by an exchange-imposed daily
price fluctuation limit, which halts trading if a contract's price moves up or
down more than the established limit on any given day. On volatile trading days
when the price fluctuation limit is reached, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a futures contract is not liquid because of price fluctuation limits
or otherwise, a fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until liquidity in the market is re-established. As a result, such
fund's access to other assets held to cover its futures positions also could be
impaired until liquidity in the market is re-established.
The funds manage counter-party risk by investing in exchange-traded index
futures. In the event of the bankruptcy of the FCM that holds margin on behalf
of a fund, that fund may be entitled to the return of margin owed to such fund
only in proportion to the amount received by the FCM's other customers. The
manager will attempt to minimize the risk by monitoring the creditworthiness of
the FCMs with which the funds do business.
AN EXPLANATION OF FIXED INCOME SECURITIES RATINGS
As described in the Prospectus, the funds may invest in fixed income securities.
The fixed income securities that comprise part of a fund's bond portfolio will
primarily be limited to investment grade obligations, provided, that Strategic
Allocation: Moderate may invest up to 5% of its assets, and Strategic
Allocation: Aggressive may invest up to 10% of its assets, in high yield
securities. In addition, each fund may invest a portion of its equity portfolio
in convertible securities, which may be rated below investment grade (but not
below B- by S&P or B3 by Moody's).
Fixed income securities ratings provide the manager with 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, which could lead to
inadequate
Statement of Additional Information 5
capacity to meet timely interest and principal payments. The BB rating category
is also 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 that 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.
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 exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present 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 in 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.
6 American Century Investments
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.
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.
In the event any of a fund's fixed income securities are downgraded from one
category to another by a securities ratings agency, the manager intends to
evaluate the reasons for such downgrade and other available information
regarding the issuer and will take action it deems appropriate regarding whether
or not to continue holding such securities.
INVESTING IN EMERGING MARKET COUNTRIES
Strategic Allocation: Moderate and Strategic Allocation: Aggressive may invest a
portion of their international holdings in securities of issuers in emerging
market countries. Investing in securities of issuers in emerging market
countries involves exposure to significantly higher risk than investing in
countries with developed markets. Emerging market countries may have economic
structures that are generally less diverse and mature, and political systems
that can be expected to be less stable than those of developed countries.
Securities prices in emerging market countries can be significantly more
volatile than in developed countries, reflecting the greater uncertainties of
investing in lesser developed markets and economies. In particular, emerging
market countries may have relatively unstable governments, and may present the
risk of nationalization of businesses, expropriation confiscatory taxation or in
certain instances, reversion to closed-market, centrally planned economics. Such
countries may also have less protection of property rights than developed
countries.
The economies of emerging market countries may be predominantly based on only a
few industries or may be dependent on revenues from particular commodities or on
international aid of developmental assistance, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. In addition, securities markets in
emerging market countries may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially
resulting in a lack of liquidity and in volatility in the price of securities
traded on those markets. Also, securities markets in emerging market countries
typically offer less regulatory protection for investors.
SHORT SALES
A fund may engage in short sales if, at the time of the short sale, the fund
owns or has the right to acquire an equal amount of the security being sold
short.
In a short sale, the seller does not immediately deliver the securities sold and
is said to have a short position in those securities until delivery occurs. To
make delivery to the purchaser, the executing broker borrows the securities
being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If a fund engages in a short sale, the collateral account will be
maintained by the fund's custodian. 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.
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 in substantially identical securities may not become deductible for tax
purposes until all or some part of the short position has been closed.
Statement of Additional Information 7
PORTFOLIO TURNOVER
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.
Accordingly, the rate of portfolio turnover may be greater than other investment
companies with similar investment objectives.
The funds intend to purchase a given security whenever the manager believes it
will contribute to the stated objective of a fund, even if the same security has
only recently been sold. In selling a given security, the manager keeps in mind
that (1) profits from sales of securities held less than three months must be
limited in order to meet the requirements of Subchapter M of the Internal
Revenue Code, and (2) profits from sales of securities are taxed to
shareholders. Subject to those considerations, a fund will sell a given
security, no matter for how long or how short a period it has been held in the
portfolio, and no matter whether the sale is at a gain or at a loss, if the
manager believes that the security 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 securities prices is anticipated, a fund may decrease
its position in such category and increase its position in one or both of the
other asset categories, and when a rise in price levels is anticipated, a fund
may increase its position in such category and decrease its position in the
other categories. However, the funds will, under most circumstances, be
essentially fully invested within the operating ranges set forth in the
Prospectus.
Since investment decisions are based on the anticipated contribution of the
security in question to a fund's objectives, the manager believes that the rate
of portfolio turnover is irrelevant when it believes a change is in order to
achieve those objectives, and a fund'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.
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
funds' investment manager, American Century Investment Management, Inc. and its
transfer agent, American Century Services Corporation, are listed below. The
address at which each director and officer listed below may be contacted 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; Chief
Executive Officer and Director, American Century Companies, Inc.; President,
Chief Executive Officer and Director, American Century Investment Management,
Inc. and American Century Services Corporation.
THOMAS A. BROWN, Director; Chief Executive Officer, Associated Bearing Company,
a corporation engaged in the sale of bearings and power transmission products.
ROBERT W. DOERING, M.D., Director; retired, formerly general surgeon.
D. D. (DEL) HOCK, Director; Chairman, Public Service Company of Colorado;
Director, Service Tech, Inc. and Hathaway Corporation.
8 American Century Investments
LINSLEY L. LUNDGAARD, Vice Chairman of the Board and Director; retired, formerly
Vice President and National Sales Manager, Flour Milling Division, Cargill, Inc.
DONALD H. PRATT, Director; President and Director, Butler Manufacturing Company.
LLOYD T. SILVER JR., Director; President, LSC, Inc., manufacturer's
representative.
M. JEANNINE STRANDJORD, Director; Senior Vice President and Treasurer, Sprint
Corporation; Director, DST Systems, Inc.
WILLIAM M. LYONS, Executive Vice President, Chief Operating Officer, Secretary
and General Counsel; President, Chief Operating Officer and General Counsel,
American Century Companies, Inc.; Executive Vice President, Chief Operating
Officer and General Counsel, 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.
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 auditors, reviewing the arrangements for
and scope of the annual audit, reviewing comments made by the independent
auditors with respect to internal controls and the considerations given or the
corrective action taken by management and reviewing nonaudit services provided
by the independent auditors.
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 any violations thereof.
The Nominating Committee has as its principal role the consideration and
recommendation of individuals for nomination as directors. The names of
potential director candidates are drawn from a number of sources, including
recommendations from members of the Board, management and shareholders. This
committee also reviews and makes recommendations to the Board with respect to
the composition of Board committees and other Board-related matters, including
its organization, size, composition, responsibilities, functions and
compensation. The members of the nominating committee are Messrs. Pratt
(chairman), Lundgaard and Stowers III.
The Directors of the corporation also serve as Directors for other funds advised
by the manager. Each Director who is not an "interested person" as defined in
the Investment Company Act receives for service as a member of the Board of all
six of such 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.
Statement of Additional Information 9
Aggregate Total Compensation from
Compensation the American Century
Director from the corporation1 Family of Funds2
- ---------------------------------------------------------------------
Thomas A. Brown $243 $46,333
Robert W. Doering, M.D. 225 42,833
Linsley L. Lundgaard 244 46,333
Donald H. Pratt 234 44,667
Lloyd T. Silver, Jr. 233 44,333
M. Jeannine Strandjord 231 43,833
John M. Urie3 216 37,167
D. D. (Del) Hock3 27 8,833
- ---------------------------------------------------------------------
1Includes compensation actually paid by the corporation from February 15, 1996
through November 30, 1996.
2Includes compensation paid by the fifteen investment company members of the
American Century family of funds for the calendar year ended December 31, 1996.
3Mr. Hock replaced Mr. Urie as an independent director effective October 31,
1996.
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 also are 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 the
Prospectus under the caption "Management."
During the period ended November 30, 1996, the management fees paid to the
manager were as follows:
For the period ended
FUND November 30, 1996
- -------------------------------------------------------------
STRATEGIC ALLOCATION: CONSERVATIVE
Management fees $ 118,774
Average net assets 16,741,548
STRATEGIC ALLOCATION: MODERATE
Management fees 292,871
Average net assets 34,070,475
STRATEGIC ALLOCATION: AGGRESSIVE
Management fees 217,333
Average net assets 24,464,346
- -------------------------------------------------------------
The Advisor Class of the funds commenced operations on October 2, 1996. The
management fees shown above include $4,575 paid on Advisor Class shares of
Strategic Allocation: Conservative, $9,815 paid on Advisor Class shares of
Strategic Allocation: Moderate and $8,332 paid on Advisor Class shares of
Strategic Allocation: Aggressive for the 59 day period ended November 30, 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 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 and duties.
The management agreement also provides that the manager and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
Certain investments may be appropriate for the 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 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
10 American Century Investments
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.
In addition to managing the funds, on February 28, 1997, the manager was also
acting as an investment adviser to 12 institutional accounts and to five
registered investment companies, American Century Mutual Funds, Inc., American
Century World Mutual Funds, Inc., American Century Premium Reserves, Inc.,
American Century Variable Portfolios, Inc. and American Century Capital
Portfolios, Inc.
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.
As stated in the Prospectus, all of the stock of American Century Services
Corporation and American Century Investment Management, Inc. is owned by
American Century Companies, Inc.
CUSTODIANS
The Chase Manhattan Bank, 770 Broadway, 10th floor, New York, New York
10003-9598 and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105,
each serves as custodian of assets of the funds. The custodians take no part in
determining the investment policies of the funds or in deciding which securities
are purchased or sold by the funds. The funds, however, may invest in certain
obligations of the custodians and may purchase or sell certain securities from
or to the custodians.
INDEPENDENT AUDITORS
At a meeting held on December 12, 1996, the Board of Directors of the
corporation appointed Deloitte & Touche LLP, 1010 Grand Avenue, Kansas City,
Missouri 64106, as the independent auditors of the funds to examine the
financial statements of the funds for the fiscal year ending November 30, 1997.
The appointment of Deloitte & Touche was recommended by the Audit Committee of
the Board of Directors. As the independent auditors of the funds, Deloitte &
Touche will provide 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 by
American Century.
Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas City,
Missouri 64105, served as independent auditors for the funds for the period
ended November 30, 1996.
CAPITAL STOCK
The funds' capital stock is described in the Prospectus under the heading
"Further Information About American Century."
The corporation currently has three series of shares outstanding. Each series of
shares is further divided into three classes. The funds may in the future issue
one or more additional series or class of shares without a vote of the
shareholders. The assets belonging to each series or class of shares are held
separately by the custodian and the shares of each series or class represent a
beneficial interest in the principal, earnings and profits (or losses) of
investment and other assets held for that series or class. Your rights as a
shareholder are the same for all series or classes of securities unless
otherwise stated. Within their respective series or class, all shares will 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 the funds, shareholders
of each series or class of shares will be entitled to receive, pro rata, all of
the assets less the liabilities of that series or class.
As of February 28, 1997, in excess of 5% of the outstanding shares of the
following funds were owned of record by:
Statement of Additional Information 11
NAME OF SHAREHOLDER
FUND AND PERCENTAGE
- -------------------------------------------------------------------------
Strategic Allocation:
Conservative American Century Companies, Inc.-- 33.5%
The Chase Manhattan Bank NA Trustee
GEC-USA Employees Savings and Investment
Trust -- 17.8%
James B. Anderson Trustee American Chamber
of Commerce Executives Amended & Restated
MPP Plan and Trust -- 6.2%
Strategic Allocation:
Moderate The Chase Manhattan Bank NA Trustee GEC-
USA Employees Savings and Investment
Trust -- 20.7%
- -------------------------------------------------------------------------
NAME OF SHAREHOLDER
FUND AND PERCENTAGE
- -------------------------------------------------------------------------
Strategic Allocation:
Moderate UMB Bank NA Trustee Lincare Inc. Employees
Salary Reduction Thrift Plan and Trust -- 5.7%
Chase Manhattan Bank NA Trustee Hazeltine
Corporation and Subsidiaries Companies
Ret/Savings Plan and Trust -- 5.1%
Strategic Allocation:
Aggressive The Chase Manhattan Bank NA Trustee GEC-
USA Employees Savings and Investment
Trust -- 22.3%
James B. Anderson Trustee American Chamber
of Commerce Executives Amended & Restated
MPP Plan and Trust -- 5.5%
- -------------------------------------------------------------------------
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 Securities and Exchange Commission
("SEC"). Pursuant to such plan, the funds may issue up to three classes of
shares: an Investor Class, a Service Class and an Advisor Class.
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 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 Investment Company 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 Investment
Company Act), hereafter referred to as the "independent directors") determined
that there was a reasonable likelihood that the Plans would benefit the funds
and the shareholders of the affected classes. Pursuant to Rule 12b-1,
information with respect to revenues and expenses under the Plans is presented
to the Board of Directors quarterly for its consideration in connection with its
deliberations as to the continuance of the Plans. Continuance of the Plans must
be approved by the Board of Directors (including a majority of the independent
directors) annually. The Plans may be amended by a vote of the Board of
Directors (including a majority of the independent directors), except that the
Plans may not be amended to materially increase the amount to be spent for
distribution without majority approval of the shareholders of the affected
class. The Plans terminate automatically in the event of an assignment and may
be terminated upon a vote of a majority of the independent directors or by vote
of a majority of the outstanding voting securities of the affected class.
All fees paid under the plans will be made in accordance with Section 26 of the
Rules of Fair Practice of the National Association of Securities Dealers.
12 American Century Investments
SHAREHOLDER SERVICES PLAN
As described in the Prospectus, 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 net
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 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, (1)
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 medium) of shares and placing
purchase, exchange and redemption orders with the Distributor; (2) providing
shareholders with a service that invests the assets of their accounts in shares
pursuant to specific or pre-authorized instructions; (3) processing dividend
payments from a fund on behalf of shareholders and assisting shareholders in
changing dividend options, account designations and addresses; (4) providing and
maintaining elective services such as check writing and wire transfer services;
(5) acting as shareholder of record and nominee for beneficial owners; (6)
maintaining account records for shareholders and/or other beneficial owners; (7)
issuing confirmations of transactions; (8) 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; (9) 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;
(10) providing other similar administrative and sub-transfer agency services;
and (11) 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 Prospectus, 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 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 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 a fee of 0.50%
annually of the aggregate average daily net assets of the funds' Advisor Class
shares, 0.25% of which is
Statement of Additional Information 13
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, (1) 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; (2) compensation to registered representatives or other
employees of Distributor who engage in or support distribution of the funds'
Advisor Class shares; (3) compensation to, and expenses (including overhead and
telephone expenses) of, Distributor; (4) the printing of prospectuses,
statements of additional information and reports for other than existing
shareholders; (5) the preparation, printing and distribution of sales literature
and advertising materials provided to the funds' shareholders and prospective
shareholders; (6) receiving and answering correspondence from prospective
shareholders, including distributing prospectuses, statements of additional
information, and shareholder reports; (7) the providing of facilities to answer
questions from prospective investors about fund shares; (8) complying with
federal and state securities laws pertaining to the sale of fund shares; (9)
assisting investors in completing application forms and selecting dividend and
other account options; (10) the providing of other reasonable assistance in
connection with the distribution of fund shares; (11) the organizing and
conducting of sales seminars and payments in the form of transactional
compensation or promotional incentives; (12) profit on the foregoing; (13) 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 (14)
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 Investment Company Act.
TAXES
Each fund has elected to be taxed under Subchapter M of the Internal Revenue
Code as a regulated investment company. If they qualify, they will not be
subject to U.S. federal income tax on net ordinary income and net capital gains,
which are distributed to its shareholders within certain time periods specified
in the Code. Amounts not distributed on a timely basis would be subject to
federal and state corporate income tax and to a nondeductible 4% excise tax.
Distributions by the funds from net investment income and net short-term capital
gains are taxable to shareholders as ordinary income. The dividends received
deduction available to corporate shareholders for dividends received from a fund
will apply to ordinary income distributions only to the extent that they are
attributable to the fund's dividend income from U.S. corporations. In addition,
the dividends received deduction will be limited if the shares with respect to
which the dividends are received are treated as debt-financed or are deemed to
have been held less than 46 days by a fund.
Distributions from net long-term capital gains are taxable to a shareholder 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,
shareholders 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 the shareholder
with respect to such shares.
Redemption of shares of a fund 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 Internal Revenue Code, resulting in a postponement of the
recognition of such loss for federal income tax purposes.
In addition to the federal income tax consequences described above relating to
an investment in shares of the funds, there may be other federal, state or local
tax considerations that depend upon the circumstances of each particular
investor. Prospective shareholders are therefore urged to consult their tax
14 American Century Investments
advisors with respect to the effect of this investment on their own situations.
BROKERAGE
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 investments 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 the services required to be performed by the manager. The
manager does not utilize brokers who provide such information and services for
the purpose of reducing the expense of providing required services to the funds.
In the period from February 15, 1996 (inception) through November 30, 1996,
brokerage commissions paid by each fund were as follows:
Period ended
Fund November 30, 1996
- -------------------------------------------------------------------------
Strategic Allocation: Conservative $22,060
Strategic Allocation: Moderate 81,203
Strategic Allocation: Aggressive 74,216
- -------------------------------------------------------------------------
The brokerage commissions paid by the funds may exceed those that another broker
might have charged for effecting the same transactions because of the value of
the brokerage and/or 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 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 normally place their over-the-counter
transactions with principal market makers but also may deal on a brokerage basis
when utilizing electronic trading networks or as circumstances warrant.
PERFORMANCE ADVERTISING
FUND PERFORMANCE
Individual fund performance may be compared to various indices including the
Standard & Poor's (S&P) 500 Index, the Dow Jones Industrial Average, the Lehman
Aggregate Bond Index and the Three-Month Treasury Bill Index.
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. The following table sets forth the cumulative
total return since inception for the Investor Class of the funds for the period
from February 15, 1996 through November 30, 1996. Cumulative total return
includes all elements of return, including reinvestment of dividends and capital
gains distribution. Annualization of a fund's return assumes that the partial
year performance will be constant throughout the period. Actual return through
the period may be greater or less than the annualized data.
Fund Cumulative Total Return1
- ------------------------------------------------------------------
Strategic Allocation: Conservative 7.02%
Strategic Allocation: Moderate 9.91%
Strategic Allocation: Aggressive 10.60%
- ------------------------------------------------------------------
1For the period February 15, 1996 (inception) through November 30, 1996.
The funds also may elect to advertise cumulative total return and average annual
total return, computed
Statement of Additional Information 15
as described above, over periods of time other than one, five and 10 years and
cumulative total return over various time periods.
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 those prepared by Dow Jones & Co., Inc. Standard & Poor's
Corporation, Shearson Lehman Brothers, Inc., J. P. Morgan & Company, Salomon
Brothers, Inc., the Morgan Stanley Capital International EAFE (Europe, Australia
and Far East) Index, Donoghue's Money Fund Average, the Bank Rate Monitor
National Index of 21/2-year CD rates, IFC Global Composite Index, and to
composite indices consisting of two or more of the above to more accurately
reflect fund holdings, and to data prepared by Lipper Analytical Services, Inc.
or Morningstar, Inc., and to the Consumer Price Index. Comparisons may also be
made to indices or data published in Money Magazine, Forbes, Barron's, The Wall
Street Journal, The New York Times, Business Week, Pensions and Investments,
U.S.A. 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 ratings
organizations; and
(9) testimonials describing the experience of persons that have invested in one
or more of the funds.
The funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the funds.
REDEMPTIONS IN KIND
The funds' policy with regard to large redemptions is described in detail in the
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 of 1940, 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 a 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 securities delivered will be selected at the sole discretion
of the manager and will not necessarily be representative of the entire
portfolio and will be securities that the manager regards as least desirable.
The method of valuing securities used to make redemptions in kind will be the
same as the method of valuing portfolio securities described in the Prospectus
under the heading "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
16 American Century Investments
is closed. Currently, the Exchange is closed on Saturdays and Sundays and on
holidays, namely New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
FINANCIAL STATEMENTS
The financial statements of the funds for the period February 15, 1996
(inception) to November 30, 1996, are included in the annual report to
shareholders for that period which is incorporated herein by reference. You may
receive copies of the annual report without charge upon request to the funds at
the address and phone number shown on page 1 of this Statement of Additional
Information.
Statement of Additional Information 17
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
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 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
[american century logo]
American
Century(sm)
9707 [recycled logo]
SH-BKT-9275 Recycled
<PAGE>
AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
PROSPECTUS SUPPLEMENT
International Growth
International Discovery
Investor Class o Institutional Class o Advisor Class
SUPPLEMENT DATED JULY 31, 1997
Prospectus dated April 1, 1997
The disclosure set forth below replaces footnote (4) found on page 4 of the
Investor Class Prospectus:
"(4) International Growth pays an annual management fee of 1.50% of the first $1
billion of average net assets, 1.20% of the next $1 billion of average net
assets, and 1.10% of average net assets over $2 billion, and International
Discovery pays an annual management fee of 1.75% of the first $500 million
of average net assets, 1.40% of the next $500 million of average net
assets, and 1.20% of average net assets over $1 billion."
The disclosure set forth below replaces the first paragraph under the heading
"Short Sales" found on page 13 of the Investor and Institutional Class
Prospectuses and page 14 of the Advisor Class Prospectus:
"A fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire securities equivalent in kind and amount
to the securities being sold short. Such transactions allow the fund to hedge
against price fluctuations by locking in a sale price for securities it does not
wish to sell immediately."
The disclosure set forth in the following paragraph should be inserted as the
second paragraph under the heading "American Century Investments" found on page
15 of the Investor and Institutional Class Prospectuses and as the last
paragraph under the heading "How to Purchase and Sell American Century Funds"
found on page 16 of the Advisor Class Prospectus:
"To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced telephone number."
The second paragraph under the heading "Investment Management," found on page 25
of the Investor Class Prospectus, page 24 of the Institutional Class Prospectus,
and page 21 of the Advisor Class Prospectus, is deleted.
The ninth and tenth paragraphs under the heading "Investment Management," found
on pages 25-26 of the Investor Class Prospectus is deleted.
P.O. Box 419200 [american century logo]
Kansas City, Missouri American
64141-6200 Century(sm)
1-800-345-2021 or 816-531-5575
SH-SPL-9431 9707
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
APRIL 1, 1997
REVISED JULY 31, 1997
TWENTIETH
CENTURY
GROUP(R)
INTERNATIONAL GROWTH
INTERNATIONAL DISCOVERY
EMERGING MARKETS
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1997
REVISED JULY 31, 1997
AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
This Statement is not a prospectus but should be read in conjunction with
the current Prospectus of American Century World Mutual Funds, Inc., dated April
1, 1997. Please retain this document for future reference. To obtain the
Prospectus, call American Century toll-free at 1-800-345-2021 (international
calls: 816-531-5575), or write to P.O. Box 419200, Kansas City, Missouri
64141-6200.
TABLE OF CONTENTS
Investment Objectives of the Funds......................................2
Additional Investment Restrictions......................................2
Forward Currency Exchange Contracts.....................................3
An Explanation of Fixed Income Securities Ratings.......................4
Short Sales.............................................................6
Portfolio Turnover......................................................6
Officers and Directors..................................................7
Management..............................................................8
Custodians..............................................................9
Independent Auditors....................................................9
Capital Stock...........................................................10
Multiple Class Structure................................................10
Taxes...................................................................12
Brokerage...............................................................13
Performance Advertising.................................................14
Redemptions in Kind.....................................................15
Holidays................................................................15
Financial Statements....................................................15
Statement of Additional Information 1
INVESTMENT OBJECTIVES OF THE FUNDS
The investment objective of each fund comprising American Century World
Mutual Funds, Inc. is described on page 2 of the Prospectus. In seeking to
achieve its objective, a fund must conform to certain policies, some of which
are designated in the Prospectus or in this Statement of Additional Information
as "fundamental" and cannot be changed without shareholder approval. The
following paragraph is also a statement of fundamental policy with respect to
selection of investments.
In general, within the restrictions outlined herein, each series 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 fund will generally consist of
common stocks. However, the manager may invest the assets of a fund 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.
ADDITIONAL INVESTMENT RESTRICTIONS
Additional fundamental policies that may be changed only with shareholder
approval provide as follows:
(1) The funds shall not issue senior securities, except as permitted under
the Investment Company Act of 1940.
(2) The funds shall not borrow money, except that the funds may borrow
money for temporary or emergency purposes (not for leveraging or investment) in
an amount not exceeding 331/3% of a fund's total assets (including the amount
borrowed) less liabilities (other than borrowings).
(3) The funds shall not lend any security or make any other loan if, as a
result, more than 331/3% of a fund's total assets would be lent to other
parties, except, (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
(4) The funds shall not concentrate their 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).
(5) The funds shall not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments. This policy shall not
prevent a fund from 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.
(6) The funds shall not act as an underwriter of securities issued by
others, except to the extent that a fund may be considered an underwriter within
the meaning of the Securities Act of 1933 in the disposition of restricted
securities.
(7) The funds shall not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments; provided
that this limitation shall not prohibit the funds from purchasing or selling
options and futures contracts or from investing in securities or other
instruments backed by physical commodities.
(8) The funds shall not invest for purposes of exercising control over
management.
In addition, the funds have adopted the following non-fundamental
investment restrictions:
(1) As an operating policy, a fund shall not purchase additional investment
securities at any time during which outstanding borrowings exceed 5% of the
total assets of the fund.
(2) As an operating policy, a fund may not purchase any security or enter
into a repurchase agreement if, as a result, more than 15% of its net assets
would be invested in repurchase agreements not entitling the holder to payment
of principal and interest within seven days and in securities that are illiquid
by virtue of legal or contractual restrictions on resale or the absence of a
readily available market.
2 American Century Investments
(3) As an operating policy, a fund 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.
(4) As an operating policy, a fund 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 funds of securities issued by insurance companies,
broker-dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership.
The Investment Company Act also provides that the funds may not invest more
than 25% of their assets in the securities of issuers engaged in a single
industry. In determining industry groups for purposes of this standard, the
Securities and Exchange Commission ordinarily uses the Standard Industry
Classification codes developed by the United States Office of Management and
Budget. In the interest of ensuring adequate diversification, the funds monitor
industry concentration using a more restrictive list of industry groups than
that recommended by the SEC. The funds believe that these classifications are
reasonable and are not so broad that the primary economic characteristics of the
companies in a single class are materially different. The use of these more
restrictive industry classifications may, however, cause the funds to forego
investment possibilities which may otherwise be available to them under the
Investment Company Act.
Neither the SEC nor any other agency of the federal or state government
participates in or supervises 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.
Each fund expects to use forward contracts under two circumstances:
(1) When the manager wishes to "lock in" the U.S. dollar price of a
security when the fund is purchasing or selling a security denominated in a
foreign currency, the fund would be able to enter into a forward contract to do
so; or
(2) When the manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, the fund would
be able to enter into a forward contract to sell foreign currency for a fixed
U.S. dollar amount approximating the value of some or all of the 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
and 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 forward 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,
Statement of Additional Information 3
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. 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.
AN EXPLANATION OF FIXED INCOME SECURITIES RATINGS
As described in the Prospectus, the funds may invest in fixed income
securities. International Growth may invest only in investment-grade
obligations, while International Discovery and the Emerging Markets Fund may
invest in bonds, corporate debt securities and governmental obligations without
regard to credit quality restrictions if such obligations are determined by the
manager to be sound investments.
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
4 American Century Investments
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.
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.
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
Statement of Additional Information 5
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
A 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.
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
In order to achieve its investment objective, 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 management believes
it will contribute to the stated objective of a fund, even if the same security
has only recently been sold. In selling a given security, the manager keeps in
mind that (1) profits from sales of securities held less than three months must
be limited in order to meet the requirements of Subchapter M of the Internal
Revenue Code, and (2) profits from sales of securities are taxed to shareholders
as ordinary income. Subject to those considerations, the corporation will sell a
given security, no matter for how long or for how short a period it has been
held in the portfolio, and no matter whether the sale is at a gain or at a loss,
if the management believes that it is not fulfilling its purpose, either
because, among other things, it did not live up to management'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, a fund may
decrease or eliminate entirely its equity position and increase its cash
position, and when a rise in price levels is anticipated, a fund may increase
its equity position and decrease its cash position. However, it should be
expected that each fund will, under most circumstances, be essentially fully
invested in equity securities.
Since investment decisions are based on the anticipated contribution of the
security in question to a fund's objectives, the rate of portfolio turnover is
irrelevant when the manager believes a change is in order to achieve those
objectives, and a fund'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.
6 American Century Investments
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 should not be considered as a representation of the
rates that will be attained in the future.
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
funds' investment manager, American Century Investment Management, Inc. and its
transfer agent, American Century Services Corporation, are listed below. The
address at which each director and officer below may be contacted 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;
Chief Executive Officer and Director, American Century Companies, Inc.;
President, Chief Executive Officer and Director, American Century Investment
Management, Inc. and American Century Services Corporation.
THOMAS A. BROWN, Director; Chief Executive Officer, Associated Bearing
Company, a corporation engaged in the sale of bearings and power transmission
products.
ROBERT W. DOERING, M.D., Director; retired, formerly general surgeon.
D. D. (DEL) HOCK, Director; Chairman, Public Service Company of Colorado;
Director, ServiceTech, Inc. and Hathaway Corporation.
LINSLEY L. LUNDGAARD, Vice Chairman of the Board and Director; retired;
formerly Vice President and National Sales Manager, Flour Milling Division,
Cargill, Inc.
DONALD H. PRATT, Director; President and Director, Butler Manufacturing
Company.
LLOYD T. SILVER JR., Director; President, LSC, Inc., manufacturer's
representative.
M. JEANNINE STRANDJORD, Director; Senior Vice President and Treasurer,
Sprint Corporation; Director, DST Systems, Inc..
WILLIAM M. LYONS, Executive Vice President, Chief Operating Officer,
Secretary and General Counsel; President, Chief Operating Officer and General
Counsel, American Century Companies, Inc.; Executive Vice President, Chief
Operating Officer and General Counsel, 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.
ROBERT J. LEACH, CPA, Controller.
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 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' inde-
Statement of Additional Information 7
pendent auditors, reviewing the arrangements for and scope of the annual audit,
reviewing comments made by the independent auditors with respect to internal
controls and the considerations given or the corrective action taken by
management and reviewing nonaudit services provided by the independent auditors.
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 any
violations thereof.
The Nominating Committee has as its principal role the consideration and
recommendation of individuals for nomination as directors. The names of
potential director candidates are drawn from a number of sources, including
recommendations from members of the Board, management and shareholders. This
committee also reviews and makes recommendations to the Board with respect to
the composition of Board committees and other Board-related matters, including
its organization, size, composition, responsibilities, functions and
compensation. The members of the nominating committee are Messrs. Pratt
(chairman), Lundgaard and Stowers III.
The Directors of the corporation also serve as Directors for other funds
advised by the manager. Each Director who is not an "interested person" as
defined in the Investment Company Act receives for service as a member of the
Board of all six of such 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 from the American Century
Director the Corporation1 Family of Funds2
- --------------------------------------------------------------------------------
Thomas A. Brown $2,120 $46,333
Robert W. Doering, M.D. 1,968 42,833
Linsley L. Lundgaard 2,128 46,333
Donald H. Pratt 2,044 44,667
Lloyd T. Silver Jr. 2,036 44,333
M. Jeannine Strandjord 2,014 43,833
John M. Urie3 1,884 37,167
D. D. (Del) Hock3 ,236 8,833
- --------------------------------------------------------------------------------
1 Includes compensation paid by the corporation for the fiscal year ended
November 30, 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 Mr. Hock replaced Mr. Urie as a director effective October 31, 1996.
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 the Prospectus under the caption, "Management."
During the fiscal years ended November 30, 1996, 1995 and 1994, the
management fees paid by International Growth to the manager were $21,271,619,
$21,967,586 and $22,155,449 on average net assets of $1,289,561,744,
$1,240,949,990 and $1,205,407,244. During the fiscal years ended November 30,
1996 and 1995, and the period from April 1, 1994 (inception) through November
30, 1994, the management fees paid by International Discovery to the manager
were $4,421,277, $2,260,979 and $957,116 on average net assets of $235,583,979,
$113,067,308 and $71,587,570.
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
8 American Century Investments
as long thereafter as its continuance is specifically approved at least annually
by (i) the funds' Board of Directors, or by the vote of a majority of the
outstanding votes (as defined in the Investment Company Act), and (ii) by the
vote of a majority of the Directors of the funds who are not parties to the
agreement or interested persons of the manager, cast in person at a meeting
called for the purpose of voting on such approval.
The management agreement provides that it may be terminated at any time
without payment of any penalty by the funds' Board of Directors, or by a vote of
a majority of the funds' shareholders, on 60 days' written notice to the
manager, and that it shall be automatically terminated if it is assigned.
The management agreement provides that the manager shall not be liable to
the funds or its shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations or duties.
The management agreement also provides that the manager and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
Certain investments may be appropriate for the 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 in different amounts and
at different times for more than one but less than all clients. In addition,
purchases or sales of the same security may be made for two or more clients on
the same date. Such transactions will be allocated among clients in a manner
believed by Investors Research 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.
In addition to managing the funds, on February 28, 1997, the manager was
acting as an investment advisor to 12 institutional accounts and to five
registered investment companies, American Century Mutual Funds, Inc., American
Century Premium Reserves, Inc., American Century Capital Portfolios, Inc.,
American Century Strategic Asset Allocations, Inc. and American Century
Variable Portfolios, Inc.
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.
As stated in the Prospectus, all of the stock of American Century
Services Corporation and American Century Investment Management, Inc. is owned
by American Century Companies, Inc.
CUSTODIANS
UMB Bank, N.A., 10th and Grand, Kansas City, Missouri 64105, and Commerce
Bank, N.A. 1000 Walnut, Kansas City, Missouri 64105, each serves as custodian of
the assets of the funds. The custodians take no part in determining the
investment policies of the funds or in deciding which securities are purchased
or sold by the funds. The funds, however, may invest in certain obligations of
the custodians and may purchase or sell certain securities from or to the
custodians.
INDEPENDENT AUDITORS
At a meeting held on December 12, 1996, the Board of Directors of the
corporation appointed Deloitte & Touche LLP, 1010 Grand Avenue, Kansas City,
Missouri
Statement of Additional Information 9
64106, as the independent auditors of the funds to examine the financial
statements of the funds for the fiscal year ending November 30, 1997. The
appointment of Deloitte & Touche was recommended by the Audit Committee of the
Board of Directors. As the independent auditors of the funds, Deloitte & Touche
will provide 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 by American Century.
Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas City,
Missouri 64105, served as independent auditors for the funds for the fiscal year
ended November 30, 1996.
Baird, Kurtz & Dobson, City Center Square, Suite 2700, 1100 Main Street,
Kansas City, Missouri 64105, served as independent accountants for the funds and
examined the financial statements of the funds for all fiscal years ending prior
to December 1, 1995.
CAPITAL STOCK
The funds' capital stock is described in the Prospectus under the heading,
"Further Information About American Century."
The corporation currently has three series of shares outstanding. Each
series of shares is further divided into four classes. The funds may in the
future issue additional series or classes of shares without a vote of the
shareholders. The assets belonging to each series or class of shares are held
separately by the custodian and the shares of each series or class represent a
beneficial interest in the principal, earnings and profits (or losses) of
investment and other assets held for that series or class. Your rights as a
shareholder are the same for all series or classes 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 the funds,
shareholders of each series or class of shares shall be entitled to receive, pro
rata, all of the assets less the liabilities of that series or class.
As of February 28, 1997, 10% of the outstanding shares of Twentieth Century
International Growth were owned of record by Charles Schwab & Co. Special
Custody Account For Exclusive Benefit of Customers-Reinvest.
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 shares: an Investor Class, an
Institutional Class, a Service Class and an Advisor Class.
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 Investment Company 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 shareholders 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.
10 American Century Investments
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
Investment Company Act], hereafter referred to as the "independent directors")
determined that there was a reasonable likelihood that the Plans would benefit
the funds and the shareholders of the affected classes. Pursuant to Rule 12b-1,
information with respect to revenues and expenses under the Plans is presented
to the Board of Directors quarterly for its consideration in connection with its
deliberations as to the continuance of the Plans. Continuance of the Plans must
be approved by the Board of Directors (including a majority of the independent
directors) annually. The Plans may be amended by a vote of the Board of
Directors (including a majority of the independent directors), except that the
Plans may not be amended to materially increase the amount to be spent for
distribution without majority approval of the shareholders of the affected
class. The Plans terminate automatically in the event of an assignment and may
be terminated upon a vote of a majority of the independent directors or by vote
of a majority of the outstanding voting securities of the affected class.
All fees paid under the Plans will be made in accordance with Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers.
SHAREHOLDER SERVICES PLAN
As described in the Prospectus, 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 net
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, (1)
receiving, aggregating and processing purchase, exchange and redemption requests
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; (2) providing
shareholders with a service that invests the assets of their accounts in shares
pursuant to specific or pre-authorized instructions; (3) processing dividend
payments from a fund on behalf of shareholders and assisting shareholders in
changing dividend options, account designations and addresses; (4) providing and
maintaining elective services such as wire transfer services; (5) acting as
shareholder of record and nominee for beneficial owners; (6) maintaining account
records for shareholders and/or other beneficial owners; (7) issuing
confirmations of transactions; (8) 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; (9) preparing and
forwarding shareholder communications from the funds (such as proxies,
shareholder reports, annual and semiannual financial statements and dividend,
distribution and tax notices) to shareholders and/or other beneficial owners;
(10) providing other similar administrative and sub-transfer agency services;
and (11) 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 Prospectus, the funds' Advisor Class of shares is
also made available to participants
Statement of Additional Information 11
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 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 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 net 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, (1) 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; (2) compensation to registered representatives or other
employees of Distributor who engage in or support distribution of the funds'
Advisor Class shares; (3) compensation to, and expenses (including overhead and
telephone expenses) of, Distributor; (4) the printing of prospectuses,
statements of additional information and reports for other than existing
shareholders; (5) the preparation, printing and distribution of sales literature
and advertising materials provided to the funds' shareholders and prospective
shareholders; (6) receiving and answering correspondence from prospective
shareholders, including distributing prospectuses, statements of additional
information and shareholder reports; (7) the providing of facilities to answer
questions from prospective investors about fund shares; (8) complying with
federal and state securities laws pertaining to the sale of fund shares; (9)
assisting investors in completing application forms and selecting dividend and
other account options; (10) the providing of other reasonable assistance in
connection with the distribution of fund shares; (11) the organizing and
conducting of sales seminars and payments in the form of transactional
compensation or promotional incentives; (12) profit on the foregoing; (13) 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 (14)
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 Investment Company Act.
TAXES
Each fund has elected to be taxed under Subchapter M of the Internal
Revenue Code as a regulated investment company. If it qualifies, it will not be
subject to U.S. federal income tax (other than any tax resulting from investing
in passive foreign investment companies, as discussed below) on net ordinary
income and net capital gains, which are distributed to its shareholders within
certain time periods specified in the Code. Amounts not distributed on a timely
basis would be subject to federal corporate income tax and possibly to a
nondeductible 4% excise tax.
Distributions by the funds from net investment income and net short-term
capital gains are taxable to shareholders as ordinary income. The
dividend-received deduction available to corporate shareholders for dividends
received from a fund will apply to ordinary income distributions only to the
extent that they are attributable to the fund's dividend income from U.S.
corporations. In addition, the dividends-received deduction will be limited if
the shares with respect to which the dividends are received are treated as
debt-financed or are deemed to have been held less than 46 days by a fund.
12 American Century Investments
Distributions from net long-term capital gains are taxable to a shareholder
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,
shareholders 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 the shareholder
with respect to such shares.
Income from foreign securities purchased by a fund may be reduced by a
withholding tax at the source. If, as of the end of any fiscal year, more than
50% of the assets of a fund are invested in securities of foreign corporations,
the fund may make an election that will result in the shareholder having the
option to elect either to deduct their pro rata share of the foreign taxes paid
by the fund or to use their pro rata share of the foreign taxes paid by the fund
in calculating the foreign tax credit to which they are entitled. Distributions
by a fund will be treated as U.S. source income for purposes other than
computing the foreign tax credit limitation.
If a fund invests in the securities of certain foreign investment funds or
trusts called passive foreign investment companies, the fund may be subject to
federal corporate income taxation on a portion of any "excess distribution" with
respect to, or gain from the disposition of, such securities. The tax would be
determined by allocating such distribution or gain ratability to each day of the
fund's holding period for the stock. The distribution or gain so allocated to
any taxable year of the fund, other than the taxable year of the excess
distribution for disposition, would be taxed to the fund at the highest marginal
rate in effect for such year, and the tax would be further increased by an
interest charge. Any amount of distribution or gain allocated to the taxable
year of the distribution or disposition would be included in the fund's taxable
income. In the alternative, the fund may elect to recognize cumulative gains on
such investments as of the last day of its fiscal year and distribute to
shareholders.
Redemption of shares of a fund 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 Internal Revenue Code, resulting in a postponement of
the recognition of such loss for federal income tax purposes.
In addition to the federal income tax consequences described above relating
to an investment in a fund, there may be other federal, state or local tax
considerations that depend upon the circumstances of each particular investor.
Prospective shareholders are therefore urged to consult their tax advisors with
respect to the effect of this investment on their own specific situations.
BROKERAGE
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 investments 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 provided to the
manager will be in addition to and not in lieu of services required to be
performed for the funds 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.
Statement of Additional Information 13
In the fiscal years ended November 30, 1996, 1995 and 1994, International
Growth paid brokerage commissions in the amount of $9,717,846, $12,351,904 and
$18,168,517. In the fiscal years ended November 30, 1996 and 1995, and the
period from April 1, 1994 (inception) through November 30, 1994, International
Discovery paid brokerage commissions in the amount of $2,886,323, $1,434,299 and
$901,470.
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 effects 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 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 normally place their
over-the-counter transactions with principal market makers, but also may deal on
a brokerage basis when utilizing electronic trading networks or as circumstances
warrant.
PERFORMANCE ADVERTISING
FUND PERFORMANCE
Individual fund performance may be compared to various indices including
the Standard & Poor's 500 Index, the Dow Jones World Index, the IFC Global
Composite Index and the Morgan Stanley Capital International Europe, Australia,
Far East EAFE(R) Index (EAFE Index).
The following tables set forth the average annual total return of the
Investor Class of the funds for the periods indicated. Average annual total
return is calculated by determining cumulative total return for the stated
period and then computing the annual compound return that would produce the
cumulative total return if the funds' performance had been constant over that
period. Cumulative total return includes all elements of return, including
reinvestment of dividends and capital gains distributions. Annualization of the
funds' return assumes that the partial year performance will be constant
throughout the period. Actual returns through the period may be greater or less
than the annualized data.
International Growth
- --------------------
Year ended
November 30, 1996 16.35%
May 9, 1991, (Inception)
through November 30, 1996 12.97%
International Discovery
- -----------------------
Year ended
November 30, 1996 34.06%
April 1, 1994, (Inception)
through November 30, 1996 17.32%
The funds also may elect to advertise cumulative total return over various
time periods. International Growth's cumulative total return for the period from
its inception through November 30, 1996, was 96.97%. International Discovery's
cumulative total return for the period from its inception through November 30,
1996, was 52.83%.
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 also may 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
14 American Century Investments
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 who have invested in one or more of the
funds. The funds also may include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the funds.
REDEMPTIONS IN KIND
The funds' policy with regard to large redemptions is described in the
Prospectus under the heading "Special Requirements for Large Redemptions."
The corporation has 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 a 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 securities delivered will be selected at the
sole discretion of the manager. Such securities will not necessarily be
representative of the entire portfolio and may be securities that the manager
regards as least desirable. 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 their 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, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas.
FINANCIAL STATEMENTS
The financial statements of the funds for the fiscal year ended November
30, 1996, are included in the annual report to shareholders for that period
which is incorporated herein by reference. You may receive copies of the annual
report without charge upon request to the funds at the address and phone number
shown on page 1 of this Statement of Additional Information.
Statement of Additional Information 15
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
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
www.americancentury.com
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