STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
AMERICAN
CENTURY
GROUP
Income & Growth
Equity Growth
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
AMERICAN CENTURY QUANTITATIVE EQUITY FUNDS
This is the Statement of Additional Information for the American Century Income
& Growth Fund and American Century Equity Growth Fund. This statement is not a
prospectus but should be read in conjunction with the Funds' current Prospectus
dated September 3, 1996 revised January 1, 1997. The Funds' annual report for
the fiscal year ended December 31, 1995 and semiannual report for the period
ended June 30, 1996 are incorporated herein by reference. Please retain this
document for future reference. To obtain the Prospectus, call American Century
Investments toll-free at 1-800-345-2021 (interna tional calls: 816-531-5575), or
write P.O. Box 419200, Kansas City, Missouri 64141-6200.
TABLE OF CONTENTS
Investment Policies and Techniques . . . . . . . . . . . . . . . . . .2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . .9
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 10
Valuation of Portfolio Securities. . . . . . . . . . . . . . . . . . 11
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
About American Century Quantitative Equity Funds . . . . . . . . . . 13
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . 13
Investment Advisory Services . . . . . . . . . . . . . . . . . . . . 15
Transfer and Administrative Services . . . . . . . . . . . . . . . . 16
Distribution of Fund Shares. . . . . . . . . . . . . . . . . . . . . 16
Direct Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . 17
Expense Limitation Agreement . . . . . . . . . . . . . . . . . . . . 17
Additional Purchase and Redemption Information . . . . . . . . . . . 17
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Statement of Additional Information 1
INVESTMENT POLICIES AND TECHNIQUES
The following paragraphs provide a more detailed description of the
securities and investment practices identified in the Prospectus. Unless
otherwise noted, the policies described in this Statement of Additional
Information are not fundamental and may be changed by the Board of Directors.
U.S. GOVERNMENT SECURITIES
The Funds may invest in U.S. government securities, including bills, notes
and bonds issued by the U.S. Treasury and securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some U.S. government
securities are supported by the direct full faith and credit pledge of the U.S.
government; others are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as securities issued by the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
government to purchase the agencies' obligations; and ot hers are supported only
by the credit of the issuing or guaranteeing instrumentality. There is no
assurance that the U.S. government will provide financial support to an
instrumentality it sponsors when it is not obligated by law to do so.
REPURCHASE AGREEMENTS
In a repurchase agreement (a "repo"), a Fund buys a security at one price
and simultaneously agrees to sell it back to the seller at an agreed upon price
on a specified date (usually within seven days from the date of purchase) or on
demand. The repurchase price exceeds the purchase price by an amount that
reflects an agreed-upon rate of return and that is unrelated to the interest
rate on the underlying security. Delays or losses could result if the other
party to the agreement defaults or becomes bankrupt.
Benham Management Corporation (the "Manager") attempts to minimize the risks
associated with repurchase agreements by adhering to the following criteria:
(1) Limiting the securities acquired and held by a Fund under repurchase
agreement to U.S. government securities;
(2) Entering into repurchase agreements only with primary dealers in U.S.
government securities (including bank affiliates) who are deemed to be
creditworthy under guidelines established by a nationally recognized
statistical rating organization (a "rating agency") and approved by the
Funds' Board of Directors;
(3) Monitoring the creditworthiness of all firms involved in repurchase
agreement transactions;
(4) Requiring the seller to establish and maintain collateral equal to 102% of
the agreed-upon resale price, provided, however, that the Board of
Directors may determine that a broker-dealer's credit standing is
sufficient to allow collateral to fall to as low as 101% of the agreed-upon
resale pr ice before the broker-dealer deposits additional securities with
the Funds' custodian;
(5) Investing no more than 5% of a Fund's total assets in repurchase agreements
that mature in more than seven days (together with any other illiquid
security the Fund holds); and
(6) Taking delivery of all securities subject to repurchase agreement and
holding them in an account at the Funds' custodian bank.
The Funds have received permission from the Securities and Exchange
Commission (SEC) to participate in pooled repurchase agreements collateralized
by U.S. government securities with other mutual funds advised by its investment
advisor, Benham Management Corporation. Pooled repos are expected to increase
the income the Funds can earn from repo transactions without increasing the
risks associated with these transactions.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
Each Fund may engage in securities transactions on a when-issued or forward
commitment basis, in which the transaction price and yield are each fixed at the
time the commitment is made, but payment and delivery occur at a future date
(typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, a
Fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. While a Fund will make commitments to purchase or sell
securities on a when-issued or forward commitment basis with the intention of
actually receiving or delivering them, it may nevertheless sell the securities
before the settle-
2 American Century Investments
ment date if it is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a
Fund will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents, or high-quality securities in an amount
sufficient to meet the purchase price. When the time comes t o pay for
when-issued securities, the Fund will meet its obligations with available cash,
through the sale of securities, or, although it would not normally expect to do
so, through sales of the when-issued securities themselves (which may have a
market value greater or less than the Fund's payment obligation). Selling
securities to meet when-issued or forward commitment obligations may generate
capital gains or losses.
As an operating policy, each Fund will not commit more than 35% of its
total assets to when-issued or forward commitment agreements. If fluctuations in
the value of securities held cause more than 35% of a Fund's total assets to be
committed under when-issued or forward commitment agreements, t he Manager need
not sell such commitments, but it will be restricted from entering into further
agreements on behalf of the Fund until the percentage of assets committed to
such agreements is reduced to at least 35%. In addition, as an operating policy,
each Fund will not enter into when-issued or forward commitment transactions
with settlement dates exceeding 120 days.
CONVERTIBLE SECURITIES
Each Fund may buy securities that are convertible into common stock. Listed
below is a brief description of the various types of convertible securities the
Funds may buy.
CONVERTIBLE BONDS are issued with lower coupons than nonconvertible bonds
of the same quality and maturity, but they give holders the option to exchange
their bonds for a specific number of shares of the company's common stock at a
predetermined price. This structure allows the convertible bond holder to
participate in share price movements in the company's common stock. The actual
return on a convertible bond may exceed its stated yield if the company's common
stock appreciates in value and the option to convert to common shares becomes
more valuable.
CONVERTIBLE PREFERRED STOCKS are nonvoting equity securities that pay a
fixed dividend. These securities have a convertible feature similar to
convertible bonds; however, they do not have a maturity date. Due to their
fixed-income features, convertible issues typically are more sensitive to int
erest rate changes than the underlying common stock. In the event of
liquidation, bondholders would have claims on company assets senior to those of
stockholders; preferred stockholders would have claims senior to those of common
stockholders.
WARRANTS entitle the holder to buy the issuer's stock at a specific price
for a specific period of time. The price of a warrant tends to be more volatile
than, and does not always track, the price of its underlying stock. Warrants are
issued with expiration dates. Once a warrant expires, it has no value in the
market.
FOREIGN SECURITIES
Although the Funds may buy securities of foreign issuers in foreign markets,
most of their foreign securities investments are made by purchasing American
Depositary Receipts (ADRs), "ordinary shares," or "New York Shares" in the U.S.
The Funds may invest in foreign-currency-denominated securiti es that trade in
foreign markets if the Manager believes that such investments will be
advantageous to the Funds.
ADRs are dollar-denominated receipts representing interests in the
securities of a foreign issuer. They are issued by U.S. banks and traded on
exchanges or over the counter in the U.S. Ordinary shares are shares of foreign
issuers that are traded abroad and on a U.S. exchange. New York shares are
shares that a foreign issuer has allocated for trading in the U.S. A DRs,
ordinary shares, and New York shares all may be purchased with and sold for U.S.
dollars, which protects the Fund from the foreign settlement risks described
below.
Investing in foreign companies may involve risks not typically associated
with investing in U.S. companies. The value of securities denominated in foreign
currencies and of dividends from such securities can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices in some foreign markets can be very volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those that
Statement of Additional Information 3
apply to U.S. companies, and it may be more difficult to obtain reliable
information regarding a foreign issuer's financial condition and operations. In
addition, the costs of foreign investing, including withholding taxes, brokerage
commissions, and custodial fees, are generally higher than for U. S.
investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve incr eased
risks in the event of a failed trade or the insolvency of a broker-dealer and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad carries political and economic risks distinct from those
associated with investing in the U.S. Foreign investments may be affected by
actions of foreign governments adverse to the interests of U.S. investors,
including the possibility of expropriation or nationalization of as sets,
confiscatory taxation, restrictions on U.S. investment, or restrictions on the
ability to repatriate assets or to convert currency into U.S. dollars. There may
be a greater possibility of default by foreign governments or
foreign-government-sponsored enterprises. Investments in foreign countr ies also
involve a risk of local political, economic, or social instability, military
action or unrest, or adverse diplomatic developments.
To offset the currency risks associated with investing in securities of
foreign issuers, a Fund may hold foreign currency deposits and may convert
dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions us
ually are not charged.
Currencies may be exchanged on a spot (i.e., cash) basis or by entering
into forward contracts to purchase or sell foreign currencies at a future date
and price. By entering into a forward contract to buy or sell the amount of
foreign currency involved in a security transaction for a fixed amou nt of U.S.
dollars, the Manager can protect a Fund against losses resulting from adverse
changes in the relationship between the U.S. dollar and the foreign currency
during the period between the date the security is purchased or sold and the
date on which payment is made or received. However, it s hould be noted that
using forward contracts to protect a Fund's foreign investments from currency
fluctuations does not eliminate fluctuations in the prices of the underlying
securities themselves. Forward contracts simply establish a rate of exchange
that can be achieved at some future point in ti me. Additionally, although
forward contracts tend to minimize the risk of loss due to a decline in the
value of the hedged currency, they also limit any gain that might result if the
hedged currency's value increases.
Foreign exchange dealers do not charge fees for currency conversions.
Instead, they realize a profit based on the difference (the spread) between the
prices at which they are buying and selling various currencies. A dealer may
offer to sell a foreign currency at one rate while simultaneously of fering a
lesser rate of exchange on the purchase of that currency.
The Manager uses forward contracts for currency hedging purposes only and
not for speculative purposes. The Funds are not required to enter into forward
contracts with regard to their foreign holdings and will not do so unless it is
deemed appropriate by the advisor.
Each Fund's assets are valued daily in U.S. dollars, although foreign
currency holdings are not physically converted into U.S. dollars on a daily
basis.
DEPOSITARY RECEIPTS
American Depositary Receipts and European Depositary Receipts ("ADR's and
"EDR's) are receipts representing ownership of shares of a foreign-based issuer
held in trust by a bank or similar financial institution. These are designed for
U.S. and European securities markets as alternatives to purc hasing underlying
securities in their corresponding national markets and currencies. ADRs and EDRs
can be sponsored or unsponsored.
Sponsored ADRs and EDRs are certificates in which a bank or financial
institution participates with a custodian. Issuers of unsponsored ADRs and EDRS
are not contractually obligated to disclose material information in the United
States. Therefore, there may not be a correlation between such inf ormation and
the market value of the unsponsored ADR or EDR.
RESTRICTED SECURITIES
Restricted securities held by the Funds generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
4 American Century Investments
Securities Act of 1933, or in a registered public offering. Where registration
is required, a Fund may be required to pay all or a part of the registration
expense, and a considerable period may elapse between the time it decides to
seek registration of the securities and the time it is permitted t o sell them
under an effective registration statement. If, during this period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to try to register the securities.
SECURITIES LENDING
Each Fund may lend portfolio securities to earn additional income. If a
borrower defaulted on a securities loan, the Fund could experience delays in
recovering the securities it loaned; if the value of the loaned securities
increased in the meantime, the Fund could suffer a loss.
To minimize the risk of default on securities loans, the Manager adheres to
the following guidelines prescribed by the Board of Directors:
(1) TYPE AND AMOUNT OF COLLATERAL. At the time a loan is made, the Fund must
receive, from or on behalf of the borrower, collateral consisting of any
combination of cash and full faith and credit U.S. government securities
equal to not less than 102% of the market value of the securities loaned.
Cash collateral received by the Fund in connection with loans of portfolio
securities may be commingled by the Fund's custodian with other cash and
marketable securities, provided that the loan agreement expressly allows
such commingling. The loan must not reduce the risk of loss or opportunity
for gain in the securities loaned.
(2) ADDITIONS TO COLLATERAL. Collateral must be marked to market daily, and the
borrower must agree to add collateral to the extent necessary to maintain
the 102% level specified in guideline (1). The borrower must deposit
additional collateral no later than the business day following the busines
s day on which a collateral deficiency occurs or collateral appears to be
inadequate.
(3) TERMINATION OF LOAN. The Fund must have the option to terminate any loan of
portfolio securities at any time. The borrower must be obligated to
redeliver the borrowed securities within the normal settlement period
following receipt of the termination notice.
(4) REASONABLE RETURN ON LOAN. The borrower must agree that the Fund (a) will
receive all dividends, interest, or other distributions on loaned
securities and (b) will be paid a reasonable return on such loans either in
the form of a loan fee or premium or from the retention by the Fund of part
o r all of the earnings and profits realized from the investment of cash
collateral in full faith and credit U.S government securities.
(5) LIMITATIONS ON PERCENTAGE OF PORTFOLIO SECURITIES ON LOAN. The Fund's loans
may not exceed 331&3% of its total assets.
(6) CREDIT ANALYSIS. As part of the regular monitoring procedures set forth by
the Board of Directors that the Manager follows to evaluate banks and
broker-dealers in connection with, for example, repurchase agreements and
municipal securities credit issues, the Manager will analyze and monitor t
he creditworthiness of all borrowers with which portfolio lending
arrangements are proposed or made.
If a borrower fails financially, there may be delays in recovering loaned
securities and a loss in the value of collateral. However, loans will only be
made to parties that meet the guidelines prescribed by the Board of Directors.
PUT OPTIONS ON INDIVIDUAL SECURITIES
Each Fund may buy puts with respect to stocks underlying its convertible
security holdings. For example, if the Manager anticipates a decline in the
price of the stock underlying a convertible security a Fund holds, it may
purchase a put option on the stock. If the stock price subsequently decl ines,
an increase in the value of the put option could be expected to offset all or a
portion of the effect of the stock's decline on the value of the convertible
security.
FUTURES AND OPTIONS TRANSACTIONS
Futures contracts provide for the sale by one party and purchase by another
party of a specific security at a specified future time and price. Futures
contracts are traded on national futures exchanges. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodit y Futures
Trading Commission (CFTC), a U.S. government agency.
Although futures contracts, by their terms, call for actual delivery or
acceptance of the underlying securi-
Statement of Additional Information 5
ties, in most cases the contracts are closed out before the settlement date.
Closing out a futures position is done by taking an opposite position in an
identical contract (i.e., buying a contract that has previously been sold, or
selling a contract that has previously been bought).
To initiate and maintain open positions in futures contracts, a Fund is
required to make a good faith margin deposit in cash or government securities
with a broker or custodian. A margin deposit is intended to assure completion of
the contract (delivery or acceptance of the underlying security) if it is not
terminated prior to the specified delivery date. Minimum initial margin
requirements are established by the futures exchanges and may be revised. In
addition, brokers may establish deposit requirements that are higher than the
exchange minimums.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, the contract holder
is required to pay an additional "variation" margin. Conve rsely, changes in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to or
from the futures broker as long as the contract remains open and do not
constitute margin transactions for purposes of the Funds' investment
restrictions.
Those who trade futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities they hold or expect to acquire
for investment purposes. Speculators are less likely to own the sec urities
underlying the futures contracts they trade and are more likely to use futures
contracts with the expectation of realizing profits from fluctuations in the
prices of the underlying securities.
Although techniques other than trading futures contracts can be used to
control a Fund's exposure to market fluctuations, the use of futures contracts
may be a more effective means of hedging this exposure. While the Funds pay
brokerage commissions in connection with opening and closing out fut ures
positions, these costs are generally lower than the transaction costs incurred
in the purchase and sale of the underlying securities.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a Fund obtains
the right (but not the obligation) to sell the option's underlying instrument at
a fixed strike price. In return for this right, the Fund pays the current market
price for the option (known as the option premium). Optio ns have various types
of underlying instruments, including specific securities, indexes of securities
prices, and futures contracts. A Fund may terminate its position in a put option
it has purchased by allowing it to expire or by exercising the option. If the
option is allowed to expire, the Fund will lose the entire premium it paid. If
the Fund exercises the option, it completes the sale of the underlying
instrument at the strike price. The Fund may also terminate a put option
position by closing it out in the secondary market at its current price if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium pai d, plus
related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price in
creases of the underlying instrument with risk limited to the cost of the option
if security prices fall. At the same time, the buyer can expect to suffer a loss
if security prices do not rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. If a Fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party chooses to exercise
the option. When writing an option on a futures contract, the Fund will be
required to make margin payments to a broker or custodian as described above for
futures contracts. The Fund may seek to terminate its position in a put option
before it is exercised by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for a put option the Fund
6 American Century Investments
has written, however, the Fund must continue to be prepared to pay the strike
price while the option is outstanding, regardless of price changes, and must
continue to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although the gain would be limited to the amount of the premium received. If
security prices remain the same over time, it is likely that the writer will
also profit by being able to close out the option at a lower price. If security
prices fall, the put writer would expect to suffer a loss. This loss should be
less than the loss from purchasing the underlying instrument directly, however,
because the premium received for writing the option should mitigate the effects
of the decline.
Writing a call option obligates a Fund to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable s
trategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price even if its current value is greater ,
a call writer gives up some ability to participate in security price increases.
COMBINED POSITIONS. A Fund may purchase and write options in combination
with one another, or in combination with futures or forward contracts, in order
to adjust the risk and return characteristics of the overall position. For
example, a Fund may purchase a put option and write a call option on the same
underlying instrument in order to construct a combined position whose risk and
return characteristics are similar to a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price in order to redu ce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other p arty to the
option contract. While this type of arrangement allows a Fund greater
flexibility in tailoring an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organizations of the exchanges where they are trade d. The risk of
illiquidity is also greater with OTC options because these options generally can
be closed out only by negotiation with the other party to the option.
OPTIONS ON FUTURES. By purchasing an option on a futures contract, a Fund
obtains the right, but not the obligation, to sell the futures contract (a put
option) or to buy the contract (a call option) at a fixed "strike" price. The
Fund can terminate its position in a put option by allowing it t o expire or by
exercising the option. If the option is exercised, the Fund completes the sale
of the underlying security at the strike price. Purchasing an option on a
futures contract does not require a Fund to make margin payments unless the
option is exercised.
CORRELATION OF PRICE CHANGES. Price changes of a Fund's futures and options
positions may not be well correlated with price changes of its other
investments. This may be because of differences between the underlying indexes
and the types of securities the Fund invests in. For example, if a Fund sold a
broad-based index futures contract to hedge against a stock market decline while
completing sales of specific securities in its investment portfolio, the prices
of the securities could move in a different direction than the broad market
index represented by the index futures contract. In th e case of an S&P 500
futures contract purchased by a Fund, either in anticipation of stock purchases
or in an effort to be fully invested, failure of the contract to track the Index
accurately could hinder the Fund from achieving its investment objective.
Options and futures prices can also diverge from the prices of their
underlying instruments even if the underlying instruments match the Fund's
investments. Options and futures prices are affected by factors such as current
and anticipated short-term interest rates, changes in volatility of the
underlying instru-
Statement of Additional Information 7
ment, and the time remaining until expiration of the contract; these factors may
not affect security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and the
securities markets, from structural differences in how options a nd futures and
securities are traded, or from the imposition of daily price fluctuation limits
or trading halts. A Fund may purchase or sell options and futures contracts with
a greater or lesser value than the securities it wishes to hedge or intends to
purchase in an effort to compensate for diff erences in volatility between the
contract and the securities, although this strategy may not be successful in all
cases. If price changes in a Fund's options or futures positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in loss es that are not offset by gains in other
investments.
LIQUIDITY OF FUTURES CONTRACTS AND OPTIONS. There is no assurance a liquid
secondary market will exist for any particular futures contract or option at any
particular time. Options may have relatively low trading volume and liquidity if
their strike prices are not close to the underlying instru ment's current price.
In addition, exchanges may establish daily price fluctuation limits for futures
contracts and options and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached or a trading halt is imposed, it may be
impossible for a Fund to enter into new positions or close out existing
positions. If the secondary market for a contract were not liquid because of
price fluctuation limits or otherwise, prompt liquidation of unfavorable
positions could be difficult or impossi ble, and the Fund could be required to
continue holding a position until delivery or expiration regardless of changes
in value. Under these circumstances, the Fund's access to assets held to cover
its futures and options positions also could be impaired.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTION. The Funds have
filed a notice of eligibility for exclusion as a "commodity pool operator" with
the CFTC and the National Futures Association, which regulates trading in the
futures markets. The Funds intend to comply with Section 4.5 of t he regulations
under the Commodity Exchange Act, which limits the extent to which the Funds can
commit assets to initial margin deposits and options premiums.
Each Fund may enter into futures contracts, options, or options on futures
contracts, provided that such obligations represent no more than 20% of the
Fund's net assets. Under the Commodity Exchange Act, a Fund may enter into
futures and options transactions for hedging purposes without regard to the
percentage of assets committed to initial margin and option premiums and for
other than hedging purposes provided that assets committed to initial margin and
option premiums do not exceed 5% of the Fund's net assets. To the extent
required by law, each Fund will set aside cash and appropriat e liquid assets in
a segregated account to cover its obligations related to futures contracts and
options.
The Funds intend to comply with tax rules applicable to regulated
investment companies, including a requirement that capital gains from the sale
of securities held less than three months constitute less than 30% of a Fund's
gross income for each fiscal year. Gains on some futures contracts and options
are included in this 30% calculation, which may limit the Funds' investments in
such instruments.
FUTURES AND OPTIONS RELATING TO FOREIGN CURRENCIES. Each Fund may purchase
and sell currency futures and purchase and write currency options to increase or
decrease its exposure to different foreign currencies. Each Fund may also
purchase and write currency options in conjunction with each othe r or with
currency futures or forward contracts.
Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and have standard contract sizes and delivery dates. Most currency
futures contracts call for payment or delivery in U.S. dollars. The underlyin g
instrument of a currency option may be a foreign currency, which generally is
purchased or delivered in exchange for U.S. dollars, although it may be a
futures contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obt ains the right
to sell the underlying currency.
The uses and risks of currency futures and options are similar to those of
futures and options relating to securities or indexes, as described above.
Currency futures and option values can be expected to correlate
8 American Century Investments
with exchange rates, but may not reflect other factors that affect the value of
a Fund's investments. A currency hedge, for example, should protect a
deutsche-mark-denominated security from a decline in the deutsche mark, but it
will not protect the Fund against a price decline resulting from a det
erioration in the issuer's creditworthiness. Because the value of a Fund's
foreign-currency-denominated investments will change in response to many factors
other than exchange rates, it may not be possible to match the amount of
currency options and futures to the value of the Fund's foreign invest ments
over time.
INVESTMENT RESTRICTIONS
The Funds' investment restrictions set forth below are fundamental and may
not be changed without approval of a majority of the votes of shareholders of
the Funds as determined in accordance with the Investment Company Act of 1940.
EACH FUND MAY NOT:
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities) if, as a result, more than 5% of its
total assets would be invested in securities of that issuer.
(2) Purchase the securities of any one issuer if immediately after such
purchase the Fund would hold more than 10% of the outstanding voting
securities of that issuer.
(3) Borrow money except from a bank as a temporary measure to satisfy
redemption requests or for extraordinary or emergency purposes and then
only in an amount not exceeding 331&3% of the market value of the Fund's
total assets so that immediately after any such borrowing asset coverage of
at least 300% for all such borrowings exists. To secure any such borrowing,
the Fund may not mortgage, pledge, or hypothecate in excess of 33-1/3% of
the value of its total assets. The Fund will not purchase any security
while borrowings representing more than 5% of its total assets are
outstanding. T he Fund may also borrow money for temporary or emergency
purposes from other funds or portfolios for which Benham Management
Corporation is the investment advisor, or from a joint account of such
funds or portfolios, as permitted by federal regulatory agencies.
(4) Act as an underwriter of securities issued by others.
(5) Purchase real estate, real estate mortgage loans, interests in real estate
limited partnerships, or interests in oil, gas or mineral exploration or
development programs or leases, provided that this limitation shall not
prohibit (i) the purchase of U.S. Government securities and other debt
securities secured by real estate or interests therein; (ii) the purchase
of marketable securities issued by companies or investment trusts that deal
in real estate or interests therein; or (iii) purchase of marketable
securities issued by companies or other entities or investment vehicles
that en gage in businesses relating to the development, exploration,
mining, processing or distributing of oil, gas, or minerals.
(6) Engage in any short-selling operations (except by selling futures
contracts).
(7) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the Board of Directors or in
connection with purchase of debt securities in accordance with the Fund's
investment objective and policies. The Fund may also lend money to other
funds o r portfolios for which the Manager is the investment advisor, as
permitted under investment restriction (3) above.
(8) Purchase warrants, valued at the lower of cost or market, in excess of 5%
of the value of the Fund's net assets. Included within that amount, but not
to exceed 2% of the value of the Fund's net assets, may be warrants which
are not listed on the New York or American Stock Exchanges. Warran ts
acquired by the Fund at any time in units or attached to securities are not
subject to this restriction.
(9) Purchase securities on margin, except for such short-term credits as may be
necessary for the clearance of transactions, provided that the Fund may
make initial and variation margin payments in connection with purchases or
sales of futures contracts or options on futures contracts.
(10) Invest in securities that are not readily marketable or the disposition of
which is restricted
Statement of Additional Information 9
under federal securities laws (collectively "illiquid securities") if, as a
result, more than 5% of the Fund's net assets would be invested in illiquid
securities.
(11) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except for notes or other evidences of indebtedness
permitted under investment restriction (3) above and except to the extent
that notes evidencing temporary borrowings or the purchase of securities on
a when-issued or delayed delivery basis might be deemed such.
(12) Except in connection with a merger, consolidation, acquisition, or
reorganization, invest in the securities of other investment companies,
including investment companies advised by the Manager, if, immediately
after such purchase or acquisition, more than 10% of the value of the
Fund's tot al assets would be invested in such securities in the aggregate
or more than 5% in any one such security.
(13) Purchase or retain securities of any issuer if, to the knowledge of the
Fund's management, those officers and Directors of the Fund and of its
investment advisor who each own beneficially more than 0.5% of the
outstanding securities of such issuer, together own beneficially more than
0.5% of such securities.
(14) Invest in securities of an issuer that, together with any predecessor, has
been in operation for less than three years if, as a result, more than 0.5%
of the total assets of the Fund would then be invested in such securities.
(15) Invest in the securities of any one issuer if, immediately after such
purchase, more than 25% of the Fund's total assets would be invested in the
securities of issuers having their principal business activities in the
same industry.
Unless otherwise indicated, percentage limitations included in the
restrictions apply at the time transactions are entered into. Accordingly, any
later increase or decrease beyond the specified limitation resulting from a
change in a Fund's net assets will not be considered in determining wheth er it
has complied with its investment restrictions.
PORTFOLIO TRANSACTIONS
Each Fund's assets are invested by the Manager in a manner consistent with
the Fund's investment objectives, policies and restrictions and with any
instructions the Board of Directors may issue from time to time. Within this
framework, the Manager is responsible for making all determinations as to the
purchase and sale of portfolio securities and for taking all steps necessary to
implement securities transactions on behalf of the Funds. In placing orders for
the purchase and sale of portfolio securities, the Manager will use its best
efforts to obtain the best possible price and execution and will otherwise place
orders with broker-dealers subject to and in accordance with any instructions
the Board of Directors may issue from time to time. The Manager will select
broker-dealers to execute portfolio transactions on behalf of the Funds solely
on the basis of best price and executio n.
The Funds' annual portfolio turnover rates are not expected to exceed 150%.
Because a higher turnover rate increases transaction costs and may increase
taxable capital gains, the advisor carefully weighs the potential benefits of
short-term investing against these considerations.
The following table illustrates the Funds' portfolio turnover rates for the
fiscal years ended December 31, 1995 and 1994.
Portfolio Turnover Rates
Fiscal Fiscal
Fund 1995 1994
- ------------------------------------------------------------------------
Income & Growth Fund 69.88% 67.96%
Equity Growth Fund 125.86% 94.09%
Brokerage commissions paid by each Fund during the fiscal years ended
December 31, 1995, 1994, and 1993, are indicated in the following table.
Brokerage Commissions
Fiscal Fiscal Fiscal
Fund 1995 1994 1993
- ------------------------------------------------------------------------
Income & Growth Fund $367,093 $236,642 $214,496
Equity Growth Fund 320,306 178,344 134,712
10 American Century Investments
VALUATION OF PORTFOLIO SECURITIES
Each Fund's net asset value per share ("NAV") is calculated as of the close
of business of the New York Stock Exchange (the "Exchange") usually at 3:00 p.m.
Central time each day the Exchange is open for business. The Exchange has
designated the following holiday closings for 1997: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christ-mas Day (observed). Although the Funds expect the
same holiday schedule to be observed in the future, the Exchange may modify its
holiday schedule at any time.
The Manager typically completes its trading on behalf of the Funds in
various markets before the Exchange closes for the day. Securities are valued at
market, depending upon the market or exchange on which they trade. Price
quotations for exchange-listed securities are taken from the primary ex changes
on which these securities trade. Securities traded on exchanges will be valued
at their last sale prices. If no sale is reported, the mean between the latest
bid and asked prices is used. Securities traded over-the-counter will be valued
at the mean between the latest bid and asked prices. Fixed-income securities are
priced at market value on the basis of market quotations supplied by independent
pricing services. Trading of securities in foreign markets may not take place on
every day the Exchange is open, and trading takes place in various foreign
markets on days on which the Excha nge and the Funds' offices are not open and
the Funds' net asset values are not calculated. The Funds' net asset values may
be significantly affected on days when shareholders have no access to the Funds.
Securities for which market quotations are not readily available, or which may
change in value due to events occuring after their primary exchange has closed
for the day, are valued at fair market value as determined in good faith under
the direction of the Board of Directors.
PERFORMANCE
The Funds may quote performance in various ways. Historical performance
information will be used in advertising and sales literature.
Yield quotations are based on the investment income per share earned during
a particular 30-day period, less expenses accrued during the period (net
investment income), and are computed by dividing a Fund's net investment income
by its share price on the last day of the period, according to the following
formula:
YIELD = 2 [(a - b + 1)(6) - 1]
------
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
Total returns quoted in advertising and sales literature reflect all
aspects of a Fund's return, including the effect of reinvesting dividends and
capital gain distributions and any change in the Fund's net asset value during
the period.
Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in a Fund over a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual total return of 7.18%, which is
the steady annual rate that would result in 100% growth on a compounded basis in
10 years. While average annual total retur ns are a convenient means of
comparing investment alternatives, investors should realize that a Fund's
performance is not constant over time but changes from year-to-year, and that
average annual returns represent averaged figures as opposed to actual
year-to-year performance.
The Funds' average annual total returns for the one-year, five-year and
life-of-fund periods ended June 30, 1996, are indicated in the following table.
Average Annual Total Returns
Fund One Year Five Year Life of Fund*
- ------------------------------------------------------------------------
Income & Growth Fund 26.36% 16.51% 18.26%
Equity Growth Fund 24.23% 16.00% 14.70%
*Income & Growth Fund commenced operations on December 17, 1990. Equity Growth
Fund commenced operations on May 9, 1991.
Statement of Additional Information 11
In addition to average annual total returns, each Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments, or a series of redemptions over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their con tributions to total
return.
The Funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike American
Century funds, are sold with a sales charge or deferred sales charg e. Economic
data that may be used for such comparisons may include, but are not limited to:
U.S. Treasury bill, note, and bond yields, money market fund yields, U.S.
government debt and percentage held by foreigners, the U.S. money supply, net
free reserves, and yields on current-coupon GNMAs (sour ce: Board of Governors
of the Federal Reserve System); the federal funds and discount rates (source:
Federal Reserve Bank of New York); yield curves for U.S. Treasury securities and
AA/AAA-rated corporate securities (source: Bloomberg Financial Markets); yield
curves for AAA-rated tax-free municipa l securities (source: Telerate); yield
curves for foreign government securities (sources: Bloomberg Financial Markets
and Data Resources, Inc.); total returns on foreign bonds (source: J.P. Morgan
Securities Inc.); various U.S. and foreign government reports; the junk bond
market (source: Data Reso urces, Inc.); the CRB Futures Index (source: Commodity
Index Report); the price of gold (sources: London am/pm fixing and New York
Comex Spot Price); rankings of any mutual fund or mutual fund category tracked
by Lipper Analytical Services, Inc. or Morningstar, Inc.; mutual fund rankings
published in major, nationally distributed periodicals; data provided by the
Investment Company Institute; Ibbotson Associates, STOCKS, BONDS, BILLS, AND
INFLATION; major indexes of stock market performance; and indexes and historical
data supplied by major securities brokerage or investment advisory firms. The
Funds may also utilize reprints from newspapers and magazines furnished by third
parties to illustrate historical performance.
Indexes may assume reinvestment of dividends, but generally they do not
reflect administrative and management costs such as those incurred by a mutual
fund.
Occasionally statistics may be used to illustrate Fund volatility or risk.
Measures of volatility or risk generally are used to compare a Fund's net asset
value or performance to a market index. One measure of volatility is "beta."
Beta expresses Fund volatility relative to the total market as represented by
the S&P 500. A beta of more than 1.00 indicates volatility greater than the
market, and a beta of less than 1.00 indicates volatility less than the market.
Another measure of volatility or risk is "standard deviation." Standard
deviation is used to measure variability of net asset va lue or total return
relative to an average over a specified period of time. The premise is that
greater volatility connotes greater risk undertaken to achieve desired
performance.
The Funds' shares are sold without a sales charge (load). No-load funds
offer an advantage to investors when compared to load funds with comparable
investment objectives and strategies.
TAXES
Each Fund intends to qualify annually as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 as amended (the "Code").
By so qualifying, a Fund will not be subject to federal and state income taxes
to the extent that it distributes substantially all of its ne t investment
income and net realized capital gains distributed to shareholders.
Distributions from the Funds are taxable to shareholders regardless of
whether they are taken in cash or reinvested in additional shares. For federal
income tax purposes, shareholders receiving distributions in the form of
additional shares will have a basis in each such share equal to the Fund 's net
asset value per share on the reinvestment date.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as
12 American Century Investments
ordinary income. To the extent that a Fund's dividends consist of dividend
income from domestic corporations, such dividends may be eligible for the
dividends-received deduction available to corporations. Shareholders will be
notified annually of the federal tax status of distributions.
Upon redeeming, selling, or exchanging shares, a shareholder will realize a
taxable gain or loss depending upon his or her basis in the shares liquidated.
The gain or loss generally will be long-term or short-term depending on the
length of time the shares were held. However, a loss recognized by a shareholder
in the disposition of shares on which capital gain dividends were paid (or
deemed paid) before the shareholder had held his or her shares more than six
months would be treated as a long-term capital loss for tax purposes. A gain
realized on the redemption, sale, or exchange of shar es would not be affected
by the reacquisition of shares. A loss realized on the redemption, sale, or
exchange of shares would be disallowed to the extent that the shares disposed of
were replaced (whether through reinvestment of distributions or otherwise)
within a period of 61 days beginning 30 da ys before and ending 30 days after
the date shares were disposed of. Under such circumstances, the basis of the
shares acquired would be adjusted to reflect the disallowed loss.
The information above is only a summary of some of the tax considerations
affecting the Funds and their shareholders; no attempt has been made to discuss
individual tax consequences. Shareholders who are neither citizens nor residents
of the U.S. may be subject to a nonresident alien withholdin g tax of 30% or a
lower treaty rate, depending on the country in which they reside. The Funds'
distributions also may be subject to state, local, or foreign taxes. A
prospective investor may wish to consult a tax advisor to determine whether
either Fund is a suitable investment based on his or her tax situation.
ABOUT AMERICAN CENTURY QUANTITATIVE EQUITY FUNDS
American Century Quantitative Equity Funds (the "Corporation") was
organized as a California corporation on December 31, 1987. The Corporation was
formerly known as Benham Equity Funds. The Corporation is authorized to issue
ten series and to issue two billion (2,000,000,000) shares of each suc h series.
Within each series, the Board of Directors may issue an unlimited number of
shares. Currently, there are five series in the Corporation, American Century
Income & Growth Fund (formerly known as Benham Income & Growth Fund) and
American Century Equity Growth Fund (formerly known as Benham Equity Growth
Fund) are described in this Statement of Additional Information. With respect to
each series, shares issued are fully paid and nonassessable and have no
preemptive, conversion, or similar rights. All consideration received by the
Corporation for shares of any series, and all assets, i ncome, and gains (or
losses) earned thereon, belong to that series exclusively and are subject to the
liabilities related thereto.
Shares of each series have equal voting rights, provided that each series
votes separately on matters that pertain to it exclusively. The Corporation
instituted dollar-based voting, meaning the number of votes you are entitled to
is based upon the dollar value of their investment. Under Califor nia
Corporations Code Section 708, shareholders have the right to cumulate votes in
the election (or removal) of Directors. For example, if six Directors are
proposed for election, a shareholder may cast six votes for a single candidate,
or three votes for each of two candidates, etc.
CUSTODIAN BANK: Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn,
NY 11245 and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64106 serve
as custodians of the Funds' assets. Services provided by the custodian bank
include (a) settling portfolio purchases and sales, (b) reportin g failed
trades, (c) identifying and collecting portfolio income, and (d) providing
safekeeping of securities. The custodian takes no part in determining the Funds'
investment policies or in determining which securities are sold or purchased by
the Funds.
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600,
Kansas City, Missouri 64106, serves as the Funds' independent auditors and
provides services including (a) audit of annual financial statements and (b)
preparation of annual federal income tax returns filed on behalf of the F und.
DIRECTORS AND OFFICERS
Each Fund's activities are overseen by a Board of Directors, including six
independent Directors. The individuals listed below whose names are marked
Statement of Additional Information 13
by an asterisk (*) are "interested persons" of the Corporation (as defined in
the Investment Company Act of 1940) by virtue of, among other considerations,
their affiliation with either the Fund; the Funds' investment advisor, Benham
Management Corporation; the Funds' agent for transfer and adminis trative
services, American Century Services Corporation (ACS); the Funds' distribution
agent, American Century Investment Services, Inc.; their parent corporation,
American Century Companies, Inc. (ACC) or ACC's subsidiaries; or other funds
advised by the Manager. Each Director listed below also se rves as a Trustee or
Director of other funds advised by the Manager. Unless otherwise noted, a date
in parentheses indicates the date the Director or officer began his or her
service in a particular capacity. The Directors' and officers' address with the
exception of Mr. Stowers III and Ms. Roepke is 1665 Charleston Road, Mountain
View, California 94043. The address of Mr. Stowers III and Ms. Roepke is 4500
Main Street, Kansas City, Missouri 64111.
DIRECTORS
*JAMES M. BENHAM, Chairman of the Board of Directors (1988), President and
Chief Executive Officer (1996). Mr. Benham is also President and Chairman of the
Board of the Manager (1971), and a member of the Board of Governors of the
Investment Company Institute (1988). Mr. Benham has been in the securities
business since 1963, and he frequently comments through the media on economic
conditions, investment strategies, and the securities markets.
ALBERT A. EISENSTAT, independent Director (1995). Mr. Eisenstat is an
independent Director of each of Commercial Metals Co. (1982), Sungard Data
Systems (1991) and Business Objects S/A (1994). Previously, he served as Vice
President of Corporate Development and Corporate Secretary of Apple Comp uter
and served on its Board of Directors (1985 to 1993).
RONALD J. GILSON, independent Director (1995). Mr. Gilson is the Charles J.
Meyers Professor of Law and Business at Stanford Law School (1979) and the Mark
and Eva Stern Professor of Law and Business at Columbia University Schoool of
Law (1992). He is counsel to Marron, Ried & Sheehy (a San Fra ncisco law firm,
1984).
MYRON S. SCHOLES, independent Director (1988). Mr. Scholes is a principal
of Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983), a Director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Fund s (1992).
From August 1991 to June 1993, Mr. Scholes was a Managing Director of Salomon
Brothers Inc. (securities brokerage).
KENNETH E. SCOTT, independent Director (1988). Mr. Scott is Ralph M.
Parsons Professor of Law and Business at Stanford Law School (1972) and a
Director of RCM Capital Management (June 1994).
ISAAC STEIN, independent Director (1992). Mr. Stein is former Chairman of
the Board (1990 to 1992) and Chief Executive Officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the Board of Raychem
Corporation (electrical equipment, 1993), President of Waverley Associ ates,
Inc. (private investment firm, 1983), and a Director of ALZA Corporation
(pharmaceuticals, 1987). He is also a Trustee of Stanford University (1994) and
Chairman of Stanford Health Services (hospital, 1994).
*JAMES STOWERS III, Director (1995). Mr. Stowers III is the President,
Chief Executive Officer and Director of ACC, ACS and ACIS.
JEANNE D. WOHLERS, independent Director (1988). Ms. Wohlers is a private
investor, and an independent Director and Partner of Windy Hill Productions, LP.
Previously, she served as Vice President and Chief Financial Officer of Sybase,
Inc. (software company, 1988 to 1992).
OFFICERS
*JAMES M. BENHAM, President and Chief Executive Officer (1996).
*WILLIAM M. LYONS, Executive Vice President (1996); Executive Vice
President, Chief Operating Officer, General Counsel and Secretary of the
Manager, ACS, and ACIS.
*DOUGLAS A. PAUL, Secretary (1988), Vice President (1990), and General
Counsel (1990); Secretary and Vice President of the funds advised by the
Manager.
*MERLE MAY, Controller (1996).
*MARYANNE ROEPKE, CPA, Chief Financial Officer and Treasurer (1995); Vice
President and Assistant Treasurer of ACS.
14 American Century Investments
The following table summarizes the compensation that the Directors of the
Funds received for the Funds' fiscal year ended December 31, 1995, as well as
the compensation received for serving as Director or Trustee of all other funds
advised by the Manager.
As of July 31, 1996, the officers and Directors, as a group, owned less
than 1% of the outstanding shares of each Fund.
INVESTMENT ADVISORY SERVICES
Each Fund has an investment advisory agreement with the Manager dated June
1, 1995, that was approved by shareholders on May 31, 1995.
The Manager is a California corporation and became a wholly owned
subsidiary of ACC on June 1, 1995. The Manager has served as investment advisor
to the Funds since each Fund's inception. ACC is a holding company that owns all
of the stock of the operating companies that provide the investment management,
transfer agency, shareholder service, and other services for the American
Century funds. James E. Stowers, Jr., controls ACC by virtue of his ownership of
a majority of its common stock. The Manager has been a registered investment
advisor since 1971.
Each Fund's agreement with the Manager continues for an initial period of
two years and thereafter from year-to-year provided that, after the initial two
year period, it is approved at least annually by vote of either a majority of
the Fund's outstanding voting securities or by vote of a majori ty of the Fund's
Directors, including a majority of those Directors who are neither parties to
the agreement nor interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
Each Fund's agreement is terminable on sixty days' written notice, either
by the Fund or by the Manager, to the other party and terminates automatically
in the event of its assignment.
Pursuant to the investment advisory agreements, the Manager provides each
Fund with investment advice and portfolio management services in accordance with
the Fund's investment objectives, policies, and restrictions. The Manager
determines what securities will be purchased and sold by the Funds and assist
the Funds' officers in carrying out decisions made by the Board of Directors.
For these services, each Fund pays the Manager a monthly investment
advisory fee equal to its pro rata share of the dollar amount derived from
offering a
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Aggregate Pension or Retirement Estimated Total Compensation
Name of Compensation Benefits Accrued As Annual Benefits From Funds and Fund
Director* From Each Fund Part of Fund Expense Upon Retirement Complex** Paid to Directors
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert A. Eisenstat $0 Income & Growth Not Applicable Not Applicable $0
0 Equity Growth
Ronald J. Gilson $861 Income & Growth Not Applicable Not Applicable $48,833
781 Equity Growth
Myron S. Scholes $1578 Income & Growth Not Applicable Not Applicable $65,625
1376 Equity Growth
Kenneth E. Scott $1578 Income & Growth Not Applicable Not Applicable $65,125
1375 Equity Growth
Ezra Solomon $1597 Income & Growth Not Applicable Not Applicable $58,792
1382 Equity Growth
Isaac Stein $1587 Income & Growth Not Applicable Not Applicable $63,625
1376 Equity Growth
Jeanne D. Wohlers $1601 Income & Growth Not Applicable Not Applicable $67,375
1384 Equity Growth
- ----------------------------------------------------------------------------------------------------------------------
* Interested Directors receive no compensation for their services as such.
** American Century family of funds includes nearly 70 no-load mutual funds.
</TABLE>
Statement of Additional Information 15
percentage of the Corporation's average daily net assets to the following
investment advisory fee rate schedule:
.50% of the first $100 million
.45% of the next $100 million
.40% of the next $100 million
.35% of the next $100 million
.30% of the next $100 million
.25% of the next $1 billion
.24% of the next $1 billion
.23% of the next $1 billion
.22% of the next $1 billion
.21% of the next $1 billion
.20% of the next $1 billion; and
.19% of average daily net assets over $6.5 billion.
Investment advisory fees paid by each Fund to the Manager for the fiscal
years ended December 31, 1995, 1994, and 1993, are indicated in the following
table. Fee amounts are net of reimbursements as described under the section
titled "EXPENSE LIMITATION AGREEMENT."
Investment Advisory Fees*
Fiscal Fiscal Fiscal
Fund 1995 1994 1993
- ------------------------------------------------------------------------
Income & Growth Fund $857,968 $778,787 $538,545
Equity Growth Fund 412,627 303,587 222,347
- ------------------------------------------------------------------------
*Net reimbursements.
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City,
Missouri, 64111 (ACS) acts as transfer, administrative services and dividend
paying agent for the Funds. ACS provides facilities, equipment and personnel to
the Funds and is paid for such services by the Funds. For administra tive
services, each Fund pays ACS a monthly fee equal to its pro rata share of the
dollar amount derived from applying the average daily net assets of all of the
Funds advised by the Manager to the following administrative fee rate schedule:
Group Assets Administrative Fee Rate
- ------------------------------------------------------------------------
up to $4.5 billion .11%
up to $6 billion .10
up to $9 billion .09
over $9 billion .08
- ------------------------------------------------------------------------
For transfer agent services, each Fund pays ACS a monthly fee of $1.3958
(Income & Growth Fund) or $1.1875 (Equity Growth Fund) for each shareholder
account maintained and $1.35 (both Funds) for each shareholder transaction
executed during that month.
Administrative service and transfer agent fees paid by each Fund for the
fiscal years ended December 31, 1995, 1994, and 1993, are indicated in the
following tables. Fee amounts are net of expense limitations as described under
the section titled "EXPENSE LIMITATION AGREEMENT".
Administrative Fees
Fiscal Fiscal Fiscal
Fund 1995 1994 1993
- ------------------------------------------------------------------------
Income & Growth Fund $264,645 $229,311 $174,067
Equity Growth Fund 126,295 86,954 76,262
- ------------------------------------------------------------------------
Transfer Agent Fees
Fiscal Fiscal Fiscal
Fund 1995 1994 1993
- ------------------------------------------------------------------------
Income & Growth Fund $472,699 $476,007 $408,480
Equity Growth Fund 240,686 207,987 167,147
- ------------------------------------------------------------------------
DISTRIBUTION OF FUND SHARES
The Funds' shares are distributed by American Century Investment Services,
Inc. (the "Distributor"), a registered broker-dealer and an affiliate of the
Manager. The Manager pays all expenses for promoting and distributing the Funds'
shares offered by this Prospectus. The Funds do not pay any co mmissions or
other fees to the Distributor or to any other broker-dealers or financial
intermediaries in connection with the distribution of Fund shares.
16 American Century Investments
DIRECT FUND EXPENSES
Each Fund pays certain operating expenses that are not assumed by the
Manager or ACS. These include fees and expenses of the independent Directors;
custodian, audit, tax preparation, and pricing fees; fees of outside counsel and
counsel employed directly by the Corporation; costs of printing and mailing
prospectuses, statements of additional information, proxy statements, notices,
confirmations, and reports to shareholders; fees for registering the Fund's
shares under federal and state securities laws; brokerage fees and commissions
(if any); trade association dues; costs of fidelity a nd liability insurance
policies covering the Fund; costs for incoming WATS lines maintained to receive
and handle shareholder inquiries; and organizational costs.
EXPENSE LIMITATION AGREEMENT
As part of the investment advisory agreement between the Corporation and
the Manager, the Directors set an expense limitation, pursuant to which the
Manager limited each Fund's expenses to 0.75% of the Fund's average daily net
assets until May 31, 1997. The agreement provided that the Manager c ould recoup
amounts absorbed on behalf of each Fund during the preceding 11 months if, and
to the extent that, for any given month, the Fund's expense ratio (net
reimbursements) was lower than the expense guarantee rate in effect at the time,
but not during any period, during which the Manager has agreed, pursuant to the
expense limitation, to limit each Fund's expenses to an amount less than the
expense guarantee rate.
Net amounts absorbed or recouped for the fiscal years ended December 31,
1995, 1994, and 1993, are indicated in the table below.
Net Amounts Absorbed (Recouped)
Fiscal Fiscal Fiscal
Fund 1995 1994 1993
- ------------------------------------------------------------------------
Income & Growth Fund 0 ($38,345) $114,063
Equity Growth Fund ($2,726) $2,871 $66,494
- ------------------------------------------------------------------------
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Funds' shares are continuously offered at NAV. Share certificates are
issued (without charge) only when requested in writing. Certificates are not
issued for fractional shares. Dividend and voting rights are not affected by the
issuance of certificates.
Fund Income & Growth Fund
- ------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94104-4122
- ------------------------------------------------------------------------
# of Shares Held 4,627,365.087
- ------------------------------------------------------------------------
% of Total Shares
Outstanding 16.7%
- ------------------------------------------------------------------------
Fund Equity Growth Fund
- ------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94104
- ------------------------------------------------------------------------
# of Shares Held 1,390,293.034
- ------------------------------------------------------------------------
% of Total Shares
Outstanding 11.1%
- ------------------------------------------------------------------------
As of July 31, 1996, to the Funds' knowledge, no other shareholder was the
record holder or beneficial owner of 0.5% or more of the Fund's total shares
outstanding.
American Century may reject or limit the amount of an investment to prevent
any one shareholder or affiliated group from controlling the Corporation or one
of its series; to avoid jeopardizing a series' tax status; or whenever, in
management's opinion, such rejection is in the Corporation's o r a series' best
interest.
ACS charges neither fees nor commissions on the purchase and sale of fund
shares. However, ACS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
ACS may charge a fee for processing dishonored investment checks o r
stop-payment requests. See the Investor Services Guide for more information.
Share purchases and redemptions are governed by California law.
Statement of Additional Information 17
OTHER INFORMATION
The Fund's investment advisor has been continuously registered with the SEC
under the Investment Advisers Act of 1940 since December 14, 1971. The
Corporation has filed a registration statement under the Securities Act of 1933
and the Investment Company Act of 1940 with respect to the shares of fered. Such
registrations do not imply approval or supervision of the Corporation or the
advisor by the Securities and Exchange Commission.
For further information, please refer to the registration statement and
exhibits on file with the SEC in Washington, DC. These documents are available
upon payment of a reproduction fee. Statements in the Prospectus and in this
Statement of Additional Information concerning the contents of cont racts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
18 American Century Investments
NOTES
Statement of Additional Information Notes 19
NOTES
20 Notes American Century Investments
NOTES
Statement of Additional Information Notes 21
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
PERSON-TO-PERSON ASSISTANCE:
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE:
1-800-345-8765
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 OR 816-753-1865
FAX: 816-340-7962
INTERNET: WWW.AMERICANCENTURY.COM
9701 [recycled logo]
SH-BKT-6746 Recycled
[american century logo]
American
Century(sm)
STATEMENT OF ADDITIONAL INFORMATION
[company logo]
American
Century(sm)
SEPTEMBER 3, 1996
Revised January 1, 1997
AMERICAN
CENTURY
GROUP
GLOBAL GOLD
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
AMERICAN CENTURY QUANTITATIVE EQUITY FUNDS
This is the Statement of Additional Information for the American Century Global
Gold Fund. This statement is not a Prospectus but should be read in conjunction
with the Fund's current Prospectus dated September 3, 1996, revised January 1,
1997. The Fund's annual report for the fiscal year ended December 31, 1995 and
semiannual report for the period ended June 30, 1996, are incorporated herein by
reference. Please retain this document for future reference. To obtain the
Prospectus, call American Century Investments 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 Policies and Techniques....................................2
Special Considerations as a Result of
the Fund`s Investment Policies.....................................7
Investment Restrictions...............................................8
Portfolio Transactions...............................................10
Valuation of Portfolio Securities....................................10
Performance..........................................................10
Taxes................................................................12
About American Century Quantitative Equity Funds.....................13
Directors and Officers...............................................13
Investment Advisory Services.........................................15
Transfer and Administrative Services.................................16
Distribution of Fund Shares..........................................16
Direct Fund Expenses.................................................16
Expense Limitation Agreement.........................................16
Additional Purchase and Redemption Information.......................17
Other Information....................................................17
Statement of Additional Information 1
INVESTMENT POLICIES AND TECHNIQUES
The following paragraphs provide a more detailed description of the securities
and investment practices identified in the Prospectus. Unless otherwise noted,
the policies described in this Statement of Additional Information are not
fundamental and may be changed by the Board of Directors.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. government securities, including bills, notes, and
bonds issued by the U.S. Treasury and securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some U.S. government
securities are backed by the direct full faith and credit pledge of the U.S.
government; others are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as securities issued by the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
government to purchase the agencies' obligations; and others are supported only
by the credit of the issuing or guaranteeing instrumentality. There is no
assurance that the U.S. government will provide financial support to an
instrumentality it sponsors when it is not obligated by law to do so.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The Fund may engage in securities transactions on a when-issued or forward
commitment basis, in which the transaction price and yield are each fixed at the
time the commitment is made, but payment and delivery occur at a future date
(typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, the
Fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. While the Fund will make commitments to purchase or sell
securities on a when-issued or forward commitment basis with the intention of
actually receiving or delivering them, it may, nevertheless, sell the securities
before the settlement date if it is deemed advisable as a matter of investment
strategy.
In purchasing securities on a when-issued or forward commitment basis, the Fund
will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents, or high-quality securities in an amount
sufficient to meet the purchase price. When the time comes to pay for
when-issued securities, the Fund will meet its obligations with available cash,
through the sale of securities or, although it would not normally expect to do
so, through sales of the when-issued securities themselves (which may have a
market value greater or less than the Fund's payment obligation). Selling
securities to meet when-issued or forward commitment obligations may generate
capital gains or losses.
As an operating policy, the Fund will not commit more than 35% of its total
assets to when-issued or forward commitment agreements. If fluctuations in the
value of securities held cause more than 35% of the Fund's total assets to be
committed under when-issued or forward commitment agreements, Benham Management
Corporation (the "Manager") need not sell such commitments, but it will be
restricted from entering into further agreements on behalf of the Fund until the
percentage of assets committed to such agreements is reduced to 35%. In
addition, as an operating policy, the Fund will not enter into when-issued or
forward commitment transactions with settlement dates exceeding 120 days.
CONVERTIBLE SECURITIES
The Fund may buy securities that are convertible into common stock. The
following is a brief description of the various types of convertible securities
the Fund may buy.
CONVERTIBLE BONDS are issued with lower coupons than nonconvertible bonds of the
same quality and maturity, but they give holders the option to exchange their
bonds for a specific number of shares of the company's common stock at a
predetermined price. This structure allows the convertible bond holder to
participate in share price movements in the company's common stock. The actual
return on a convertible bond may exceed its stated yield if the company's common
stock appreciates in value and the option to convert to common shares becomes
more valuable.
CONVERTIBLE PREFERRED STOCKS are nonvoting equity securities that pay a fixed
dividend. These
2 American Century Investments
securities have a convertible feature similar to convertible bonds; however,
they do not have a maturity date. Due to their fixed-income features,
convertible issues typically are more sensitive to interest rate changes than
the underlying common stock. In the event of liquidation, bondholders would have
claims on company assets senior to those of stockholders; preferred stockholders
would have claims senior to those of common stockholders.
WARRANTS entitle the holder to buy the issuer's stock at a specific price for a
specific period of time. The price of a warrant tends to be more volatile than,
and does not always track, the price of the underlying stock. Warrants are
issued with expiration dates. Once a warrant expires, it has no value in the
market.
REPURCHASE AGREEMENTS
In a repurchase agreement (a "repo"), the Fund buys a security at one price and
simultaneously agrees to sell it back to the seller at an agreed upon price on a
specified date (usually within seven days from the date of purchase) or on
demand. The repurchase price exceeds the purchase price by an amount that
reflects an agreed-upon rate of return and that is unrelated to the interest
rate on the underlying security.
The manager attempts to minimize the risks associated with repurchase agreements
by adhering to the following criteria:
(1) Limiting the securities acquired and held by the Fund under repurchase
agreements to U.S. government securities;
(2) Entering into repurchase agreements only with primary dealers in U.S.
government securities (including bank affiliates) who are deemed to be
creditworthy under guidelines established by a nationally recognized
statistical rating organization (a "rating agency") and approved by the
Fund's Board of Directors;
(3) Monitoring the creditworthiness of all firms involved in repurchase
agreement transactions;
(4) Requiring the seller to establish and maintain collateral equal to 102% of
the agreed-upon resale price, provided, however, that the Board of
Directors may determine that a broker-dealer's credit standing is
sufficient to allow collateral to fall to as low as 101% of the agreed-upon
resale price before the broker-dealer deposits additional securities with
the Fund's custodian;
(5) Investing no more than 15% of the Fund's total assets in repurchase
agreements that mature in more than seven days; and
(6) Taking delivery of securities subject to repurchase agreement and holding
them in a segregated account at the Fund's custodian bank.
The Fund has received permission from the Securities and Exchange Commission
(SEC) to participate in pooled repurchase agreements collateralized by U.S.
government securities with other mutual funds advised by the Manager, the Fund's
investment advisor. Pooled repos are expected to increase the income the Fund
can earn from repo transactions without increasing the risks associated with
these transactions.
FOREIGN SECURITIES
Although the Fund may buy securities of foreign issuers in foreign markets, most
of its foreign securities investments are made by purchasing American Depositary
Receipts ("ADR"s), "ordinary shares," or "New York shares" in the U.S.
ADRs are dollar-denominated receipts representing interests in the securities of
a foreign issuer. They are issued by U.S. banks and traded on exchanges or over
the counter in the U.S. Ordinary shares are shares of foreign issuers that are
traded abroad and on a U.S. exchange. New York shares are shares that a foreign
issuer has allocated for trading in the U.S. ADRs, ordinary shares, and New York
shares all may be purchased with and sold for U.S. dollars, which protects the
Fund from the foreign settlement risks described below.
Investing in foreign companies may involve risks not typically associated with
investing in U.S. companies. The value of securities denominated in foreign
currencies and of dividends from such securities can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices in some foreign markets can be very volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those that apply to U.S. companies, and it may be more difficult
Statement of Additional Information 3
to obtain reliable information regarding a foreign issuer's financial condition
and operations. In addition, the costs of foreign investing, including
withholding taxes, brokerage commissions, and custodial fees, are generally
higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad carries political and economic risks distinct from those
associated with investing in the U.S. Foreign investments may be affected by
actions of foreign governments that are adverse to the interests of U.S.
investors, including the possibility of expropriation or nationalization of
assets, confiscatory taxation, restrictions on U.S. investment, or restrictions
on the ability to repatriate assets or to convert currency into U.S. dollars.
There may be a greater possibility of default by foreign governments or
foreign-government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability, military
action or unrest, or adverse diplomatic developments.
The Fund may purchase or sell forward foreign currency exchange contracts. While
these contracts are not presently regulated by the Commodity Futures Trading
Commission (CFTC), the CFTC may in the future assert authority to regulate
forward contracts. In such event, the Fund's ability to utilize forward
contracts in the manner set forth in the Prospectus may be restricted. Forward
contracts will reduce the potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the Fund
than if it had not entered into such contracts. The use of foreign currency
contracts will not eliminate fluctuations in the underlying U.S. dollar
equivalent value of, or rates of return on, the Fund's foreign currency
denominated portfolio securities and the use of such techniques will subject the
Fund to certain risks.
The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, the Fund
may not always be able to enter into foreign currency forward contracts at
attractive prices and this will limit the Fund's ability to use such contracts
to hedge or cross-hedge its assets. Also, with regard to the Fund's use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time, poor correlation may exist between movements in the
exchange rates of the foreign currencies in which the Fund's assets that are the
subject of such cross-hedges are denominated.
The Manager uses forward contracts for currency hedging purposes only and not
for speculative purposes. The Fund is not required to enter into forward
contracts with regard to its foreign holdings and will not do so unless doing so
is deemed appropriate by the Manager.
The Fund's assets are valued daily in U.S. dollars, although foreign currency
holdings are not physically converted into U.S. dollars on a daily basis.
INTEREST RATE SWAPS
Swap transactions contemplated by the Manager typically would involve entering
into a contract with a broker-dealer to receive the total returns of a specific
Index security or basket of Index securities (minus a fee) in exchange for
periodic payments based on a money market interest rate index such as the London
Interbank Offered Rate (LIBOR).
The net amount of the excess, if any, of one party's obligations over its
entitlements with respect to the interest rate swap agreement would be accrued
on a daily basis, and an equal amount of cash, cash equivalents, or high-grade
liquid debt securities would be maintained in a segregated account by the Fund's
custodian.
The Fund would not enter into an interest rate swap transaction unless: (1) the
unsecured senior debt or claims-paying ability of the other party was rated in
the top two rating categories by at least two rating agencies at the time the
transaction was
4 American Century Investments
entered into, (2) unless it was so rated by one such rating agency if unrated by
the other two, or (3) if unrated by all three, it was considered by the advisor
to be of comparable quality.
If the other party to a swap transaction defaulted, the Fund would have certain
contractual remedies under the agreement but would nonetheless bear a risk of
loss of unrealized income (not principal) in the event of default or bankruptcy
of the broker-dealer.
Certain restrictions imposed on the Fund by the Internal Revenue Code may limit
the Fund's ability to use swap agreements. The swap market is relatively new and
largely unregulated. It is possible that developments in the swap market,
including government regulation, could adversely affect the Fund's ability to
terminate existing agreements or to realize amounts to be received under such
agreements. The Manager believes that the swap market is relatively liquid.
However, as long as the SEC staff considers swap agreements to be illiquid, the
Fund intends to treat them as such for purposes of its investment restrictions.
In the event that the unsecured senior debt or claims-paying ability of the
other party to an interest rate swap transaction ceased to be rated or was
downgraded by a rating agency, the Manager would, although it would not be
required to, sell or exchange such instrument within a reasonable time
thereafter, taking into consideration such factors as price, credit risk, market
conditions, interest rates, and other hedging strategies available to the Fund.
GOLD FUTURES CONTRACTS
The Fund may enter into contracts for the future delivery of gold. A gold
futures contract is an agreement between two parties to buy and sell gold
bullion on a future date at a specified price. The purchaser of a gold futures
contract is bound by the terms of the contract to pay a fixed price for gold to
be delivered on a fixed date in the future. The seller of a gold futures
contract is obligated to deliver gold on a fixed date in the future in exchange
for a fixed price. Contracts of this type involve daily settlement, in cash, of
the gain or loss on the underlying gold. Although futures contracts, by their
terms, require actual delivery and acceptance of the underlying metal, in most
cases the contracts are closed out before the settlement date.
Gold futures contracts are standardized obligations traded on major commodities
exchanges. In the United States, gold futures contracts trade on the Commodity
Exchange, Inc. in New York, the Chicago Board of Trade, and the Mid-America
Commodity Exchange in Chicago. Gold futures contracts traded on U.S. commodity
exchanges are subject to regulation by the applicable exchange and by the CFTC.
The CFTC's mandate is to prevent price manipulation and excessive speculation
and to promote orderly and effective commodity futures markets. CFTC regulations
may include trading, price, and position limits as well as margin requirements.
When the Fund purchases or sells a futures contract, it deposits an initial
margin with its custodian equal to a percentage of the contract's value. If the
value of either party's position changes, that party is required to make
maintenance margin payments to settle the change in value on a daily basis. The
Fund makes a payment if its futures position becomes less valuable, and it
receives a payment if its futures position becomes more valuable.
Positions in gold futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such contracts. Although the
Fund intends to purchase contracts only on national exchanges or boards of trade
where there appears to be an active secondary market, there is no assurance that
a liquid secondary market will exist for any particular contract at any
particular time.
Because it is possible to enter into a gold futures contract by making an
initial payment of as little as 5% of the value of the underlying gold, these
contracts can involve a high degree of risk. A small decline in the price of the
underlying gold could result in the loss of most or all of the cash invested.
Pursuant to a 1988 undertaking with the State of California, the Fund's combined
margin deposits on gold futures contracts may not exceed 5% of the Fund's net
assets. The extent to which the Fund enters into gold futures contracts (and
forward foreign currency transactions) may also be limited by the fact that the
Fund intends to meet Internal Revenue Service requirements for qualification as
a regulated
Statement of Additional Information 5
investment company, including requirements regarding diversification of assets
and qualifying income. To assure that the Fund's investments in gold futures
contracts do not involve leveraging, cash or cash equivalents equal to the
underlying commodity value (at the time a contract is executed) of any gold
futures contract purchased by the Fund (less related margin deposits) will be
deposited in a segregated account with the Fund's custodian.
SECURITIES LENDING
The Fund may lend its portfolio securities to earn additional income. If a
borrower defaulted on a securities loan, the Fund could experience delays in
recovering the securities it loaned; if the value of the loaned securities
increased in the meantime, the Fund could suffer a loss.
To minimize the risk of default on securities loans, the Manager adheres to the
following guidelines prescribed by the Board of Directors:
(1) TYPE AND AMOUNT OF COLLATERAL. At the time a loan is made, the Fund must
receive, from or on behalf of the borrower, collateral consisting of any
combination of cash and full faith and credit U.S. government securities
equal to not less than 102% of the market value of the securities loaned.
Cash collateral received by the Fund in connection with loans of portfolio
securities may be commingled by the Fund's custodian with other cash and
marketable securities, provided that the loan agreement expressly allows
such commingling. The loan must not reduce the risk of loss or opportunity
for gain in the securities loaned.
(2) ADDITIONS TO COLLATERAL. Collateral must be marked to market daily, and the
borrower must agree to add collateral to the extent necessary to maintain
the 102% level specified in guideline (1). The borrower must deposit
additional collateral no later than the business day following the business
day on which a collateral deficiency occurs or collateral appears to be
inadequate.
(3) TERMINATION OF LOAN. The Fund must have the option to terminate any loan of
portfolio securities at any time. The borrower must be obligated to
redeliver the borrowed securities within the normal settlement period
following receipt of the termination notice.
(4) REASONABLE RETURN ON LOAN. The borrower must agree that the Fund (a) will
receive all dividends, interest, or other distributions on loaned
securities and (b) will be paid a reasonable return on such loans either in
the form of a loan fee or premium or from the retention by the Fund of part
or all of the earnings and profits realized from the investment of cash
collateral in full faith and credit U.S. government securities.
(5) LIMITATIONS ON PERCENTAGE OF PORTFOLIO SECURITIES ON LOAN. The Fund's loans
may not exceed 331/3% of its total assets.
(6) CREDIT ANALYSIS. As part of the regular monitoring procedures set forth by
the Board of Directors that the Manager follows to evaluate banks and
broker-dealers in connection with, for example, repurchase agreements and
municipal securities credit issues, the Manager will analyze and monitor
the creditworthiness of all borrowers with whom portfolio lending
arrangements are proposed or made.
RESTRICTED SECURITIES
Restricted securities held by the Fund generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where registration
is required, the Fund may be required to pay all or part of the registration
expense, and a considerable period may elapse between the time it decides to
seek registration of the securities and the time it is permitted to sell them
under an effective registration statement. If, during this period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to try to register the securities.
GOLD INVESTMENTS
GOLD BULLION. As a means of seeking its principal objective of capital
appreciation and when it is felt to be appropriate as a possible hedge against
inflation, the Fund may invest a portion of its assets in gold bullion and may
hold a portion of its cash in foreign currency in the form of gold coins. There
is, of course, no assurance that such investments will provide capital
appreciation as a hedge against inflation. The Fund's ability to invest in gold
bullion is restricted by
6 American Century Investments
the diversification requirements which the Fund must meet in order to qualify as
a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), as well as the diversification requirements of
the Investment Company Act of 1940, as amended (the "1940 Act"). In addition,
the ability of the Fund to make such investments may be further restricted by
the securities laws and regulations in effect from time to time in the states
where the Fund's shares are qualified for sale. The Fund has not previously
invested in gold bullion because of these regulations. However, at the date of
this Statement of Additional Information there do not appear to be any
regulations currently in effect in the states in which the Fund is qualified for
sale prohibiting such purchases. Accordingly, if otherwise consistent with the
Fund's objectives, it may purchase gold bullion.
Fund assets will be invested in gold bullion at such times as the prospects of
such investments are, in the opinion of management, attractive in relation to
other possible investments. The basic trading unit for gold bullion is a gold
bar weighing approximately 100 troy ounces with a purity of at least 995/1000,
although gold bullion is also sold in much smaller units. Gold bars and wafers
are usually numbered and bear an indication of purity and the stamp of the assay
office which certifies the bar's purity. Bars of gold bullion historically have
traded primarily in New York, London, and Zurich gold markets and in terms of
volume, such gold markets have been the major markets for trading in gold
bullion. Prices in the Zurich gold market generally correspond to the prices in
the London gold market. Since the ownership of gold bullion became legal in the
United States on December 31, 1974, U.S. markets for trading gold bullion have
developed. It is anticipated that transactions in gold will generally be made in
such U.S. markets, although such transactions may be made in foreign markets
when it is deemed to be in the best interest of the Fund. Transactions in gold
bullion by the Fund are negotiated with principal bullion dealers, unless, in
the investment's manager's opinion, more favorable prices (including the costs
and expenses described below) are otherwise obtainable. Prices at which gold
bullion is purchased or sold include dealer mark-ups or mark-downs, insurance
expenses, may be a greater or lesser percentage of the price from time to time,
depending on whether the price of gold bullion decreases or increases. Since
gold bullion does not generate any investment income, the only source of return
to the Fund on such an investment will be from any gains realized upon its sale,
and negative return will be realized, of course, to the extent the Fund sells
its gold bullion at a loss.
SPECIAL CONSIDERATIONS AS A RESULT OF THE FUND'S
INVESTMENT POLICIES
As is the case with respect to virtually all investments, there are risks
inherent in the Fund's policies of investing in securities of companies engaged
in mining, processing or dealing in gold or other precious metals and in gold
bullion. In addition to the general considerations described above, such
investments may involve the following special considerations:
FLUCTUATIONS IN THE PRICE OF GOLD. The price of gold has recently been subject
to substantial upward and downward movements over short periods of time and may
be affected by unpredictable international monetary and political policies, such
as currency devaluations or revaluations, economic conditions within an
individual country, trade imbalances or trade or currency restrictions between
countries and world inflation rates and interest rates. The price of gold, in
turn, is likely to affect the market prices of securities of companies mining,
processing, or dealing in gold and, accordingly, the value of the Fund's
investments in such securities also may be affected.
POTENTIAL EFFECT OF CONCENTRATION OF SOURCE OF SUPPLY AND CONTROL OF SALES. At
the current time there are only four major sources of supply of primary gold
production, and the market share of each source cannot be readily ascertained.
One of the largest national producers of gold bullion and platinum is the
Republic of South Africa. Changes in political and economic conditions affecting
South Africa may have a direct impact on its sales of gold. Under South African
law, the only authorized sales agent for gold produced in South Africa is the
Reserve Bank of South Africa which, through its retention policies, controls the
time and place of its retention policies, and controls the time and place of any
sale of South African bullion. The South African Ministry of Mines
Statement of Additional Information 7
determines gold mining policy. South Africa depends predominantly on gold sales
for the foreign exchange necessary to finance its imports, and its sales policy
is necessarily subject to national and international economic and political
developments.
TAX AND CURRENCY LAWS. Changes in the tax or currency laws of the U.S., and of
foreign countries, may inhibit the Fund's ability to pursue or may increase the
cost of pursuing its investment programs. For example, in September 1985, the
government of South Africa reimposed a two-tier currency system. While this
system may be removed within the next couple of years, it continues to
differentiate between currency which may be used in transactions involving
transfers of South African investments by foreign investors (the "financial
rand") and currency used for importing goods and remitting profits and dividends
from an operating enterprise ( the "commercial rand"). Since the reimposition of
the two-tier currency system, the volatility of the financial rand has
contributed to fluctuations in the net asset value of the Fund. These effects
may increase if the permissible uses of the financial rand are expanded.
UNPREDICTABLE MONETARY POLICIES, ECONOMIC AND POLITICAL CONDITIONS. The Fund's
assets might be less liquid or the change in the value of its assets might be
more volatile (and less related to general price movements in the U.S. markets)
than would be the case with investments in the securities of larger U.S.
companies, particularly because the price of gold and other precious metals may
be affected by unpredictable international monetary policies and economic and
political considerations, governmental controls, conditions of scarcity, surplus
or speculation. In addition, the use of gold or Special Drawing Rights (which
are also used by members of the International Monetary Fund for international
settlements) to settle net deficits and surpluses in trade and capital movements
between nations subject the supply and demand, and therefore the price, of gold
to a variety of economic factors which normally would not affect other types of
commodities.
NEW AND DEVELOPING MARKETS FOR PRIVATE GOLD OWNERSHIP. Between 1933 and December
31, 1974, a market did not exist in the United States in which gold bullion
could be purchased by individuals for investment purposes. Since it became legal
to invest in gold, markets have developed in the U.S. Any large purchases or
sales of gold bullion could have an effect on the price of gold bullion.
Recently, several Central Banks have been sellers of gold bullion from their
reserves. Sales by central banks and/or rumors of such sales have had a negative
effect on gold prices.
EXPERTISE OF THE INVESTMENT MANAGER. The successful management of the Fund's
portfolio may be more dependent upon the skills and expertise of its investment
manager than is the case for most mutual funds because of the need to evaluate
the factors identified above. Moreover, in some countries, disclosures
concerning an issuer's financial condition and results and other matters may be
subject to less stringent regulatory provisions, or may be presented on a less
uniform basis than is the case for issuers subject to U.S. securities laws.
Issuers and securities exchanges in some countries may be subject to less
stringent governmental regulations than is the case for U.S. companies.
INVESTMENT RESTRICTIONS
The Fund's investment restrictions set forth below are fundamental and may not
be changed without approval of a majority of the outstanding votes of
shareholders of the Fund as determined in accordance with the 1940.
THE FUND MAY NOT:
(1) Issue senior securities, except as permitted under the Investment Company
Act of 1940.
(2) Borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 331/3% of the Fund's total assets (including the amount borrowed)
less liabilities (other than borrowings). Any borrowings that come to
exceed this amount will be reduced within three days (not including Sundays
and holidays) to the extent necessary to comply with the 331/3% limitation.
(3) Lend any security or make any other loan if, as a result, more than 331/3%
of the Fund's total assets would be lent to other parties, except, (i)
through the purchase of a portion of an issue of debt securities in
accordance with its investment objective, policies and limitations, or (ii)
by engaging in repurchase agreements with
8 American Century Investments
respect to portfolio securities.
(4) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the fund from
investment in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
(5) Deviate from its policy of concentrating its investments in securities of
issuers engaged in mining, fabricating, processing or dealing in gold or
other precious metals, such as silver, platinum and palladium.
(6) Act as underwriter of securities issued by others, except to the extent
that the Fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities.
The Fund is also subject to the following restrictions that are not fundamental
and may, therefore, be changed by the Board of Directors without shareholder
approval.
THE FUND MAY NOT:
(a) Purchase the securities of any one issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result thereof, the Fund would own more than
10% of its outstanding voting securities of such issuer.
(b) 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.
(c) Except in connection with a merger, consolidation, acquisition, or
reorganization, invest in the securities of other investment companies,
including investment companies advised by the Manager, if, immediately
after such purchase or acquisition, more than 10% of the value of the
Fund's total assets would be invested in such securities.
(d) Purchase gold bullion, gold coins, or gold represented by certificates of
ownership interest or gold futures contracts whose underlying commodity
value would cause the Fund's aggregate investment in such commodities to
exceed 10% of the Fund's net assets.
(e) Invest in securities of an issuer that, together with any predecessor, has
been in operation for less than three years if, as a result, more than 5%
of the total assets of the Fund would then be invested in such securities.
(f) Purchase warrants, valued at the lower of cost or market, in excess of 10%
of the Fund's net assets. Included in that amount but not to exceed 2% of
net assets, are warrants whose underlying securities are not traded on
principal domestic or foreign exchanges. Warrants acquired by the Fund in
units or attached to securities are not subject to these restrictions.
(g) Invest in oil, gas or other mineral exploration or development programs or
leases.
(h) 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.
(i) 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.
(j) Lend assets other than securities to other parties, except by (a) lending
money (up to 5% of the Fund's net assets) to a registered investment
company or portfolio for which its investment adviser or an affiliate
serves as investment adviser or (b) acquiring loans, loan participation, or
other forms of direct debt instruments and in connection therewith,
assuming any associated unfunded commitments of the sellers. (This
limitation does not apply to purchases of debt securities or to repurchase
agreements.)
(k) Purchase the securities of any issuer if, to the knowledge of the Fund's
management, those officers and Directors of the Fund and of its investment
advisor, who each own beneficially more than 0.5% of the outstanding
securities of
Statement of Additional Information 9
such issuer, together own more than 5% of such issuer's securities.
(l) Purchase or sell options of any kind.
PORTFOLIO TRANSACTIONS
The Fund's assets are invested by the Manager in a manner consistent with the
Fund's investment objective, policies and restrictions, and with any
instructions the Board of Directors may issue from time to time. Within this
framework, the Manager is responsible for making all determinations as to the
purchase and sale of portfolio securities and for taking all steps necessary to
implement securities transactions on behalf of the Fund. In placing orders for
the purchase and sale of portfolio securities, the Manager will use its best
efforts to obtain the best possible price and execution and will otherwise place
orders with broker-dealers subject to and in accordance with any instructions
the Board of Directors may issue from time to time. The Manager will select
broker-dealers to execute portfolio transactions on behalf of the Fund solely on
the basis of best price and execution.
The Fund's annual portfolio turnover rate is not expected to exceed 100%. The
table below illustrates the Fund's portfolio turnover rates for the fiscal years
ended December 31, 1995 and 1994.
Fiscal Period Portfolio Turnover Rates
- -------------------------------------------------------------
1995 28.40%
1994 41.67%
- -------------------------------------------------------------
Brokerage commissions paid by the Fund during the fiscal years ended December
31, 1995, 1994, and 1993, are indicated in the following table.
Fiscal Period Brokerage Commissions
- -------------------------------------------------------------
1995 $1,122,431
1994 $1,533,658
1993 $1,465,792
- -------------------------------------------------------------
VALUATION OF PORTFOLIO SECURITIES
The Fund's net asset value per share ("NAV") is calculated as of the close of
business of the New York Stock Exchange (the "Exchange"), usually at 3:00 p.m.
Central time each day the Exchange is open for business. The Exchange has
designated the following holiday closings for 1997: New Year's Day (observed),
Presidents` Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day (observed). Although the Fund expects the
same holiday schedule to be observed in the future, the Exchange may modify its
holiday schedule at any time.
The Manager typically completes its trading on behalf of the Fund in various
markets before the Exchange closes for the day. Securities are valued at market,
depending upon the market or exchange on which they trade. Price quotations for
exchange-listed securities are taken from the primary exchanges on which these
securities trade. Stocks traded on exchanges or over-the-counter are valued
according to last sale prices, if such prices are available, or at the current
bid price. Fixed-income securities are priced at market value on the basis of
market quotations supplied by independent pricing services. Foreign currency
exchange rates are also determined prior to the close of the Exchange. Trading
of securities in foreign markets may not take place on every day the Exchange is
open, and trading takes place in various foreign markets on days on which the
Exchange and the Fund's offices are not open and the Fund's net asset value is
not calculated. The Fund's net asset value may be significantly affected on days
when shareholders have no access to the Fund. Securities for which market
quotations are not readily available, or which may change in value due to events
occurring after their primary exchange has closed for the day, are valued at
fair market value as determined in good faith under the direction of the Board
of Directors.
PERFORMANCE
The Fund's total returns may be quoted in advertising and sales literature.
These figures, as well as the Fund's share price will vary. Past performance
should not be considered as indicative of future results.
Total returns reflect all aspects of the Fund's return, including the effect of
reinvesting dividends and capital gain distributions and any change in the
Fund's net asset value per share during the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period and then calculating the annually compounded
10 American Century Investments
percentage rate that would have produced the same result if the rate of growth
or decline in value had been constant throughout the period. For example, a
cumulative total return of 100% over 10 years would produce an average annual
return of 7.18%, which is the steady annual rate that would result in 100%
growth on a compounded basis in 10 years. While average annual total returns are
a convenient means of comparing investment alternatives, investors should
realize that the Fund's performance is not constant over time but changes from
year to year and that average annual total returns represent averaged figures as
opposed to actual year-to-year performance.
The Fund's average annual total returns for the one-year, five-year, and
life-of-fund periods ended June 30, 1996, are indicated in the table below.
Fiscal Period Average Annual Total Returns
- --------------------------------------------------------------
One Year 3.93%
Five Year 7.98%
Life of Fund* 3.66%
- --------------------------------------------------------------
* The Fund commenced operations on August 17, 1988.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return.
The Fund's performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike the American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons include, but are not limited
to: U.S. Treasury bill, note, and bond yields, money market fund yields, U.S.
government debt and percentage held by foreigners, the U.S. money supply, net
free reserves, and yields on current-coupon GNMAs (source: Board of Governors of
the Federal Reserve System); the federal funds and discount rates (source:
Federal Reserve Bank of New York); yield curves for U.S. Treasury securities and
AA/AAA-rated corporate securities (source: Bloomberg Financial Markets); yield
curves for AAA tax-free municipal securities (source: Telerate); yield curves
for foreign government securities (sources: Bloomberg Financial Markets and Data
Resources, Inc.); total return on foreign bonds (source: J.P. Morgan Securities
Inc.); various U.S. and foreign government reports; the junk bond market
(source: Data Resources, Inc.); the CRB Futures Index (source: Commodity Index
Report); the price of gold (sources: London am/pm fixing and New York Comex Spot
Price); rankings of any mutual fund or mutual fund category tracked by Lipper
Analytical Services, Inc. or Morningstar, Inc.; mutual fund rankings published
in major, nationally distributed periodicals; data provided by the Investment
Company Institute; Ibbotson Associates, Stocks, Bonds, Bills, and Inflation;
major indexes of stock market performance; and indexes and historical data
supplied by major securities brokerage or investment advisory firms. The Fund
may also utilize reprints from newspapers and magazines furnished by third
parties to illustrate historical performance.
Indexes may assume reinvestment of dividends, but generally they do not reflect
administrative and management costs such as those incurred by a mutual fund.
The Fund's sales literature may illustrate the market for gold within the
context of historical and current economic conditions. Specific illustrations
may include the relationship of the price of gold (per London pm fixing) to
30-year U.S. Treasury bond yields, 30-year U.S. Treasury bond prices, inflation
as measured by the Consumer Price Index, or equity securities as measured by the
Standard & Poor's 500 Composite Stock Price Index (S&P 500) or the Dow Jones
Industrial Average.
Occasionally, statistics may be used to illustrate Fund volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's net
asset value or performance to a market index. One measure of volatility is
"beta." Beta expresses Fund volatility relative to the total market as
represented by the S&P
Statement of Additional Information 11
500. A beta of more than 1.00 indicates volatility greater than that of the
market, and a beta of less than 1.00 indicates volatility less than that of the
market. Another measure of volatility or risk is "standard deviation." Standard
deviation is used to measure the variability of net asset value or total return
relative to an average over a specified period of time. The premise is that
greater volatility connotes greater risk undertaken to achieve desired
performance.
The Fund's shares are sold without a sales charge (or "load"). No-load funds
offer an advantage to investors when compared to load funds with comparable
investment objectives and strategies.
TAXES
The Fund intends to qualify annually as a "regulated investment company" under
the Code. By so qualifying, the Fund will not be subject to federal or state
income taxes on its net investment income and net realized capital gains
distributed to shareholders.
Distributions from the Fund are taxable to shareholders regardless of whether
they are taken in cash or reinvested in additional shares. For federal income
tax purposes, shareholders receiving distributions in the form of additional
shares will have a basis in each such share equal to the Fund's net asset value
per share on the reinvestment date.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. The Board of Directors does not
expect to declare dividends on a regular basis. However, to the extent that
dividends are declared and to the extent that they consist of dividend income
from domestic corporations, such dividends may be eligible for the
dividends-received deduction available to corporations. Shareholders will be
notified annually of the federal tax status of distributions.
Upon redeeming, selling, or exchanging shares of the Fund, a shareholder will
realize a taxable gain or loss depending upon his or her basis in the shares
liquidated. The gain or loss generally will be long-term or short-term,
depending on the length of time shares were held. However, a loss recognized by
a shareholder in the disposition of shares on which capital gain dividends were
paid (or deemed paid) before the shareholder had held his or her shares for more
than six months would be treated as a long-term capital loss for tax purposes. A
gain realized on the redemption, sale, or exchange of shares would not be
affected by the reacquisition of shares. A loss realized on the redemption,
sale, or exchange of shares would be disallowed to the extent that the shares
disposed of were replaced (whether through reinvestment of distributions or
otherwise) within a period of 61 days beginning 30 days before and ending 30
days after the date shares were disposed of. Under such circumstances, the basis
of the shares acquired would be adjusted to reflect the disallowed loss.
Earnings derived by the Fund from sources outside the U.S. may be subject to
non-U.S. withholding and possibly other taxes. Such taxes might be reduced or
eliminated under the terms of a U.S. income tax treaty, and the Fund would
undertake any procedural steps required to claim the benefits of such a treaty.
With respect to any non-U.S. taxes actually paid by a Fund, if more than 50% of
the value of the Fund's total assets at the close of any taxable year consists
of securities of foreign corporations, the Fund will elect to treat any non-U.S.
income and similar taxes it pays as though the taxes were paid by its
shareholders.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his or her taxable income
from foreign sources. Gains realized by the Fund from the sale of securities
will be treated as derived from U.S. sources, and certain currency gains,
including gains from foreign-currency-denominated debt securities, receivables,
and payables, will be treated as income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income, which may include certain dividends received from the Fund and
certain other types of income. Accordingly, shareholders may be unable to claim
a credit for the full amount of their proportionate share of the foreign taxes
paid by the Fund.
Gains attributable to the disposition of the Fund`s direct investments in gold
bullion or coins do not qualify as income for purposes of satisfying
diversification tests under the Code. If the Fund realizes greater than 10% of
its income from such non-qualifying sources, the Fund would incur federal income
and state taxes on the net investment income and capital gains it distributes to
shareholders.
The information above is only a summary of some
12 American Century Investments
of the tax considerations affecting the Fund and its shareholders; no attempt
has been made to discuss individual tax consequences. Shareholders who are
neither citizens nor residents of the U.S. may be subject to a nonresident alien
withholding tax of 30% or a lower treaty rate, depending on the country in which
they reside. The Fund's distributions also may be subject to state, local, or
foreign taxes. To determine whether the Fund is a suitable investment based on
his or her tax situation, a prospective investor may wish to consult a tax
advisor.
ABOUT AMERICAN CENTURY QUANTITATIVE EQUITY FUNDS
American Century Quantitative Equity Funds (the "Corporation") is a registered
open-end management investment company that was organized as a California
corporation on December 31, 1987. The Corporation was formerly known as the
Benham Equity Funds. The Corporation is authorized to issue 10 series and to
issue two billion (2,000,000,000) shares of each such series. Within each
series, the Board of Directors may issue an unlimited number of shares.
Currently, there are five series in the Corporation, American Century Global
Gold Fund (formerly known as Benham Global Gold Fund and Benham Gold Equities
Index Fund) is decribed in this Statement of Additional Information. With
respect to each series, shares issued are fully paid and nonassessable and have
no preemptive, conversion, or similar rights. All consideration received by the
Corporation for shares of any series, and all assets, income, and gains (or
losses) earned thereon, belong to that series exclusively and are subject to the
liabilities related thereto.
Shares of each series have equal voting rights, provided that each series votes
separately on matters that pertain to it exclusively. The Corporation instituted
dollar based voting, meaning that the number of votes you are entitled to is
based upon the dollar amount of your investment. The election of Directors is
determined by the votes received from all of the Corporation's shareholders
without regard to whether a majority of shareholders voted in favor of a
particular nominee or all nominees of a group. Under California Corporation's
Code Section 708, shareholders have the right to cumulate votes in the election
(or removal) of Directors. For example, if six Directors are up for election, a
shareholder may cast six votes for a single candidate, three votes for each of
two candidates, etc.
CUSTODIAN BANK: Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY
11245 and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri, 64106 serve
as custodians of the Fund's assets. Services provided by the custodian bank
include (a) settling portfolio purchases and sales, (b) reporting failed trades,
(c) identifying and collecting portfolio income, and (d) providing safekeeping
of securities. The custodian takes no part in determining the Fund's investment
policies or in determining which securities are sold or purchased by the Fund.
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Fund's independent auditors and provides
services including (a) audit of annual financial statements and (b) preparation
of annual federal income tax returns filed on behalf of the Fund.
DIRECTORS AND OFFICERS
Each Fund's activities are overseen by a Board of Directors, including six
independent Directors. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Corporation (as defined in the
Investment Company Act of 1940) by virtue of, among other considerations, their
affiliation with either the Fund; the Fund's investment advisor, Benham
Management Corporation; the Fund's agent for transfer and administrative
services, American Century Services Corporation (ACS); the Fund's distribution
agent, American Century Investment Services, Inc.; their parent corporation,
American Century Companies, Inc. (ACC) or ACC's subsidiaries; or other funds
advised by the Manager. Each Director listed below also serves as a Trustee or
Director of other funds advised by the Manager. Unless otherwise noted, a date
in parentheses indicates the date the Director or officer began his or her
service in a particular capacity. The Directors' and officers' address with the
exception of Mr. Stowers III and Ms. Roepke is 1665 Charleston Road, Mountain
View, California 94043. The address of Mr. Stowers III and Ms. Roepke is 4500
Main Street, Kansas City, Missouri 64111.
Statement of Additional Information 13
DIRECTORS
*JAMES M. BENHAM, Chairman of the Board of Directors (1988), President and Chief
Executive Officer (1996). Mr. Benham is also President and Chairman of the Board
of the Manager (1971), and a member of the Board of Governors of the Investment
Company Institute (1988). Mr. Benham has been in the securities business since
1963, and he frequently comments through the media on economic conditions,
investment strategies, and the securities markets.
ALBERT A. EISENSTAT, independent Director (1995). Mr. Eisenstat is an
independent Director of each of Commercial Metals Co. (1982), Sungard Data
Systems (1991) and Business Objects S/A (1994). Previously, he served as Vice
President of Corporate Development and Corporate Secretary of Apple Computer and
served on its Board of Directors (1985 to 1993).
RONALD J. GILSON, independent Director (1995). Mr. Gilson is the Charles J.
Meyers Professor of Law and Business at Stanford Law School (1979) and the Mark
and Eva Stern Professor of Law and Business at Columbia University Schoool of
Law (1992). He is counsel to Marron, Ried & Sheehy (a San Francisco law firm,
1984).
MYRON S. SCHOLES, independent Director (1988). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983), a Director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a Managing Director of Salomon
Brothers Inc. (securities brokerage).
KENNETH E. SCOTT, independent Director (1988). Mr. Scott is Ralph M. Parsons
Professor of Law and Business at Stanford Law School (1972) and a Director of
RCM Capital Management (June 1994).
ISAAC STEIN, independent Director (1992). Mr. Stein is former Chairman of the
Board (1990 to 1992) and Chief Executive Officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the Board of Raychem
Corporation (electrical equipment, 1993), President of Waverley Associates, Inc.
(private investment firm, 1983), and a Director of ALZA Corporation
(pharmaceuticals, 1987). He is also a Trustee of Stanford University (1994) and
Chairman of Stanford Health Services (hospital, 1994).
*JAMES STOWERS III, Director (1995). Mr. Stowers III is the President, Chief
Executive Officer and Director of ACC, ACS and ACIS.
JEANNE D. WOHLERS, independent Director (1988). Ms. Wohlers is a private
investor, and an independent Director and Partner of Windy Hill Productions, LP.
Previously, she served as Vice President and Chief Financial Officer of Sybase,
Inc. (software company, 1988 to 1992).
OFFICERS
*JAMES M. BENHAM, President, and Chief Executive Officer (1996).
*WILLIAM M. LYONS, Executive Vice President (1996); Executive Vice President,
Chief Operating Officer, General Counsel and Secretary of the Manager, ACS, and
ACIS.
*DOUGLAS A. PAUL, Secretary (1988), Vice President (1990), and General Counsel
(1990); Secretary and Vice President of the funds advised by the Manager.
*ROBERT J. LEACH, Controller (1996).
*MARYANNE ROEPKE, CPA, Chief Financial Officer and Treasurer (1995); Vice
President and Assistant Treasurer of ACS.
As of July 31, 1996, the Corporation's Directors and officers, as a group, owned
less than 1% of the Fund's outstanding shares.
The following table summarizes the compensation that the Directors of the Fund
received for the Fund's fiscal year ended December 31, 1995, as well as the
compensation received for serving as a Director or Trustee of all other funds
advised by the Manager.
14 American Century Investments
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Aggregate Pension or Retirement Estimated Total Compensation
Name of Compensation Benefits Accrued As Part Annual Benefits From Fund and Fund
Director* From The Fund of Fund Expenses Upon Retirement Complex** Paid to Directors
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert A. Eisenstat $0 Not Applicable Not Applicable $0
Ronald J. Gilson $1,054 Not Applicable Not Applicable $48,833
Myron S. Scholes $2,008 Not Applicable Not Applicable $65,625
Kenneth E. Scott $1,798 Not Applicable Not Applicable $65,125
Ezra Solomon $2,152 Not Applicable Not Applicable $58,792
Isaac Stein $1,818 Not Applicable Not Applicable $63,625
Jeanne D. Wohlers $2,119 Not Applicable Not Applicable $67,375
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Interested Directors receive no compensation for their services as such.
** American Century family of funds includes nearly 70 no-load mutual funds.
INVESTMENT ADVISORY SERVICES
The Fund has an investment advisory agreement with the Manager, dated June 1,
1995, that was approved by the Fund`s shareholders on May 31, 1995.
The Manager is a California corporation and became a wholly owned subsidiary of
ACC on June 1, 1995. The Manager has served as investment advisor to the Fund
since the Fund's inception. ACC is a holding company that owns all of the stock
of the operating companies that provide the investment management, transfer
agency, shareholder service, and other services for the American Century family
of funds. James E. Stowers, Jr., controls ACC by virtue of his ownership of a
majority of its common stock. The Manager has been a registered investment
advisor since 1971.
The Fund's agreement with the Manager continues for an initial period of two
years and thereafter from year to year provided that, after the initial two-year
period, it is approved at least annually by vote of either a majority of the
Fund's outstanding shares, or by vote of a majority of the Fund's Directors,
including a majority of those Directors who are neither parties to the agreement
nor interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval.
The investment advisory agreement is terminable on 60 days' written notice,
either by the Fund or by the Manager, to the other party and terminates
automatically in the event of its assignment.
The investment advisory agreement stipulates that the Manager will provide the
Fund with investment advice and portfolio management services in accordance with
the Fund's investment objective, policies, and restrictions. The agreement also
provides that the Manager will determine what securities will be purchased and
sold by the Fund and assist the Fund's officers in carrying out decisions made
by the Board of Directors.
Under the investment advisory agreement, the Fund pays the Manager a monthly
investment advisory fee equal to its pro rata share of the dollar amount derived
from applying the Corporation's average daily net assets to the following
investment advisory fee rate schedule:
.50% of the first $100 million;
.45% of the next $100 million;
.40% of the next $100 million;
.35% of the next $100 million;
.30% of the next $100 million;
.25% of the next $1 billion;
.24% of the next $1 billion;
.23% of the next $1 billion;
.22% of the next $1 billion;
.21% of the next $1 billion;
.20% of the next $1 billion; and
.19% of average daily net assets over $6.5 billion.
Investment advisory fees paid by the Fund to the Manager for the fiscal years
ended December 31,
Statement of Additional Information 15
1995, 1994, and 1993 are indicated in the following table.
Fee amounts are net of expense limitations and recoupments as described under
the section titled "Expense Limitation Agreement."
Fiscal Period Investment Advisory Fees*
- ----------------------------------------------------------------
1995 $1,776,728
1994 $1,884,679
1993 $1,325,964
- ----------------------------------------------------------------
* Net of reimbursements
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri,
64111, (ACS) acts as transfer, administrative services and dividend paying agent
for the Fund. ACS provides facilities, equipment and personnel to the Fund and
is paid for such services by the Fund. For administrative services, the Fund
pays ACS a monthly fee equal to its pro rata share of the dollar amount derived
from applying the average daily net assets of all of the Funds advised by the
Manager to the following administrative fee rate schedule:
Group Assets Administrative Fee Rate
- -------------------------------------------------------
up to $4.5 billion .11%
up to $6 billion .10
up to $9 billion .09
over $9 billion .08
- -------------------------------------------------------
For transfer agent services, the Fund pays ACS monthly fees of $1.1875 for each
shareholder account maintained and $1.35 for each shareholder transaction
executed during the month.
Administrative service and transfer agent fees paid by the Fund for the fiscal
years ended December 31, 1995, 1994, and 1993, are indicated in the following
table. Fee amounts are net of expense limitations as described under the section
titled "Expense Limitation Agreement."
Fiscal Period Administrative Fees
- ----------------------------------------------------------------
1995 $549,463
1994 $583,896
1993 $356,629
- ----------------------------------------------------------------
Fiscal Period Transfer Agent Fees
- ----------------------------------------------------------------
1995 $702,149
1994 $645,099
1993 $428,747
- ----------------------------------------------------------------
DISTRIBUTION OF FUND SHARES
The Fund's shares are distributed by American Century Investment Services, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the Manager.
The Manager pays all expenses for promoting and distributing the Fund shares
offered by this Prospectus. The Fund does not pay any commissions or other fees
to the Distributor or to any other broker-dealers or financial intermediaries in
connection with the distribution of Fund shares.
DIRECT FUND EXPENSES
The Fund pays certain operating expenses that are not assumed by the Manager or
ACS. These include fees and expenses of the independent Directors; custodian,
audit, tax preparation, and pricing fees; fees of outside counsel and counsel
employed directly by the Corporation; costs of printing and mailing
prospectuses, statements of additional information, proxy statements, notices,
confirmations, and reports to shareholders; fees for registering the Fund's
shares under federal and state securities laws; brokerage fees and commissions
(if any); trade association dues; costs of fidelity and liability insurance
policies covering the Fund; costs for incoming WATS lines maintained to receive
and handle shareholder inquiries; and organizational costs.
EXPENSE LIMITATION AGREEMENT
The Manager may recover amounts absorbed on behalf of the Fund during the
preceding 11 months if, and to the extent that, for any given month, the Fund's
expense limit in effect at that time. The Manager has agreed to limit the Fund's
expenses to .75% of the Fund's average daily net assets during the year ending
May 31, 1997. The expense limit is subject to annual renewal.
Net amounts absorbed or recouped for the fiscal years ended December 31, 1995,
1994, and 1993, are indicated in the table on the next page.
16 American Century Investments
Fiscal Year Net Reimbursements(Recoupments)
- ------------------------------------------------------
1995 $0
1994 $0
1993 $47,247
- ------------------------------------------------------
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund's shares are continuously offered at net asset value. American Century
may reject or limit the amount of an investment to prevent any one shareholder
or affiliated group from controlling the Corporation or one of its series; to
avoid jeopardizing a series' tax status; or whenever, in management's opinion,
such rejection is in the Corporation's or a series' best interest.
Fund Global Gold
- ------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94104-4127
- ------------------------------------------------------------
# of Shares Held 6,151,884.461
- ------------------------------------------------------------
% of Total Shares
Outstanding 15.8%
- ------------------------------------------------------------
As of July 31, 1996, to the Corporation`s knowledge, no other shareholder was
the record holder or beneficial owner of 5% or more of the Fund`s total shares
outstanding.
ACS charges neither fees nor commissions on the purchase and sale of fund
shares. However, ACS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
ACS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Investor Services Guide for more information.
Share purchases and redemptions are governed by California law.
OTHER INFORMATION
The Fund's investment advisor has been continuously registered with the SEC
under the Investment Advisers Act of 1940 since December 14, 1971. The
Corporation has filed a registration statement under the Securities Act of 1933
and the Investment Company Act of 1940 with respect to the shares offered. Such
registrations do not imply approval or supervision of the Corporation or the
advisor by the SEC.
For further information, refer to the registration statement and exhibits on
file with the SEC in Washington, DC. These documents are available upon payment
of a reproduction fee. Statements in the Prospectus and in this Statement of
Additional Information concerning the contents of contracts or other documents,
copies of which are filed as exhibits to the registration statement, are
qualified by reference to such contracts or documents.
Statement of Additional Information 17
NOTES
18 Notes American Century Investments
NOTES
Statement of Additional Information Notes 19
NOTES
20 Notes American Century Investments
NOTES
Statement of Additional Information Notes 21
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
9701 [recycled logo]
SH-BKT-6747 Recycled
[American Century logo]
American
Century(sm)
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
AMERICAN
CENTURY
GROUP
GLOBAL NATURAL RESOURCES
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
AMERICAN CENTURY QUANTITATIVE EQUITY FUNDS
This is the Statement of Additional Information for the American Century Global
Natural Resources Fund. This statement is not a prospectus but should be read in
conjunction with the Fund's current Prospectus dated September 3, 1996, revised
January 1, 1997. The Fund's annual report for the fiscal year ended December 31,
1995, and semiannual report for the period ended June 30, 1996, are incorporated
herein by reference. Please retain this document for future reference. To obtain
the Prospectus, call American Century Investments 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 Policies and Techniques........................................2
Investment Restrictions..................................................10
Portfolio Transactions...................................................11
Valuation of Portfolio Securities........................................11
Performance..............................................................12
Taxes....................................................................13
About American Century Quantitative Equity Funds.........................16
Directors and Officers...................................................16
Investment Advisory Services.............................................18
Transfer and Administrative Services.....................................18
Distribution of Fund Shares..............................................19
Direct Fund Expenses.....................................................19
Expense Limitation Agreement.............................................19
Additional Purchase and Redemption Information...........................19
Other Information........................................................19
Statement of Additional Information 1
INVESTMENT POLICIES AND TECHNIQUES
The following paragraphs provide a more detailed description of the securities
and investment practices identified in the Prospectus. Unless otherwise noted,
the policies described in this Statement of Additional Information are not
fundamental and may be changed by the Board of Directors.
The Fund may purchase and sell indexed securities and may engage in futures and
options transactions for investment as well as hedging purposes to the extent
permitted by applicable law. Indexed securities, as described below, are a type
of investment security and, accordingly, may fluctuate in value.
U.S. GOVERNMENT SECURITIES
U.S. government securities include bills, notes, and bonds issued by the U.S.
Treasury and securities issued or guaranteed by agencies or instrumentalities of
the U.S. government. Some U.S. government securities are supported by the direct
full faith and credit pledge of the U.S. government; others are supported by the
right of the issuer to borrow from the U.S. Treasury; others, such as securities
issued by the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. government to purchase the agencies'
obligations; and others are supported only by the credit of the issuing or
guaranteeing instrumentality. There is no assurance that the U.S. government
will provide financial support to an instrumentality it sponsors when it is not
obligated by law to do so.
REPURCHASE AGREEMENTS
In a repurchase agreement (a "repo"), the Fund buys a security at one price and
simultaneously agrees to sell it back to the seller at an agreed upon price on a
specified date (usually within seven days from the date of purchase) or on
demand. The repurchase price exceeds the purchase price by an amount that
reflects an agreed-upon rate of return and that is unrelated to the interest
rate on the underlying security. Delays or losses could result if the other
party to the agreement defaults or becomes bankrupt.
The advisor attempts to minimize the risks associated with repurchase agreements
by adhering to the following criteria:
(1) Limiting the securities acquired and held by the Fund under repurchase
agreements to U.S. government securities;
(2) Entering into repurchase agreements only with primary dealers in U.S.
government securities (including bank affiliates) that are deemed to be
creditworthy under guidelines established by a nationally recognized
statistical rating organization (a "rating agency") and approved by the
Fund's Board of Directors;
(3) Monitoring the creditworthiness of all firms involved in repurchase
agreement transactions;
(4) Requiring the seller to establish and maintain collateral equal to 102% of
the agreed-upon resale price, provided, however, that the Board of
Directors may determine that a broker-dealer's credit standing is
sufficient to allow collateral to fall to as low as 101% of the agreed-upon
resale price before the broker-dealer deposits additional securities with
the Fund's custodian;
(5) Investing no more than 15% of the Fund's net assets in repurchase
agreements that mature in more than seven days; and
(6) Taking delivery of all securities subject to a repurchase agreement and
holding them in an account at the Fund's custodian bank.
The Fund has received permission from the Securities and Exchange Commission
(SEC) to participate in pooled repurchase agreements collateralized by U.S.
government securities with other mutual funds advised by its investment advisor
Benham Management Corporation (the "Manager"). Pooled repos are expected to
increase the income the Fund can earn from repo transactions without increasing
the risks associated with these transactions.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The Fund may engage in securities transactions on a when-issued or forward
commitment basis in which the transaction price and yield are each fixed at the
time the commitment is made, but payment and delivery occur at a future date
(typically 15 to 45 days later).
In purchasing securities on a when-issued or forward commitment basis, the Fund
will establish and
2 American Century Investments
maintain until the settlement date a segregated account consisting of cash, cash
equivalents, or high-quality securities in an amount sufficient to meet the
purchase price. When the time comes to pay for when-issued securities, the Fund
will meet its obligations with available cash, through the sale of securities,
or, although it would not normally expect to do so, through sales of the
when-issued securities themselves (which may have a market value greater or less
than the Fund's payment obligation). Selling securities to meet when-issued or
forward commitment obligations may generate capital gains or losses.
On the settlement date, the market value of the security may be more or less
than its purchase or sale price under the agreement. If the other party to a
when-issued or forward commitment agreement fails to deliver or pay for the
security, the Fund could miss a favorable price or yield opportunity or suffer a
loss. The Fund does not earn interest on purchased securities until the
settlement date.
When purchasing securities on a when-issued or forward commitment basis, the
Fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. While the Fund will make commitments to purchase or sell
securities on a when-issued or forward commitment basis with the intention of
actually receiving or delivering them, it may nevertheless sell the securities
before the settlement date if it is deemed advisable as a matter of investment
strategy.
As an operating policy, the Fund will not commit more than 35% of its total
assets to when-issued or forward commitment agreements. If fluctuations in the
value of securities held cause more than 35% of a Fund's total assets to be
committed under when-issued or forward commitment agreements, the Manager will
be restricted from entering into further agreements on behalf of the Fund until
the percentage of assets committed to such agreements is reduced to 35%.
However, the Manager need not sell such commitments. In addition, as an
operating policy, the Fund will not enter into when-issued or forward commitment
transactions with settlement dates exceeding 120 days.
CONVERTIBLE SECURITIES
The Fund may buy securities that are convertible into common stock. Listed below
is a brief descriptions of the various types of convertible securities the Fund
may buy.
CONVERTIBLE BONDS are issued with lower coupons than nonconvertible bonds of the
same quality and maturity, but provide holders the option to exchange their
bonds for a specific number of shares of the company's common stock at a
predetermined price. This structure allows the convertible bond holder to
participate in share price movements in the company's common stock. The actual
return on a convertible bond may exceed its stated yield if the company's common
stock appreciates in value and the option to convert to common shares becomes
more valuable.
CONVERTIBLE PREFERRED STOCKS are nonvoting equity securities that pay a fixed
dividend. These securities have a convertible feature similar to convertible
bonds; however, they do not have a maturity date. Due to their fixed-income
features, convertible issues typically are more sensitive to interest rate
changes than the underlying common stock. In the event of liquidation,
bondholders would have claims on company assets senior to those of stockholders;
preferred stockholders would have claims senior to those of common stockholders.
WARRANTS entitle the holder to buy the issuer's stock at a specific price for a
specific period of time. The price of a warrant tends to be more volatile than,
and does not always track, the price of its underlying stock. Warrants are
issued with expiration dates. Once a warrant expires, it has no value in the
market.
FOREIGN SECURITIES
The Fund's investments in securities of foreign issuers may subject the Fund to
additional investment risks.
Investing in foreign companies may involve risks not typically associated with
investing in U.S. companies. The value of securities denominated in foreign
currencies and of dividends from such securities can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices in some foreign markets can be very volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those that apply to U.S. companies, and it may be more difficult
to obtain reliable information regarding a foreign
Statement of Additional Information 3
issuer's financial condition and operations. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions, and custodial
fees, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad carries political and economic risks distinct from those
associated with investing in the U.S. Foreign investments may be affected by
actions of foreign governments adverse to the interests of U.S. investors,
including the possibility of expropriation or nationalization of assets,
confiscatory taxation, restrictions on U.S. investment, or restrictions on the
ability to repatriate assets or to convert currency into U.S. dollars. There may
be a greater possibility of default by foreign governments or
foreign-government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability, military
action or unrest, or adverse diplomatic developments.
To offset the currency risks associated with investing in securities of foreign
issuers, the Fund may hold foreign currency deposits and may convert dollars and
foreign currencies in the foreign exchange markets. Currency conversion involves
dealer spreads and other costs, although commissions usually are not charged.
Currencies may be exchanged on a spot (i.e., cash) basis, or by entering into
forward contracts to purchase or sell foreign currencies at a future date and
price. By entering into a forward contract to buy or sell the amount of foreign
currency involved in a security transaction for a fixed amount of U.S. dollars,
the advisor can protect the Fund against losses resulting from adverse changes
in the relationship between the U.S. dollar and the foreign currency between the
date the security is purchased or sold and the date on which payment is made or
received. However, it should be noted that using forward contracts to protect
the Fund's foreign investments from currency fluctuations does not eliminate
fluctuations in the prices of the underlying securities themselves. Forward
contracts simply establish a rate of exchange that can be achieved at some
future point in time. Additionally, although forward contracts tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they also
limit any gain that might result if the hedged currency's value were to
increase.
Foreign exchange dealers do not charge fees for currency conversions. Instead,
they realize a profit based on the difference (the spread) between the prices at
which they are buying and selling various currencies. A dealer may offer to sell
a foreign currency at one rate, while simultaneously offering a lesser rate of
exchange on the purchase of that currency.
The Fund uses forward contracts for currency hedging purposes only and not for
speculative purposes. The Fund is not required to enter into forward contracts
with regard to its foreign holdings and will not do so unless it is deemed
appropriate by the advisor.
The Fund's assets are valued daily in U.S. dollars, although foreign currency
holdings are not physically converted into U.S. dollars on a daily basis.
RESTRICTED SECURITIES
Restricted securities held by the Fund generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where registration
is required, the Fund may be required to pay all or a part of the registration
expense, and a considerable period may elapse between the time it decides to
seek registration of the securities and the time it is permitted to sell them
under an effective registration statement. If, during this period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to try to register the securities.
SECURITIES LENDING
The Fund may lend its portfolio securities to earn additional income. If a
borrower defaulted on a securities loan, the Fund could experience delays in
recovering the securities it loaned or if the value of the
4 American Century Investments
loaned securities increased in the meantime, the Fund could suffer a loss.
To minimize the risk of default on securities loans, the Manager adheres to the
following guidelines prescribed by the Board of Directors:
(1) TYPE AND AMOUNT OF COLLATERAL. At the time a loan is made, the Fund must
receive, from or on behalf of the borrower, collateral consisting of any
combination of cash and full faith and credit U.S. government securities
equal to not less than 102% of the market value of the securities loaned.
Cash collateral received by the Fund in connection with loans of portfolio
securities may be commingled by the Fund's custodian with other cash and
marketable securities, provided that the loan agreement expressly allows
such commingling. The loan must not reduce the risk of loss or opportunity
for gain in the securities loaned.
(2) ADDITIONS TO COLLATERAL. Collateral must be marked to market daily, and the
borrower must agree to add collateral to the extent necessary to maintain
the 102% level specified in guideline (1). The borrower must deposit
additional collateral no later than the business day following the business
day on which a collateral deficiency occurs or collateral appears to be
inadequate.
(3) TERMINATION OF LOAN. The Fund must have the option to terminate any loan of
portfolio securities at any time. The borrower must be obligated to
redeliver the borrowed securities within the normal settlement period
following receipt of the termination notice.
(4) REASONABLE RETURN ON LOAN. The borrower must agree that the Fund (a) will
receive all dividends, interest, or other distributions on loaned
securities and (b) will be paid a reasonable return on such loans either in
the form of a loan fee or premium or from the retention by the Fund of part
or all of the earnings and profits realized from the investment of cash
collateral in full faith and credit U.S government securities.
(5) LIMITATIONS ON PERCENTAGE OF PORTFOLIO SECURITIES ON LOAN. The Fund's loans
may not exceed 331/3% of its total assets.
(6) CREDIT ANALYSIS. As part of the regular monitoring procedures set forth by
the Board of Directors that the Manager follows to evaluate banks and
broker-dealers in connection with, for example, repurchase agreements and
municipal securities credit issues, the Manager will analyze and monitor
the creditworthiness of all borrowers with whom portfolio lending
arrangements are proposed or made.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Manager may engage in foreign currency exchange transactions on behalf of
the Fund in order to manage currency risk. Foreign currencies will be purchased
and sold regularly, either in the spot (i.e., cash) market or in the forward
market (through forward foreign currency exchange contracts, or "forward
contracts").
A forward foreign currency exchange contract is an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
agreed upon by the parties, commencing with the date of the contract, at a price
set at the time of the contract. When the Fund agrees to buy or sell a security
denominated in a foreign currency, it may enter into a forward contract to "lock
in" the U.S. dollar price of the security. By entering into a forward contract
for the purchase or sale, for a fixed amount of U.S. dollars, of the amount of
foreign currency involved in the underlying securities transaction, the Manager
can protect the Fund against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency
between the date the security is purchased or sold and the date payment is made
or received. This type of transaction is sometimes referred to as a "position
hedge."
Successful use of forward contracts depends on the Manager's skill in analyzing
and predicting currency values. Although they are used for settlement purposes,
forward contracts alter the Fund's exposure to currency exchange rate activity
and could result in losses to the Fund if currencies do not perform as the
Manager anticipates. The Fund may also incur significant costs when converting
assets from one currency to another.
Statement of Additional Information 5
The currency management techniques discussed above are limited by various
constraints, including the intention to protect the U.S. tax status of the Fund
as a regulated investment company.
NON-SECTOR EQUITY SECURITIES
The Fund may invest in companies engaged in the natural resources industry that
do not meet all of the criteria for inclusion in the Energy and Basic Materials
sectors (excluding chemical companies) of the Dow Jones World Stock Index. These
may include small companies that do not meet the capitalization requirement for
inclusion in the Energy and Basic Materials sectors ("Sectors") but that the
Manager believes represent significant investment opportunities for the Fund.
Within this category, the Manager attempts to select securities of issuers whose
revenues and earnings are expected to be influenced by changes in the prices of
natural resources and that are expected to perform in a manner that causes the
Fund s performance to closely track the performance of the Sectors.
DEPOSITARY RECEIPTS
American Depositary Receipts ("ADR"s) and European Depositary Receipts and
("EDR"s) are receipts representing ownership of a foreign-based issuer's shares
held in trust by a bank or similar financial institution. These are designed for
the U.S. and European securities markets as alternatives to the purchase of
underlying securities in their corresponding national markets and currencies.
ADRs and EDRs can be sponsored or unsponsored.
Sponsored ADRs and EDRs are certificates in which a bank or financial
institution participates with a custodian. Issuers of unsponsored ADRs and EDRs
are not contractually obligated to disclose material information in the United
States. Therefore, there may not be a correlation between such information and
the market value of the unsponsored ADR or EDR.
FUTURES AND OPTIONS TRANSACTIONS
Futures Transactions. The Fund may engage in futures transactions. Such
transactions may be used to maintain cash reserves while remaining fully
invested, to facilitate trading, to reduce transaction costs, or to pursue
higher investment returns when a futures contract is priced more attractively
than its underlying security or index.
Futures contracts provide for the sale by one party and purchase by another
party of a security at a specified future time and price. Although futures
contracts, by their terms, generally call for actual delivery or acceptance of
the underlying securities, in most cases the contracts are closed out before the
settlement date. The Fund can close out a futures position by taking an opposite
position in an identical contract (i.e., buying a contract that has previously
been sold or selling a contract that has previously been bought).
To initiate and maintain open positions in futures contracts, the Fund is
required to make a good faith margin deposit in cash or government securities
with a broker or custodian. A margin deposit is intended to assure completion of
the contract (delivery or acceptance of the underlying security) if it is not
terminated prior to the specified delivery date. Minimum initial margin
requirements are established by the futures exchanges and may be revised. In
addition, brokers may establish deposit requirements that are higher than the
exchange minimums.
Once a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, the contract holder is
required to pay additional "variation" margin. Conversely, changes in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to or
from the futures broker as long as the contract remains open and do not
constitute margin transactions for purposes of the Fund's investment
restrictions.
Some futures contract strategies carry a substantial risk of loss, due to both
the low margin deposits required and the high degree of leverage involved in
futures pricing. A relatively small movement in a futures contract may result in
immediate, substantial gains or losses to the Fund.
Although techniques other than trading futures contracts can be used to control
a Fund's exposure to market fluctuations, the use of futures contracts may be a
more effective means of hedging this exposure. While the Fund pays brokerage
commissions in connection with opening and closing out futures positions, these
costs are lower than the transaction costs incurred in the purchase and sale of
the underlying securities.
6 American Century Investments
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund obtains
the right (but not the obligation) to sell the option's underlying instrument at
a fixed strike price. In return for this right, the Fund pays the current market
price for the option (known as the option premium). Options have various types
of underlying instruments, including specific securities, indexes of securities
prices, and futures contracts. The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option. If
the option is allowed to expire, the Fund will lose the entire premium it paid.
If the Fund exercises the option, it completes the sale of the underlying
instrument at the strike price. The Fund may also terminate a put option
position by closing it out in the secondary market at its current price if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the underlying instrument at the option's strike price. A call buyer
typically attempts to participate in potential price increases of the underlying
instrument with risk limited to the cost of the option if security prices fall.
At the same time, the buyer can expect to suffer a loss if security prices do
not rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. If the Fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party chooses to exercise
the option. When writing an option on a futures contract, the Fund will be
required to make margin payments to a broker or custodian as described above for
futures contracts. The Fund may seek to terminate its position in a put option
it writes before exercise by closing out the option in the secondary market at
its current price. If the secondary market is not liquid for a put option the
Fund has written, however, the Fund must continue to be prepared to pay the
strike price while the option is outstanding, regardless of price changes, and
must continue to set aside assets to cover its position.
If security prices rise, a put writer will generally expect to profit, although
the gain will be limited to the amount of the premium received. If security
prices remain the same over time, it is likely that the writer will also profit
by being able to close out the option at a lower price. If security prices fall,
the put writer will expect to suffer a loss. This loss should be less than the
loss from purchasing the underlying instrument directly, however, because the
premium received for writing the option should mitigate the effects of the
decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
COMBINED POSITIONS. The Fund may purchase and write options in combination with
one another or in combination with futures or forward contracts in order to
adjust the risk and return characteristics of the overall position. For example,
the Fund may purchase a put option and write a call option on the same
underlying instrument in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
OVER-THE-COUNTER OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-
Statement of Additional Information 7
counter ("OTC") options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows the Fund greater flexibility in tailoring
an option to its needs, OTC options generally involve greater credit risk than
exchange-traded options, which are guaranteed by the clearing organizations of
the exchanges where they are traded. The risk of illiquidity is also greater
with OTC options because these options generally can be closed out only by
negotiation with the other party to the option.
OPTIONS ON FUTURES. By purchasing an option on a futures contract, the Fund
obtains the right, but not the obligation, to sell the futures contract (a put
option) or to buy the contract (a call option) at a fixed "strike" price. The
Fund can terminate its position in a put option by allowing it to expire or by
exercising the option. If the option is exercised, the Fund completes the sale
of the underlying security at the strike price. Purchasing an option on a
futures contract does not require the Fund to make margin payments unless the
option is exercised.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types of
exchange-traded futures and options contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments exactly. The Fund may invest in futures and options
contracts based on securities with different issuers, maturities, or other
characteristics than the securities in which they typically invest (for example,
hedging intermediate-term securities with a futures contract based on an index
of long-term bond prices); this strategy involves a risk that the futures
position will not track the performance of the Fund's other investments.
Options and futures prices can diverge from the prices of their underlying
instruments even if the underlying instruments correlate well with the Fund's
investments. Options and futures prices are affected by factors such as current
and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
all of which may not affect security prices the same way. Imperfect correlation
may also result from differing levels of demand in the options and futures
markets and the securities markets, from structural differences in how options
and futures and securities are traded, or from the imposition of daily price
fluctuation limits or trading halts. The Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in an effort to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in the Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
FUTURES AND OPTIONS CONTRACTS RELATING TO FOREIGN CURRENCIES. The Fund may
purchase and sell currency futures and purchase and write currency options to
increase or decrease its exposure to different foreign currencies. The Fund may
also purchase and write currency options in conjunction with currency futures or
forward contracts.
Currency futures contracts are similar to forward currency exchange contracts,
except that they are traded on exchanges and have standard contract sizes and
delivery dates. Most currency futures contracts call for payment or delivery in
U.S. dollars.
The uses and risks of currency futures and options are similar to those of
futures and options relating to securities or indexes, as described above.
Currency futures' and options' values can be expected to correlate with exchange
rates, but may not reflect other factors (such as exchange rates) that affect
the value of the Fund's investments. A currency hedge, for example, should
protect a German mark-denominated security from a decline in the German mark,
but it will not protect the Fund against a price decline resulting from a
deterioration in the issuer's creditworthiness. It may not always be possible to
match currency futures to the Fund's foreign securities holdings.
RISKS AND LIQUIDITY OF FUTURES CONTRACTS AND OPTIONS. Futures and options have
risks associated with their use: possible default by the other party to the
transaction; illiquidity; and, to the extent the Manager's interpretation of
certain market movements is incorrect, the risk that the use of such
transactions could result in losses greater than if they had not been used.
Losses resulting from the use of these transactions would reduce net asset value
and possibly income.
8 American Century Investmensts
There is no assurance a liquid secondary market will exist for any particular
futures contract or option at any particular time. Options may have a relatively
low trading volume and liquidity if their strike prices are not close to the
underlying instrument's current price. In addition, exchanges may establish
daily price fluctuation limits for futures contracts and options and may halt
trading if a contract's price moves upward or downward more than the limit on a
given day. On volatile trading days when the price fluctuation limit is reached
or a trading halt is imposed, it may be impossible for the Fund to enter into
new positions or close out existing positions. If the secondary market for a
contract were not liquid, because of price fluctuation limits or otherwise,
prompt liquidation of unfavorable positions could be difficult or impossible,
and the Fund could be required to continue holding a position until delivery or
expiration regardless of changes in the value of the position. Under these
circumstances, the Fund's access to assets held to cover future positions could
also be impaired.
Futures and options trading on foreign exchanges may not be regulated as
effectively as similar transactions in the U.S. and may not involve clearing
mechanisms or guarantees similar to those available in the U.S. The value of a
futures contract or option traded on a foreign exchange may be adversely
affected by lesser trading volume and the imposition of different exercise and
settlement terms, trading procedures, and margin requirements.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS. The Fund has filed a
notice of eligibility for exclusion as a "commodity pool operator" with the
Commodity Futures Trading Commission (CFTC) and the National Futures
Association, which regulates trading in the futures markets. The Fund intends to
comply with Section 4.5 of the regulations under the Commodity Exchange Act,
which limits the extent to which the Fund can commit assets to initial margin
deposits and options premiums.
The Fund may enter into futures transactions (including related options) for
hedging purposes without regard to the percentage of assets committed to initial
margin and for other than hedging purposes provided that assets committed to
initial margin deposits on such instruments, plus premiums paid for open futures
options positions, less the amount by which any such positions are
"in-the-money," do not exceed 5% of the Fund's total assets. To the extent
required by law, the Fund will set aside cash and appropriate liquid assets in a
segregated account to cover its obligations related to futures contracts and
options. Financial futures or options purchased or sold by the Fund will be
standardized and traded through the facilities of a U.S. or foreign securities
association or listed on a U.S. or foreign securities or commodities exchange,
board of trade, or similar entity, or quoted on an automatic quotation system,
except that the Fund may effect transactions in over-the-counter options with
primary U.S. government securities dealers recognized by the Federal Reserve
Bank of New York. In addition, the Fund has undertaken to limit aggregate
premiums paid on all options purchased by the Fund to no more than 5% of the
Fund's total net asset value.
The Fund intends to comply with tax rules applicable to regulated investment
companies, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of the Fund's
gross income for each fiscal year. Gains on some futures contracts and options
are included in this 30% calculation, which may limit the Fund's investments in
these instruments.
INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked to commodities,
including, but not limited to, notes indexed to the Goldman Sachs Commodity
Index (GSCI). The GSCI is composed of energy, agricultural, livestock, and
metals commodities. The Fund may invest in notes indexed to the entire GSCI or
to certain components of the GSCI.
A commodity-linked note enables the investor to purchase a note whose coupons or
redemption value is linked to the performance of a particular commodity price.
The Fund may purchase and sell indexed securities for investment purposes as
well as hedging purposes to the extent permitted by applicable law. Indexed
securities may have return characteristics similar to direct investments in the
underlying commodity or to one or more options on the underlying commodity.
Indexed securities may be more volatile than the underlying commodity itself and
present
Statement of Additional Information 9
many of the same risks as investing in futures and options. Indexed securities
are also subject to credit risks associated with the issuer of the security.
The Fund may invest in indexed securities to track the Sectors at lower
transaction costs or to take advantage of investment opportunities not
represented by the Sectors.
INVESTMENT RESTRICTIONS
The Fund's investment restrictions set forth below are fundamental and may not
be changed without approval of a majority of the outstanding votes of the
shareholders of the Fund as determined in accordance with the Investment Company
Act of 1940 (the "1940 Act").
THE FUND MAY NOT:
(1) Borrow money except from a bank as a temporary measure to satisfy
redemption requests or for extraordinary or emergency purposes provided
that the Fund maintains asset coverage of at least 300% for all such
borrowings. The Fund may borrow money for temporary or emergency purposes
from other funds or portfolios for which Benham Management Corporation is
the investment advisor or from a joint account of such funds or portfolios,
as permitted by federal regulatory agencies.
(2) Act as an underwriter of securities issued by others, except to the extent
that the Fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities.
(3) Purchase or sell real estate, unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or
securities related to the real estate business); physical commodities or
contracts relating to physical commodities; or interests in oil, gas and/or
mineral exploration development programs or leases. This restriction shall
not be deemed to prohibit the Fund from purchasing or selling currencies;
entering into futures contracts on securities, currencies, or indexes of
such securities or currencies, or any other financial instruments;
purchasing and selling options on such futures contracts; and investing in
securities or other instruments backed by physical commodities.
(4) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the Board of Directors and except
those otherwise in accordance with the Fund's investment objective and
policies.
(5) Issue senior securities, except as permitted under the 1940 Act.
(6) Purchase any security if, as a result, 25% or more of the Fund's total
assets will be invested in the securities of issuers having their principal
business in the same industry, except that the Fund will invest more than
25% of its assets in securities of issuers in the natural resources
industry. This limitation does not apply to securities issued by the U.S.
government or any of its agencies or instrumentalities.
The Fund is also subject to the following restrictions that are not fundamental
and may, therefore, be changed by the Board of Directors without shareholder
approval.
THE FUND MAY NOT:
(a) Sell securities short unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short and provided
that transactions in options and futures contracts are not deemed to
constitute short sales of securities.
(b) Purchase warrants, valued at the lower of cost or market, in excess of 10%
of the Fund's net assets. Included within that amount, but not to exceed 2%
of the Fund's net assets, are warrants whose underlying securities are not
traded on principal domestic or foreign exchanges. Warrants acquired by the
Fund in units or attached to securities are not subject to these
restrictions.
(c) 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 the purchase of
securities on margin.
(d) Invest in securities that are not readily marketable or that are illiquid
because they are subject to legal or contractual restrictions on resale
10 American Century Investments
(collectively, "illiquid securities") if, as a result, more than 15% of the
Fund's net assets would be invested in illiquid securities.
(e) Acquire or retain the securities of any other investment company if, as a
result, more than 3% of such investment company's outstanding shares would
be held by the Fund, more than 5% of the value of the Fund's assets would
be invested in shares of such investment company or more than 10% of the
value of the Fund's assets would be invested in shares of investment
companies in the aggregate, or except in connection with a merger,
consolidation, acquisition, or reorganization.
(f) Invest in securities of an issuer that, together with any predecessor or
unconditional guarantor, has been in operation for less than three years
if, as a result, more than 5% of the total assets of the Fund would then be
invested in such securities, except for obligations issued or guaranteed by
the U.S. government or its agencies.
Unless otherwise indicated, percentage limitations included in the restrictions
apply at the time transactions are entered into. Accordingly, any later increase
or decrease beyond the specified limitation resulting from a change in the
Fund's net assets will not be considered in determining whether the Fund has
complied with its investment restrictions.
PORTFOLIO TRANSACTIONS
The Fund's assets are invested by the Manager in a manner consistent with the
Fund's investment objectives, policies and restrictions and with any
instructions from the Board of Directors that may be issued from time to time.
Within this framework, the Manager is responsible for making all determinations
relating to the purchase and sale of portfolio securities and for taking all
steps necessary to implement securities transactions on behalf of the Fund. In
placing orders for the purchase and sale of portfolio securities, the Manager
will use its best efforts to obtain the best possible price and execution and
will otherwise place with broker-dealers orders subject to and in accordance
with any instructions the Board of Directors may issue from time to time. The
Manager will select broker-dealers to execute portfolio transactions on behalf
of the Fund solely on the basis of best price and execution.
The Fund's annual portfolio turnover rate is not expected to exceed 100%.
Because a higher turnover rate increases transaction costs and may increase
taxable capital gains, the advisor carefully weighs the potential benefits of
short-term investing against these considerations. There was no portfolio
turnover for the period from September 15, 1994 (commencement of operations),
through December 31, 1994. The Fund`s portfolio turnover rate for the period
ended December 31, 1995 was 39%.
VALUATION OF PORTFOLIO SECURITIES
The Fund's net asset value per share ("NAV") is calculated as of the close of
business of the New York Stock Exchange (the "Exchange") usually at 3:00 p.m.
Central time each day the Exchange is open for business. The Exchange has
designated the following holiday closings for 1997: New Year's Day (observed),
Presidents` Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day (observed). Although the Fund expects the
same holiday schedule to be observed in the future, the Exchange may modify its
holiday schedule at any time.
The Manager typically completes its trading on behalf of the Fund in various
markets before the Exchange closes for the day. Securities are valued at market,
depending upon the market or exchange on which they trade. Price quotations for
exchange-listed securities are taken from the primary exchanges on which these
securities trade. Securities traded on exchanges will be valued at their last
sale prices. If no sale is reported, the mean between the latest bid and asked
prices is used. Securities traded over-the-counter will be valued at the mean
between the latest bid and asked prices. Fixed-income securities are priced at
market value on the basis of market quotations supplied by independent pricing
services. Trading of securities in foreign markets may not take place on every
day the Exchange is open, and trading takes place in various foreign markets on
days on which the Exchange and the Fund's offices are not open and the Fund's
net asset value is not calculated. The Fund's net asset value may be
significantly affected on days when shareholders have no access to the Fund.
Securities for which market quotations are not readily available, or which may
change in value
Statement of Additional Information 11
due to events occurring after their primary exchange has closed for the day, are
valued at fair market value as determined in good faith under the direction of
the Board of Directors.
PERFORMANCE
The Fund's yield and total return may be quoted in advertising and sales
literature. These figures, as well as the Fund's share prices, will vary. Past
performance should not be considered an indication of future results.
Yield quotations are based on the investment income per share earned during a
particular 30-day period, less expenses accrued during the period (net
investment income), and are computed by dividing the Fund's net investment
income by its share price on the last day of the period, according to the
formula on the next page:
YIELD = 2 [(a - b + 1)6 - 1]
------
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
Total returns quoted in advertising and sales literature reflect all aspects of
the Fund's return, including the effect of reinvesting dividends and capital
gain distributions (if any) and any change in the Fund's NAV during the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual return of 7.18%, which is the
steady annual rate that would result in 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time, but changes from year-to-year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Performance information may be quoted numerically or in a table, graph,
or similar illustration. The Fund's average annual total return for the one-year
and life-of-fund periods ended June 30, 1996, are indicated in the following
table.
Average Annual Total Return
- --------------------------------------------------------------------------------
One Year 14.57%
Since Inception* 9.86
- --------------------------------------------------------------------------------
* The Fund commenced operations on September 15, 1994.
The Fund's performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be considered in making such comparisons may include, but
are not limited to, U.S. Treasury bill, note, and bond yields, money market fund
yields, U.S. government debt and percentage held by foreigners, the U.S. money
supply, net free reserves, and yields on current-coupon Government National
Mortgage Association securities (GNMAs) (source: Board of Governors of the
Federal Reserve System); the federal funds and discount rates (source: Federal
Reserve Bank of New York); yield curves for U.S. Treasury securities and
AA/AAA-rated corporate securities (source: Bloomberg Financial Markets); yield
curves for AAA-
12 American Century Investments
rated tax-free municipal securities (source: Telerate); yield curves for foreign
government securities (sources: Bloomberg Financial Markets and Data Resources,
Inc.); total returns on foreign bonds (source: J.P. Morgan Securities Inc.);
various U.S. and foreign government reports; the junk bond market (source: Data
Resources, Inc.); the CRB Futures Index (source: Commodity Index Report); the
price of gold (sources: London a.m./p.m. fixing and New York Comex Spot Price);
rankings of any mutual fund or mutual fund category tracked by Lipper Analytical
Services, Inc. or Morningstar, Inc.; mutual fund rankings published in major
nationally distributed periodicals; data provided by the Investment Company
Institute; Ibbotson Associates, Stocks, Bonds, Bills, and Inflation; major
indexes of stock market performance; and indexes and historical data supplied by
major securities brokerage or investment advisory firms. The Fund may also
utilize reprints from newspapers and magazines furnished by third parties to
illustrate historical performance.
Indexes may assume reinvestment of coupon interest or dividends, but, generally,
they do not reflect administrative and management costs such as those incurred
by a mutual fund.
Statistics may be used in advertising and sales literature to illustrate
historical and projected demand for commodities owned or processed by companies
in which the Fund invests. This may include illustrations such as a chart that
shows historical and projected demand for multiple energy sources measured in
barrels of oil equivalents, or "BOEs."
Occasionally statistics may be used to illustrate Fund volatility or risk.
Measures of volatility or risk generally are used to compare the Fund's net
asset value or performance to a market index. One measure of volatility is
"beta." Beta expresses Fund volatility relative to the total market as
represented by the S&P 500. A beta of more than 1.00 indicates volatility
greater than that of the market, and a beta of less than 1.00 indicates
volatility less than that of the market. Another measure of volatility or risk
is "standard deviation." Standard deviation is used to measure the variability
of net asset value or total return relative to an average over a specified
period of time. The premise is that greater volatility connotes greater risk
undertaken to achieve desired performance.
The Fund's shares are sold without a sales charge (or "load"). No-load funds
offer an advantage to investors when compared to load funds with comparable
investment objectives and strategies.
The Manager may obtain Fund ratings from one or more rating agencies and may
publish such ratings in advertisements and sales literature.
TAXES
The Fund will be treated as a separate corporation for federal income tax
purposes, and the Fund intends to qualify annually as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). By so qualifying, the Fund will not incur federal or state income
taxes on its net investment income and net realized capital gains distributed to
shareholders.
The Fund may be subject to a 4% excise tax on a portion of its undistributed
income. To avoid the tax, the Fund must timely distribute annually at least 98%
of its ordinary income (not taking into account any capital gains or losses) for
the calendar year and at least 98% of its capital gain net income for the
12-month period ending, as a general rule, on October 31st of the calendar year.
Any distributions declared by the Fund in December and paid in January of the
following year are taxable as if they were paid on December 31st.
The Fund's transactions in foreign currencies, forward contracts, options and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount, and timing of distributions to shareholders. These provisions
also may require a Fund to mark to market certain types of the positions in its
portfolio (i.e., treat them as if they were sold at the Fund's fiscal year end),
which may cause the Fund to recognize income without receiving sufficient cash
for making distributions in amounts necessary to satisfy the 90% and
Statement of Additional Information 13
98% distribution requirements for relief from income and excise taxes. The Fund
will monitor its transactions and may make such tax elections as Fund management
deems appropriate with respect to foreign currency, options, futures contracts,
forward contracts, or hedged investments. The Fund's status as a regulated
investment company may limit its transactions involving foreign currency,
futures, options and forward contracts.
Under the Code, gains or losses attributable to fluctuations in exchange rates
that occur between the time the Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or loss. Similarly, in disposing of
debt securities denominated in foreign currencies and certain other instruments,
gains or losses attributable to fluctuations in the value of a foreign currency
between the date the security or contract is acquired and the date it is
disposed of are also usually treated as ordinary income or loss. Under Section
988 of the Code, these gains or losses may increase or decrease the amount of
the Fund's investment company taxable income distributed to shareholders as
ordinary income.
The Fund may invest in shares of foreign corporations that may be classified
under the Code as passive foreign investment companies ("PFIC"s). In general, a
foreign corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. Certain distributions from a PFIC and gains from the
sale of PFIC shares are treated as excess distributions. These excess
distributions and gains may be subject to federal income tax. Interest charges
may also be imposed on the fund with respect to deferred taxes arising from such
excess distributions or gains.
The Fund's intention to qualify annually as a regulated investment company may
limit its elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss, and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially
compared to that of a fund that did not invest in PFIC shares.
Earnings derived by the Fund from sources outside the U.S. may be subject to
non-U.S. withholding and possibly other taxes. Such taxes might be reduced or
eliminated under the terms of a U.S. income tax treaty, and the Fund would
undertake any procedural steps required to claim the benefits of such a treaty.
With respect to any non-U.S. taxes actually paid by a Fund, if more than 50% of
the value of the Fund's total assets at the close of any taxable year consists
of securities of foreign corporations, the Fund will elect to treat any non-U.S.
income and similar taxes it pays as though the taxes were paid by its
shareholders.
Some of the debt securities that may be acquired by the Fund may be treated in
the same way as debt securities that are originally issued at a discount.
Generally, the amount of the original issue discount ("OID") is treated as
interest income and is included in income over the term of the debt security,
even though payment of that amount is not received until a later time, usually
when the debt security matures.
Some of the debt securities may be purchased by the Fund at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount will be treated as ordinary income to the extent that it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by the
Fund and at a constant rate over the time remaining to the debt security's
maturity or, at the election of the Fund, at a constant yield to maturity that
takes into account the semiannual compounding of interest.
Generally, the Fund will be required to distribute dividends representing
discounts on debt securities that are currently includable in income to
shareholders, even if cash representing such income has not been received by the
Fund. Cash to pay such divi-
14 American Century Investments
dends may be obtained from proceeds of sales of securities held by the Fund.
Exchange control regulations that may restrict repatriation of investment
income, capital, or the proceeds of securities sales by foreign investors may
limit the Fund's ability to make sufficient distributions to satisfy the 90% and
calendar-year distribution requirements.
TAXATION OF U.S. SHAREHOLDERS
Upon redeeming, selling, or exchanging shares of the Fund, a shareholder will
realize a taxable gain or loss depending upon his or her basis in the shares
liquidated. The gain or loss generally will be a capital gain or loss if the
shares are capital assets in the shareholder's hands and will be long-term or
short-term depending on the length of time the shares were held. However, a loss
recognized by a shareholder in the disposition of shares on which capital gain
dividends were paid (or deemed paid) before the shareholder had held his or her
shares for more than six months would be treated as a long-term capital loss for
tax purposes.
A gain realized on the redemption, sale, or exchange of shares would not be
affected by the reacquisition of shares. A loss realized on a redemption, sale,
or exchange of shares would be disallowed to the extent that the shares disposed
of were replaced (whether through reinvestment of distributions or otherwise)
within a period of 61 days beginning 30 days before and ending 30 days after the
date shares were disposed of. Under such circumstances, the basis of the shares
acquired would be adjusted to reflect the disallowed loss.
TAXATION OF NON-U.S. SHAREHOLDERS
U.S. taxation of a shareholder who is a nonresident alien individual or a
non-U.S. corporation, partnership, trust, or estate depends on whether the
payments received from the Fund are "effectively connected" with a U.S. trade or
business carried on by such a shareholder. Ordinarily, income from the Fund will
not be treated as "effectively connected."
If the payments received from the Fund are effectively connected with a U.S.
trade or business of the shareholder, all distributions of net investment income
and net capital gains of the Fund and gains realized upon the redemption,
exchange, or other taxable disposition of shares will be subject to U.S. federal
income tax at the graduated rates applicable to U.S. citizens, residents, or
domestic entities, although the tax may be eliminated under the terms of an
applicable U.S. income tax treaty. Non-U.S. corporate shareholders also may be
subject to a branch profits tax with respect to payments from the Fund.
If the shareholder is not engaged in a U.S. trade or business, or the payments
received from the Fund are not effectively connected with the conduct of such a
trade or business, the shareholder will generally be subject to U.S. tax
withholding at the rate of 30% (or a lower rate under an applicable U.S. income
tax treaty) on distributions of net investment income and net realized
short-term capital gain received. Non-U.S. shareholders not engaged in a U.S.
trade or business or having no effectively connected income may also be subject
to U.S. taxes at the rate of 30% (or a lower treaty rate) on additional
distributions as a result of the Fund's election to treat any non-U.S. taxes it
pays as though the taxes were paid by its shareholders.
Distributions of net realized long-term capital gains and any capital gains
realized by non-U.S. shareholders upon the redemption or other taxable
disposition of shares generally will not be subject to U.S. tax. In the case of
individuals and other nonexempt non-U.S. shareholders who fail to furnish the
Fund with required certifications regarding their foreign status on IRS Form W-8
or an appropriate substitute, the Fund may be required to impose backup
withholding of U.S. tax at the rate of 31% on distributions of net realized
capital gains and proceeds of redemptions and exchanges.
The information above is only a summary of some of the tax considerations
affecting the Fund and its shareholders; no attempt has been made to discuss
individual tax consequences. The Fund and its distributions may also be subject
to state, local, or foreign taxes. Prospective investors may wish to consult a
tax advisor to determine whether the Fund is a suitable investment relative to
their tax situation.
Statement of Additional Information 15
ABOUT AMERICAN CENTURY QUANTITATIVE EQUITY FUNDS
American Century Quantitative Equity Funds (the "Corporation") was organized as
a California corporation on December 31, 1987. The Corporation, formerly known
as Benham Equity Funds, is authorized to issue 10 series and to issue two
billion (2,000,000,000) shares of each series. Within each series, the Directors
may issue an unlimited number of shares. Currently, there are five series in the
Corporation. American Century Global Natural Resources Fund, formerly known as
Benham Global Natural Resources Index Fund, is described in this Statement of
Additional Information. With respect to each series, shares issued are fully
paid and nonassessable and have no preemptive, conversion, or similar rights.
All consideration received by the Corporation for shares of any series, and all
assets, income, and gains (or losses) earned thereon, belong to that series
exclusively and are subject to the liabilities related thereto.
Shares of each series have equal voting rights, provided that each series votes
separately on matters affecting only that series. The number of votes you are
entitled to is based upon the dollar value of your investment as of the record
date for a shareholder meeting. Under California Corporations Code Section 708,
shareholders have the right to cumulate votes in the election (or removal) of
Directors. For example, if six Directors are proposed for election, a
shareholder may cast six votes for a single candidate or three votes for each of
two candidates, etc.
CUSTODIAN BANK: Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, New
York 11245 and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri, 64106
serve as custodians of the Fund's assets. Services provided by the custodian
bank include (a) settling portfolio purchases and sales, (b) reporting failed
trades, (c) identifying and collecting portfolio income, and (d) providing
safekeeping of securities. The custodian takes no part in determining the Fund's
investment policies or in determining which securities are sold or purchased by
the Fund.
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Fund's independent auditors and provides
services including (a) audit of annual financial statements and (b) preparation
of annual federal income tax returns filed on behalf of the Fund.
DIRECTORS AND OFFICERS
Each Fund's activities are overseen by a Board of Directors, including six
independent Directors. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Corporation (as defined in the
Investment Company Act of 1940) by virtue of, among other considerations, their
affiliation with either the Corporation, the Fund's investment advisor, Benham
Management Corporation; the Fund's agent for transfer and administrative
services, American Century Services Corporation (ACS); the Fund's distribution
agent, American Century Investment Services, Inc.; their parent corporation,
American Century Companies, Inc. (ACC) or ACC's subsidiaries; or other funds
advised by the Manager. Each Director listed below also serves as a Trustee or
Director of other funds advised by the Manager. Unless otherwise noted, a date
in parentheses indicates the date the Director or officer began his or her
service in a particular capacity. The Directors' and officers' address, with the
exception of Mr. Stowers III and Ms. Roepke, is 1665 Charleston Road, Mountain
View, California 94043. The address of Mr. Stowers III and Ms. Roepke is 4500
Main Street, Kansas City, Missouri 64111.
DIRECTORS
*JAMES M. BENHAM, Chairman of the Board of Directors (1988), President and Chief
Executive Officer (1996). Mr. Benham is also President and Chairman of the Board
of the Manager (1971), and a member of the Board of Governors of the Investment
Company Institute (1988). Mr. Benham has been in the securities business since
1963, and he frequently comments through the media on economic conditions,
investment strategies, and the securities markets.
ALBERT A. EISENSTAT, independent Director (1995). Mr. Eisenstat is an
independent Director of each of Commercial Metals Co. (1982), Sungard Data
Systems (1991) and Business Objects S/A (1994). Previously, he served as Vice
President of Corporate Development and Corporate Secretary of Apple Computer and
served on its Board of Directors (1985 to 1993).
RONALD J. GILSON, independent Director (1995). Mr. Gilson is the Charles J.
Meyers Professor of Law and Business at Stanford Law School (1979) and the Mark
and Eva Stern Professor of Law and Business at
16 American Century Investments
Columbia University School of Law (1992). He is counsel to Marron, Ried & Sheehy
(a San Francisco law firm, 1984).
MYRON S. SCHOLES, independent Director (1988). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983), a Director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a Managing Director of Salomon
Brothers Inc. (securities brokerage).
KENNETH E. SCOTT, independent Director (1988). Mr. Scott is Ralph M. Parsons
Professor of Law and Business at Stanford Law School (1972) and a Director of
RCM Capital Management (1994).
ISAAC STEIN, independent Director (1992). Mr. Stein is former Chairman of the
Board (1990 to 1992) and Chief Executive Officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the Board of Raychem
Corporation (electrical equipment, 1993), President of Waverley Associates, Inc.
(private investment firm, 1983), and a Director of ALZA Corporation
(pharmaceuticals, 1987). He is also a Trustee of Stanford University (1994) and
Chairman of Stanford Health Services (hospital, 1994).
*JAMES STOWERS III, Director (1995). Mr. Stowers III is the President, Chief
Executive Officer and Director of ACC, ACS and ACIS.
JEANNE D. WOHLERS, independent Director (1988). Ms. Wohlers is a private
investor, and an independent Director and Partner of Windy Hill Productions, LP.
Previously, she served as Vice President and Chief Financial Officer of Sybase,
Inc. (software company, 1988 to 1992)
OFFICERS
*JAMES M. BENHAM, President and Chief Executive Officer (1996).
*WILLIAM M. LYONS, Executive Vice President (1996); Executive Vice President,
Chief Operating Officer, General Counsel and Secretary of the Manager, ACS, and
ACIS.
*DOUGLAS A. PAUL, Secretary (1988), Vice President (1990), and General Counsel
(1990); Secretary and Vice President of the funds advised by the Manager.
*ROBERT J. LEACH, Controller (1996)
*MARYANNE ROEPKE, CPA, Chief Financial Officer and Treasurer (1995); Vice
President and Assistant Treasurer of ACS.
The table below summarizes the compensation that the Directors of the Fund
received for the Fund's fiscal year ended December 31, 1995, as well as the
compensation received for serving as a Director or Trustee of all other funds
advised by the Manager.
As of July 31, 1996, the Directors and officers, as a group, owned less than 1%
of the Fund's outstanding shares.
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Aggregate Pension or Retirement Estimated Total Compensation
Name of Compensation Benefits Accrued As Part Annual Benefits From Fund and Fund
Director* From The Fund of Fund Expenses Upon Retirement Complex** Paid to Directors
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert A. Eisenstat $0 Not Applicable Not Applicable $0
Ronald J. Gilson $716 Not Applicable Not Applicable $48,833
Myron S. Scholes $1,234 Not Applicable Not Applicable $65,625
Kenneth E. Scott $1,261 Not Applicable Not Applicable $65,125
Ezra Solomon $1,235 Not Applicable Not Applicable $58,792
Isaac Stein $1,260 Not Applicable Not Applicable $63,625
Jeanne D. Wohlers $1,236 Not Applicable Not Applicable $67,375
- ------------------------------------------------------------------------------------------------------
* Interested Directors receive no compensation for their services as such.
** American Century family of funds includes nearly 70 no-load mutual funds.
</TABLE>
Statement of Additional Information 17
INVESTMENT ADVISORY SERVICES
The Fund has an investment advisory agreement with the Manager, dated June 1,
1995, that was approved by the Fund's shareholders on May 31, 1995.
The Manager is a California corporation and became a wholly owned subsidiary of
ACC on June 1, 1995. The Manager has served as investment advisor to the Fund
since the Fund's inception. ACC is a holding company that owns all of the stock
of the operating companies that provide the investment management, transfer
agency, shareholder service, and other services for the American Century funds.
James E. Stowers, Jr. controls ACC by virtue of his ownership of a majority of
its common stock. The Manager has been a registered investment advisor since
1971.
The Fund's agreement with the Manager continues for an initial period of two
years and thereafter from year-to-year provided that, after the initial two year
period, it is approved at least annually by vote of either a majority of the
Fund's outstanding voting securities or by vote either of a majority of the
Fund's Directors, including a majority of those Directors who are neither
parties to the agreement nor interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
The investment advisory agreement is terminable on 60 days' written notice,
either by the Fund or by the Manager, to the other party, and terminates
automatically in the event of its assignment.
Pursuant to the investment advisory agreement, the Manager provides the Fund
with investment advice and portfolio management services in accordance with the
Fund's investment objective, policies, and restrictions. The Manager determines
which securities will be purchased and sold by the Fund. It also assists the
Corporation's officers in carrying out decisions made by the Board of Directors.
For these services, the Fund pays the Manager a monthly investment advisory fee
equal to the sum of two components: (i) a group fee based on the Corporation's
average daily net assets and (ii) an individual fund fee based on the Fund's
average daily net assets. The group fee is derived from applying the
Corporation's average daily net assets to the schedule in the next column:
.50% of the first $100 million;
.45% of the next $100 million;
.40% of the next $100 million;
.35% of the next $100 million;
.30% of the next $100 million;
.25% of the next $1 billion;
.24% of the next $1 billion;
.23% of the next $1 billion;
.22% of the next $1 billion;
.21% of the next $1 billion;
.20% of the next $1 billion; and
.19% of average daily net assets over $6.5 billion.
The individual fund fee is derived from applying the Fund's average daily net
assets to the following schedule of annualized rates:
.05% of the first $500 million;
.04% of the next $500 million; and
.03% of the next $1 billion.
No investment advisory fees have been paid by the Fund to the Manager since the
inception of the Fund in September 1994.
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri,
64111, (ACS) acts as transfer, administrative services and dividend paying agent
for the Fund. ACS provides facilities, equipment and personnel to the Fund and
is paid for such services by the Fund. For administrative services, the Fund
pays ACS a monthly fee equal to its pro rata share of the dollar amount derived
from applying the average daily net assets of all of the Funds advised by the
Manager to the following administrative fee rate schedule:
Group Assets Administrative Fee Rate
- ----------------------------------------------------------------------
up to $4.5 billion .11%
up to $6 billion .10
up to $9 billion .09
over $9 billion .08
- ----------------------------------------------------------------------
For transfer agent services, the Fund pays ACS a monthly fee of $1.1875 for each
shareholder account
18 American Century Investments
maintained and $1.35 for each shareholder transaction executed during that
month.
For the fiscal year ended December 31, 1995, the Fund paid $7049 for
administrative services and $62,844 for transfer agent services. The fee paid
for administrative services was reduced by a fee waiver of $14,030.
DISTRIBUTION OF FUND SHARES
The Fund's shares are distributed by American Century Investment Services, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the Manager.
The Manager pays all expenses for promoting and distributing the Fund's shares
offered by this Prospectus. The Fund does not pay any commissions or other fees
to the Distributor or to any other broker-dealers or financial intermediaries in
connection with the distribution of Fund shares.
DIRECT FUND EXPENSES
The Fund pays certain operating expenses that are not assumed by the Manager or
ACS. These include fees and expenses of the independent Directors; custodian,
audit, tax preparation and pricing fees; fees of outside counsel and counsel
employed directly by the Corporation; costs of printing and mailing
prospectuses, statements of additional information, proxy statements, notices,
confirmations, and reports to shareholders; fees for registering the Fund's
shares under federal and state securities laws; brokerage fees and commissions
(if any); trade association dues; costs of fidelity and liability insurance
policies covering the Fund; costs for incoming WATS lines maintained to receive
and handle shareholder inquiries; and organizational costs.
EXPENSE LIMITATION AGREEMENT
The Manager may recover amounts absorbed on behalf of the Fund during the
preceding 11 months if, and to the extent that, for any given month, the Fund's
expenses were less than the expense limitation in effect at that time. The
Manager has agreed under contract to limit the Fund's expenses to .75% of the
Fund's average daily net assets until May 31, 1997. The expense limitation is
subject to annual renewal. The Manager absorbed $93,050 of the Fund's expenses
for the fiscal year ended December 31, 1995.
VOLUNTARY EXPENSE LIMITATION. As a supplement to the contractual expense
guarantee rate, the Manager voluntarily agreed to absorb all of the Fund`s
expenses through December 31, 1994. The Manager`s voluntary expense limitations
are not eligible for recoupment (as described above with respect to the
contractual expense limitation agreement).
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund's shares are continuously offered at NAV. Share certificates are issued
(without charge) only when requested in writing. Certificates are not issued for
fractional shares. Dividend and voting rights are not affected by the issuance
of certificates.
American Century may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Corporation or one of
its series; to avoid jeopardizing a series' tax status; or whenever, in
management's opinion, such rejection is in the Corporation's or a series' best
interest. As of July 31, 1996, Charles Schwab & Co., 101 Montgomery Street, San
Francisco, California 94104, was the omnibus record holder of 1,756,372.463
shares or 39.1% of the Fund's outstanding shares.
ACS charges neither fees nor commissions on the purchase and sale of fund
shares. However, ACS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
ACS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Investor Services Guide for more information.
Share purchases and redemptions are governed by California law.
OTHER INFORMATION
The Fund's investment advisor has been continuously registered with the SEC
under the Investment Advisers Act of 1940 since December 14, 1971. The Fund has
filed a registration statement under the Securities Act of 1933 and the 1940 Act
with respect to the shares offered. Such registrations do not imply approval or
supervision of the Fund or the advisor by the SEC.
Statement of Additional Information 19
For further information, please refer to the registration statement and exhibits
on file with the SEC in Washington, D.C. These documents are available upon
payment of a reproduction fee. Statements in the Prospectus and in this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents
20 American Century Investments
NOTES
Statement of Additional Information 21
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
9701 [recycled logo]
SH-BKT-7456 Recycled
[american century logo]
American
Century(sm)
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
SEPTEMBER 3, 1996
Revised January 1, 1997
AMERICAN
CENTURY
GROUP
Utilities Fund
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
AMERICAN CENTURY QUANTITATIVE EQUITY FUNDS
This is the Statement of Additional Information for the American Century
Utilities Fund. This statement is not a Prospectus but should be read in
conjunction with the Fund's current Prospectus dated September 3, 1996, revised
January 1, 1997. The Fund's annual report for the fiscal year ended December 31,
1995, and semiannual report for the period ended June 30, 1996, are incorporated
herein by reference. Please retain this document for future reference. To obtain
the Prospectus, call American Century Investments 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 Policies and Techniques..................2
Investment Restrictions.............................9
Risk Factors.......................................10
Portfolio Transactions.............................11
Valuation of Portfolio Securities..................11
Performance........................................12
Taxes..............................................13
About American Century Quantitative
Equity Funds....................................14
Directors and Officers.............................15
Investment Advisory Services.......................16
Transfer and Administrative Services...............17
Distribution of Fund Shares........................17
Direct Fund Expenses...............................17
Expense Limitation Agreement.......................18
Additional Purchase and Redemption Information.....18
Other Information..................................18
Statement of Additional Information 1
INVESTMENT POLICIES AND TECHNIQUES
The following paragraphs provide a more detailed description of the securities
and investment practices identified in the Prospectus. Unless otherwise noted,
the policies described in this Statement of Additional Information are not
fundamental and may be changed by the Board of Directors.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. government securities, including bills, notes, and
bonds issued by the U.S. Treasury and securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some U.S. government
securities are backed by the direct full faith and credit pledge of the U.S.
government; others are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as securities issued by the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
government to purchase the agencies' obligations; and others are supported only
by the credit of the issuing or guaranteeing instrumentality. There is no
assurance that the U.S. government will provide financial support to an
instrumentality it sponsors when it is not obligated by law to do so.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The Fund may engage in securities transactions on a when-issued or forward
commitment basis, in which the transaction price and yield are each fixed at the
time the commitment is made, but payment and delivery occur at a future date
(typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, the
Fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. While the Fund will make commitments to purchase or sell
securities on a when-issued or forward commitment basis with the intention of
actually receiving or delivering them, it may nevertheless sell the securities
before the settlement date if it is deemed advisable as a matter of investment
strategy.
In purchasing securities on a when-issued or forward commitment basis, the Fund
will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents, or high-quality securities in an amount
sufficient to meet the purchase price. When the time comes to pay for
when-issued securities, the Fund will meet its obligations with available cash,
through the sale of securities, or, although it would not normally expect to do
so, through sales of the when-issued securities themselves (which may have a
market value greater or less than the Fund's payment obligation). Selling
securities to meet when-issued or forward commitment obligations may generate
capital gains or losses.
As an operating policy, the Fund will not commit greater than 35% of its total
assets to when-issued or forward commitment agreements. If fluctuations in the
value of securities held cause more than 35% of the Fund's total assets to be
committed under when-issued or forward commitment agreements, the Benham
Management Corporation (the "Manager") need not sell such commitments, but it
will be restricted from entering into further agreements on behalf of the Fund
until the percentage of assets committed to such agreements is reduced to 35%.
In addition, as an operating policy, the Fund will not enter into when-issued or
forward commitment transactions with settlement dates exceeding 120 days.
CONVERTIBLE SECURITIES
The Fund may buy securities that are convertible into common stock shares of
utility companies. Listed below is a brief description of the various types of
convertible securities the Fund may buy.
CONVERTIBLE BONDS are issued with lower coupons than nonconvertible bonds of the
same quality and maturity, but they give holders the option to exchange their
bonds for a specific number of shares of the company's common stock at a
predetermined price. This structure allows the convertible bond holder to
participate in share price movements in the company's common stock. The actual
return on a convertible bond may exceed its stated yield if the company's common
stock appreciates in value and if the option to convert to common shares becomes
more valuable.
CONVERTIBLE PREFERRED STOCKS are nonvoting equity securities that pay a fixed
dividend. These securities have a convertible feature similar to convertible
bonds; however, they do not have a maturity
2 American Century Investments
date. Due to their fixed-income features, convertible issues typically are more
sensitive to interest rate changes than the underlying common stock. In the
event of liquidation, bondholders would have claims on company assets senior to
those of stockholders; preferred stockholders would have claims senior to those
of common stockholders.
WARRANTS entitle the holder to buy the issuer's stock at a specific price for a
specific period of time. The price of a warrant tends to be more volatile than,
and does not always track, the price of the underlying stock. Warrants are
issued with expiration dates. Once a warrant expires, it has no value in the
market.
REPURCHASE AGREEMENTS
In a repurchase agreement (a "repo"), the Fund buys a security at one price and
simultaneously agrees to sell it back to the seller at an agreed upon price on a
specified date (usually within seven days from the date of purchase) or on
demand. The repurchase price exceeds the purchase price by an amount that
reflects an agreed-upon rate of return and that is unrelated to the interest
rate on the underlying security.
The Manager attempts to minimize the risks associated with repurchase agreements
by adhering to the following criteria:
(1) Limiting the securities acquired and held by the Fund under repurchase
agreements to U.S. government securities;
(2) Entering into repurchase agreements only with primary dealers in U.S.
government securities (including bank affiliates) who are deemed to be
creditworthy under guidelines established by a nationally recognized
statistical rating organization (a "rating agency") and approved by the
Fund's Board of Directors;
(3) Monitoring the creditworthiness of all firms involved in repurchase
agreement transactions;
(4) Requiring the seller to establish and maintain collateral equal to 102% of
the agreed-upon resale price, provided, however, that the Board of
Directors may determine that a broker-dealer's credit standing is
sufficient to allow collateral to fall to as low as 101% of the agreed-upon
resale price before the broker-dealer deposits additional securities with
the Fund's custodian;
(5) Investing no more than 15% of the Fund's net assets in repurchase
agreements that mature in more than seven days; and
(6) Taking delivery of securities subject to a repurchase agreement and holding
them in a segregated account at the Fund's custodian bank.
The Fund has received permission from the Securities and Exchange Commission
(SEC) to participate in pooled repurchase agreements collateralized by U.S.
government securities with other mutual funds advised by the Manager. Pooled
repos are expected to increase the income the Fund can earn from repo
transactions without increasing the risks associated with these transactions.
FOREIGN SECURITIES
Although the Fund may buy securities of foreign issuers in foreign markets, most
of its foreign securities investments are made by purchasing American Depositary
Receipts ("ADR"s), "ordinary shares," or "New York shares." The Fund may invest
in foreign-currency-denominated debt or equity securities of companies engaged
in the utilities industry if the Manager believes that such investments will be
advantageous to the Fund.
ADRs are dollar-denominated receipts representing interests in the securities of
a foreign issuer. They are issued by U.S. banks and traded on exchanges or over
the counter in the U.S. Ordinary shares are shares of foreign issuers that are
traded abroad and on a U.S. exchange. New York shares are shares that a foreign
issuer has allocated for trading in the U.S. ADRs, ordinary shares, and New York
shares all may be purchased with and sold for U.S. dollars, which protects the
Fund from the foreign settlement risks described below.
Investing in foreign companies may involve risks not typically associated with
investing in U.S. companies. The value of securities denominated in foreign
currencies and of dividends from such securities can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices in some foreign markets can be very volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those that
Statement of Additional Information 3
apply to U.S. companies, and it may be more difficult to obtain reliable
information regarding a foreign issuer's financial condition and operations. In
addition, the costs of foreign investing, including withholding taxes, brokerage
commissions, and custodial fees, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad carries political and economic risks distinct from those
associated with investing in the U.S. Foreign investments may be affected by
actions of foreign governments that are adverse to the interests of U.S.
investors, including the possibility of expropriation or nationalization of
assets, confiscatory taxation, restrictions on U.S. investment, or restrictions
on the ability to repatriate assets or to convert currency into U.S. dollars.
There may be a greater possibility of default by foreign governments or
foreign-government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability, military
action or unrest, or adverse diplomatic developments.
To offset the currency risks associated with investing in securities of foreign
issuers, the Fund may hold foreign currency deposits and may convert dollars and
foreign currencies in the foreign exchange markets. Currency conversion involves
dealer spreads and other costs, although commissions usually are not charged.
Currencies may be exchanged on a spot (i.e., cash) basis or by entering into
forward contracts to purchase or sell foreign currencies at a future date and
price. By entering into a forward contract to buy or sell the amount of foreign
currency involved in a security transaction for a fixed amount of U.S. dollars,
the advisor can protect the Fund against losses resulting from adverse changes
in the relationship between the U.S. dollar and the foreign currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received. However, it should be noted that using forward
contracts to protect the Fund's foreign investments from currency fluctuations
does not eliminate fluctuations in the prices of the underlying securities
themselves. Forward contracts simply establish a rate of exchange that can be
achieved at some future point in time. Additionally, although forward contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they also limit any gain that might result if the hedged currency's
value were to increase.
Foreign exchange dealers do not charge fees for currency conversions. Instead,
they realize a profit based on the difference (i.e., the spread) between the
prices at which they are buying and selling various currencies. A dealer may
offer to sell a foreign currency at one rate while simultaneously offering a
lesser rate of exchange on the purchase of that currency.
The Manager uses forward contracts for currency hedging purposes only and not
for speculative purposes. The Fund is not required to enter into forward
contracts with regard to its foreign holdings and will not do so unless this
procedure is deemed appropriate by the Manager.
The Fund's assets are valued daily in U.S. dollars, although foreign currency
holdings are not physically converted into U.S. dollars on a daily basis.
DEPOSITARY RECEIPTS
American Depositary Receipts and European Depositary Receipts ("EDR"s) are
receipts representing ownership of shares of a foreign-based issuer held in
trust by a bank or similar financial institution. These are designed for U.S.
and European securities markets as alternatives to purchasing underlying
securities in their corresponding national markets and currencies. ADRs and EDRs
can be sponsored or unsponsored.
Sponsored ADRs and EDRs are certificates in which a bank or financial
institution participates with a custodian. Issuers of unsponsored ADRs and EDRS
are not contractually obligated to disclose material information in the United
States. Therefore, there may not be a correlation between such information and
the market value of the unsponsored ADR or EDR.
4 American Century Investments
RESTRICTED SECURITIES
Restricted securities held by the Fund generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where registration
is required, the Fund may be required to pay all or a part of the registration
expense, and a considerable period may elapse between the time it decides to
seek registration of the securities and the time it is permitted to sell them
under an effective registration statement. If, during this period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to try to register the securities.
SECURITIES LENDING
The Fund may lend its portfolio securities to earn additional income. If a
borrower defaulted on a securities loan, the Fund could experience delays in
recovering the securities it loaned or if the value of the loaned securities
increased in the meantime, the Fund could suffer a loss.
To minimize the risk of default on securities loans, the Manager adheres to the
following guidelines prescribed by the Board of Directors:
(1) TYPE AND AMOUNT OF COLLATERAL. At the time a loan is made, the Fund must
receive, from or on behalf of the borrower, collateral consisting of any
combination of cash and full faith and credit U.S. government securities
equal to not less than 102% of the market value of the securities loaned.
Cash collateral received by the Fund in connection with loans of portfolio
securities may be commingled by the Fund's custodian with other cash and
marketable securities, provided that the loan agreement expressly allows
such commingling. The loan must not reduce the risk of loss or opportunity
for gain in the securities loaned.
(2) ADDITIONS TO COLLATERAL. Collateral must be marked to market daily, and the
borrower must agree to add collateral to the extent necessary to maintain
the 102% level specified in guideline (1) above. The borrower must deposit
additional collateral no later than the business day following the business
day on which a collateral deficiency occurs or collateral appears to be
inadequate.
(3) TERMINATION OF LOAN. The Fund must have the option to terminate any loan of
portfolio securities at any time. The borrower must be obligated to
redeliver the borrowed securities within the normal settlement period
following receipt of the termination notice.
(4) REASONABLE RETURN ON LOAN. The borrower must agree that the Fund (a) will
receive all dividends, interest, or other distributions on loaned
securities and (b) will be paid a reasonable return on such loans either in
the form of a loan fee or premium or from the retention by the Fund of part
or all of the earnings and profits realized from the investment of cash
collateral in full faith and credit U.S government securities.
(5) LIMITATIONS ON PERCENTAGE OF PORTFOLIO SECURITIES ON LOAN. The Fund's loans
may not exceed 331/3% of its total assets.
(6) CREDIT ANALYSIS. As part of the regular monitoring procedures set forth by
the Board of Directors that the Manager follows to evaluate banks and
broker-dealers in connection with, for example, repurchase agreements and
municipal securities credit issues, the Manager will analyze and monitor
the creditworthiness of all borrowers with whom portfolio lending
arrangements are proposed or made.
SHORT SALES AND PUT OPTIONS ON INDIVIDUAL SECURITIES
The Fund may buy puts and enter into short sales with respect to stocks
underlying its convertible security holdings. For example, if the advisor
anticipates a decline in the price of the stock underlying a convertible
security the Fund holds, it may purchase a put option on the stock or sell the
stock short. If the stock price subsequently declines, the proceeds of the short
sale or an increase in the value of the put option could be expected to offset
all or a portion of the effect of the stock's decline on the value of the
convertible security.
When the Fund enters into a short sale, it will be required to set aside
securities equivalent in kind and
Statement of Additional Information 5
amount to those sold short (or securities convertible or exchangeable into such
securities) and will be required to continue to hold them while the short sale
is outstanding. The Fund will incur transaction costs, including interest
expenses, in connection with opening, maintaining, and closing short sales.
FUTURES AND OPTIONS TRANSACTIONS
FUTURES CONTRACTS provide for the sale by one party and purchase by another
party of a specific security at a specified future time and price. Futures
contracts are traded on national futures exchanges. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (CFTC), a U.S. government agency.
Although futures contracts, by their terms, call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date. Closing out a futures position is done by taking
an opposite position in an identical contract (i.e., buying a contract that has
previously been sold, or selling a contract that has previously been bought).
To initiate and maintain open positions in futures contracts, the Fund is
required to make a good faith margin deposit in cash or government securities
with a broker or custodian. A margin deposit is intended to assure completion of
the contract (delivery or acceptance of the underlying security) if it is not
terminated prior to the specified delivery date. Minimum initial margin
requirements are established by the futures exchanges and may be revised. In
addition, brokers may establish deposit requirements that are higher than the
exchange minimums.
After a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, the contract holder is
required to pay additional "variation" margin. Conversely, changes in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to or
from the futures broker as long as the contract remains open and do not
constitute margin transactions for purposes of the Fund's investment
restrictions.
Those who trade futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities they hold or expect to acquire
for investment purposes. Speculators are less likely to own the securities
underlying the futures contracts they trade and are more likely to use futures
contracts with the expectation of realizing profits from fluctuations in the
prices of the underlying securities. The Fund will not utilize futures contracts
for speculative purposes.
Although techniques other than trading futures contracts can be used to control
the Fund's exposure to market fluctuations, the use of futures contracts may be
a more effective means of hedging this exposure. While the Fund pays brokerage
commissions in connection with opening and closing out futures positions, these
costs are lower than the transaction costs incurred in the purchase and sale of
the underlying securities.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund obtains
the right (but not the obligation) to sell the option's underlying instrument at
a fixed "strike" price. In return for this right, the Fund pays the current
market price for the option (known as the option premium). Options have various
types of underlying instruments, including specific securities, indexes of
securities prices, and futures contracts. The Fund may terminate its position in
a put option it has purchased by allowing it to expire or by exercising the
option. If the option is allowed to expire, the Fund will lose the entire
premium it paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the strike price. The Fund may also terminate a put
option position by closing it out in the secondary market at its current price
if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid plus related
transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase,
6 American Century Investments
rather than sell, the underlying instrument at the option's strike price. A call
buyer typically attempts to participate in potential price increases of the
underlying instrument with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a loss if security
prices do not rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. If the Fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party chooses to exercise
the option. When writing an option on a futures contract, the Fund will be
required to make margin payments to a broker or custodian as described above for
futures contracts. The Fund may seek to terminate its position in a put option
it writes before exercise by closing out the option in the secondary market at
its current price. If the secondary market is not liquid for a put option the
Fund has written, however, the Fund must continue to be prepared to pay the
strike price while the option is outstanding, regardless of price changes, and
must continue to set aside assets to cover its position.
If security prices were to rise, a put writer would generally expect to profit,
although the gain would be limited to the amount of the premium received. If
security prices were to remain the same over time, it would be likely that the
writer would also profit by being able to close out the option at a lower price.
If security prices were to fall, the put writer would expect to suffer a loss.
This loss should be less than the loss from purchasing the underlying instrument
directly, however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
COMBINED POSITIONS. The Fund may purchase and write options in combination with
one another, or in combination with futures or forward contracts, in order to
adjust the risk and return characteristics of the overall position. For example,
the Fund may purchase a put option and write a call option on the same
underlying instrument in order to construct a combined position whose risk and
return characteristics are similar to a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
OVER-THE-COUNTER OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter ("OTC") options (options not traded
on exchanges) generally are established through negotiation with the other party
to the option contract. While this type of arrangement allows the Fund greater
flexibility in tailoring an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organizations of the exchanges where they are traded. The risk of
illiquidity is also greater with OTC options, because these options generally
can be closed out only by negotiation with the other party to the option.
OPTIONS ON FUTURES. By purchasing an option on a futures contract, the Fund
obtains the right, but not the obligation, to sell the futures contract (a put
option) or to buy the contract (a call option) at a fixed strike price. The Fund
can terminate its position in a put option by allowing it to expire or by
exercising the option. If the option is exercised, the Fund completes the sale
of the underlying security at the strike price. Purchasing an option on a
futures contract does not require the Fund to make margin payments unless the
option is exercised.
Statement of Additional Information 7
CORRELATION OF PRICE CHANGES. Because there are a limited number of types of
exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments exactly. The Fund may invest in options and futures
contracts based on securities with issuers, maturities, or other characteristics
different from those of the securities in which it typically invests for
example, it may hedge intermediate-term securities with a futures contract based
on an index of long-term bond prices or hedge stock holdings with futures
contracts on a broad-based stock index such as the Standard & Poor's 500
Composite Stock Price Index (S&P 500) which involves a risk that the options or
futures position will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments are well correlated with the
Fund's investments. Options and futures prices are affected by factors such as
current and anticipated short-term interest rates, changes in the volatility of
the underlying instrument, and the time remaining until expiration of the
contract; these factors may not affect security prices in the same way.
Imperfect correlation may also result from differing levels of demand in the
options and futures markets and the securities markets, from structural
differences in how options and futures and securities are traded, or from the
imposition of daily price fluctuation limits or trading halts. The Fund may
purchase or sell options and futures contracts with a greater or lesser value
than the securities it wishes to hedge or intends to purchase in an effort to
compensate for differences in volatility between the contract and the
securities, although this strategy may not be successful in all cases. If price
changes in the Fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains or
result in losses that are not offset by gains in other investments.
LIQUIDITY OF FUTURES CONTRACTS AND OPTIONS. There is no assurance a liquid
secondary market will exist for any particular futures contract or option at any
particular time. Options may have relatively low trading volume and liquidity if
their strike prices are not close to the underlying instrument's current price.
In addition, exchanges may establish daily price fluctuation limits for futures
contracts and options and may halt trading if a contract's price increases or
decreases more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached or a trading halt is imposed, it may be
impossible for the Fund to enter into new positions or close out existing
positions. If the secondary market for a contract were not liquid, because of
price fluctuation limits or otherwise, prompt liquidation of unfavorable
positions could be difficult or impossible, and the Fund could be required to
continue holding a position until delivery or expiration regardless of changes
in its value. Under these circumstances, the Fund's access to assets held to
cover its future and options positions also could be impaired.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS. The Fund has filed a
notice of eligibility for exclusion as a "commodity pool operator" with the CFTC
and the National Futures Association which regulates trading in the futures
markets. The Fund intends to comply with Section 4.5 of the regulations under
the extent to which the Fund can commit assets to initial margin deposits and
options premiums.
The Fund may enter into futures contracts, options, or options on futures
contracts, provided that such obligations represent no more than 20% of the
Fund's net assets. Under the Commodity Exchange Act, the Fund may enter into
futures and options transactions for hedging purposes without regard to the
percentage of assets committed to initial margin and option premiums and for
other than hedging purposes, provided that assets committed to initial margin
and option premiums do not exceed 5% of the Fund's net assets. To the extent
required by law, the Fund will set aside cash and appropriate liquid assets in a
segregated account to cover its obligations related to futures contracts and
options.
The Fund intends to comply with tax rules applicable to regulated investment
companies, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of a Fund's
gross income for each fiscal year. Gains on some futures contracts and options
are
8 American Century Investments
included in this 30% calculation, which may limit the Fund's investments in such
instruments.
FUTURES AND OPTIONS RELATING TO FOREIGN CURRENCIES. The Fund may purchase and
sell currency futures and purchase and write currency options to increase or
decrease its exposure to different foreign currencies. The Fund may also
purchase and write currency options in conjunction with each other or with
currency futures or forward contracts.
Currency futures contracts are similar to forward currency exchange contracts,
except that they are traded on exchanges (and have margin requirements) and have
standard contract sizes and delivery dates. Most currency futures contracts call
for payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, although it may be a futures contract. The purchaser
of a currency call obtains the right to purchase the underlying currency, and
the purchaser of a currency put obtains the right to sell the underlying
currency.
The uses and risks of currency futures and options are similar to those of
futures and options relating to securities or indexes, as described above.
Currency futures and options values can be expected to correlate with exchange
rates but may not reflect other factors that affect the value of the Fund's
investments. A currency hedge, for example, should protect a German
mark-denominated security from a decline in the German mark, but it will not
protect the Fund against a price decline resulting from a deterioration in the
issuer's creditworthiness. Because the value of the Fund's
foreign-currency-denominated investments will change in response to many factors
other than exchange rates, it may not be possible to match the amount of
currency options and futures to the value of the Fund's investments over time.
INVESTMENT RESTRICTIONS
The Fund's investment restrictions set forth below are fundamental and may not
be changed without approval of a majority of the outstanding votes of the
shareholders of the Fund as determined in accordance with the Investment Company
Act of 1940 (the "1940 Act").
THE FUND MAY NOT:
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities) if, as a result, (a) more than 5% of
its total assets would be invested in securities of that issuer, or (b) the
Fund would hold more than 10% of the outstanding voting securities of that
issuer.
(2) Issue senior securities, except as permitted under the Investment Company
Act of 1940.
(3) Borrow money except for temporary or emergency purposes (not for leveraging
or investment) in an amount exceeding 331/3% of its total assets (including
the amount borrowed) less liabilities (other than borrowings). Any
borrowings that exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with the
331/3% limitation.
(4) Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act
of 1933 in the disposition of restricted securities.
(5) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this will not prevent the Fund from
investing in securities or other instruments backed by real estate or the
securities of companies engaged in the real estate business).
(6) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this will not prevent the
Fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities).
(7) Lend any security or make any other loan if, as a result, more than 331/3%
of its total assets would be lent to other parties, provided that this
restriction does not apply to purchases of debt securities or to repurchase
agreements.
The Fund is also subject to the following restrictions that are not fundamental
and may therefore be changed by the Board of Directors without shareholder
approval.
Statement of Additional Information 9
THE FUND MAY NOT:
(a) Sell securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short and provided
that transactions in futures contracts and options are not deemed to
constitute selling securities short.
(b) 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 will not constitute purchasing securities on
margin.
(c) Purchase any security if, as a result, more than 15% of its net assets
would be invested in securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily available
market.
(d) Purchase securities of other investment companies, except in the open
market where no commission except the ordinary broker's commission is paid
or purchase or retain securities issued by other open-end investment
companies. These restrictions do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(e) Purchase securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political subdivisions
thereof) if, as a result, more than 5% of its total assets would be
invested in the securities of business enterprises that, including
predecessors, have a record of less than three years of continuous
operation.
(f) Purchase warrants, valued at the lower of cost or market, in excess of 5%
of the Fund's net assets. Included in that amount, but not to exceed 2% of
the Fund's net assets, may be warrants that are not listed on the New York
Stock Exchange or the American Stock Exchange. Warrants acquired by the
Fund in units or attached to securities are not subject to these
restrictions.
(g) Invest in oil, gas, or other mineral exploration or development programs or
leases.
(h) Purchase the securities of any issuer if those officers and Directors of
the Fund and those officers and Directors of the Manager who individually
own more than 1/2 of 1% of the securities of such issuer together own more
than 5% of such issuer's securities.
(i) Invest in securities of real estate investment trusts that are not readily
marketable or invest in securities of real estate limited partnerships that
are not listed on the New York Stock Exchange or the American Stock
Exchange or traded on the NASDAQ National Market System.
(j) Purchase any security when borrowings representing more than 5% of its
total assets are outstanding.
Unless otherwise indicated, percentage limitations included in the restrictions
apply at the time transactions are entered into. Accordingly, any later increase
or decrease beyond the specified limitation resulting from a change in the
Fund's net assets will not be considered in determining whether it has complied
with its investment restrictions.
RISK FACTORS
Because the Fund concentrates its assets in the utilities industry, its
performance depends in part on how favorably investors perceive this sector of
the market relative to other sectors (such as transportation or technology). Of
course, investor perceptions of the utilities industry are driven not only by
comparisons with other market sectors but by trends and events within the
utilities industry. The following is a brief outline of risk factors associated
with investment in the utilities industry.
REGULATORY RISKS. Regulators (primarily at the state level) monitor and control
public utility company revenues and costs. Regulators can limit profits and
dividends paid to investors; they may also restrict a company's access to new
markets. Some analysts observe that state regulators have become increasingly
active in developing and promoting energy policy through the regulatory process.
NATURAL RESOURCE RISKS. Swift and unpredictable changes in the price and supply
of natural resources can hamper utility company profitability. These changes may
be caused by political events, energy conservation programs, the success of
exploration
10 American Century Investments
projects, or tax and other regulatory policies of various governments.
ENVIRONMENTAL RISKS. There are considerable costs associated with environmental
compliance, nuclear waste cleanup, and safety regulation. For example,
coal-burning utilities are under pressure to curtail sulfur emissions, and
utilities in general increasingly are called upon by regulators to bear
environmental costs, which may not be easily recovered through rate increases or
business growth.
Changing weather patterns and natural disasters affect consumer demand for
utility services (e.g., electricity, heat, and air conditioning), which, in
turn, affects utility revenues.
TECHNOLOGY AND COMPETITIVE RISKS. The introduction and phase-in of new
technologies can affect a utility company's competitive strength. The race by
long-distance telephone providers to incorporate fiber optic technology is one
example of competitive risk within the utilities industry.
The increasing role of independent power producers ("IPP"s) in the natural gas
and electric utility segments of the utilities industry is another example of
competitive risk. Typically, IPPs wholesale power to established local
providers, but there is a trend toward letting them sell power directly to
industrial consumers. Co-generation facilities, such as those of landfill
operators that produce methane gas as a byproduct of their core business, pose
another competitive challenge to gas and electric utilities. In addition to
offering a less expensive source of power, these companies may receive more
favorable regulatory treatment than utilities seeking to expand facilities that
consume nonrenewable energy sources.
INTEREST RATE RISKS. Utility companies usually finance capital expenditures
(e.g., new plant construction) by issuing long-term debt. Rising long-term
interest rates increase interest expenses and reduce company earnings.
PORTFOLIO TRANSACTIONS
The Fund's assets are invested by the Manager in a manner consistent with the
Fund's investment objectives, policies, and restrictions and with any
instructions from the Board of Directors that may be issued from time to time.
Within this framework, the Manager is responsible for making all determinations
as to the purchase and sale of portfolio securities and for taking all steps
necessary to implement securities transactions on behalf of the Fund. In placing
orders for the purchase and sale of portfolio securities, the Manager will use
its best efforts to obtain the best possible price and execution and otherwise
will place orders with broker-dealers subject to and in accordance with any
instructions from the Board of Directors. The Manager will select broker-dealers
to execute portfolio transactions on behalf of the Fund solely on the basis of
best price and execution.
The Fund's annual portfolio turnover rate is not expected to exceed 150%.
Because a higher turnover rate increases transaction costs and may increase
taxable capital gains, the Manager carefully weighs the potential benefits of
short-term investing against these considerations.
The portfolio turnover rates for the Fund are listed in the table below.
Fiscal Year Portfolio Turnover Rate
- --------------------------------------------------------
1995 68.17%
1994 61.42%
- --------------------------------------------------------
For the fiscal years ended December 31, 1995, December 31, 1994, and December
31, 1993, the Fund paid brokerage commissions of $205,544, $180,145 and
$266,365, respectively.
VALUATION OF PORTFOLIO SECURITIES
The Fund's net asset value per share ("NAV") is calculated as of the close of
business of the New York Stock Exchange (the "Exchange"), usually at 3:00 p.m.
Central time each day the Exchange is open for business. The Exchange has
designated the following holiday closings for 1997: New Year's Day (observed),
Presidents` Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day (observed). Although the Fund expects the
same holiday schedule to be observed in the future, the Exchange may modify its
holiday schedule at any time.
The Manager typically completes its trading on behalf of the Fund in various
markets before the Exchange closes for the day. Securities are priced at market
value, depending upon the market or exchange on which they trade. Price
quotations for
Statement of Additional Information 11
exchange-listed securities are taken from the primary exchanges on which these
securities trade. Securities traded on exchanges will be valued at their last
sale prices. If no sale is reported, the mean between the latest bid and asked
prices is used. Securities traded over-the-counter will be valued at the mean
between the latest bid and asked prices. Fixed-income securities are priced at
market value on the basis of market quotations supplied by independent pricing
services. Trading of securities in foreign markets may not take place every day
the Exchange is open, and trading takes place in various foreign markets on days
on which the Exchange and the Fund's offices are not open and the Fund's net
asset value is not calculated. The Fund's net asset value may be significantly
affected on days when shareholders have no access to the Fund. Securities for
which market quotations are not readily available, or which may change in value
due to events occurring after their primary exchange has closed for the day, are
valued at fair market value as determined in good faith under the direction of
the Board of Directors.
PERFORMANCE
The Fund's yields and total returns may be quoted in advertising and sales
literature. These figures, as well as the Fund's share price, will vary. Past
performance should not be considered an indication of future results.
Yield quotations are based on the investment income per share earned during a
particular 30-day period, less expenses accrued during the period (net
investment income), and are computed by dividing the Fund's net investment
income by its share price on the last day of the period, according to the
following formula:
YIELD = 2 [(a - b + 1)6 - 1]
------
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
For the 30-day period ended June 30, 1996, the Fund's yield was 4.11%.
Total returns quoted in advertising and sales literature reflect all aspects of
the Fund's return, including the effect of reinvesting dividends and capital
gain distributions and any change in the Fund's net asset value per share during
the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual return of 7.18%, which is the
steady annual rate that would result in 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
Average annual total returns for periods of less than one year are calculated by
determining the Fund's total return for the period, extending that return for a
full year (assuming that performance remains constant throughout the year), and
quoting the result as an annual return. Because the Fund's return may not remain
constant over the course of a year, these performance figures should be viewed
as strictly hypothetical.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. The
12 American Century Investments
Fund's average annual total return for the one-year and life-of-fund periods
ended June 30, 1996 was 20.91% and 8.53%, respectively. The Fund commenced
operations on March 1, 1993. Performance information may be quoted numerically
or in a table, graph, or similar illustration.
The Fund's performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be considered in making such comparisons may include, but
are not limited to: U.S. Treasury bill, note, and bond yields, money market fund
yields, U.S. government debt and percentage held by foreigners, the U.S. money
supply, net free reserves, and yields on current-coupon Government National
Mortgage Association securities (GNMAs) (source: Board of Governors of the
Federal Reserve System); the federal funds and discount rates (source: Federal
Reserve Bank of New York); yield curves for U.S. Treasury securities and
AA/AAA-rated corporate securities (source: Bloomberg Financial Markets); yield
curves for AAA-rated tax-free municipal securities (source: Telerate); yield
curves for foreign government securities (sources: Bloomberg Financial Markets
and Data Resources, Inc.); total returns on foreign bonds (source: J.P. Morgan
Securities Inc.); various U.S. and foreign government reports; the junk bond
market (source: Data Resources, Inc.); the CRB Futures Index (source: Commodity
Index Report); the price of gold (sources: London a.m./p.m. fixing and New York
Comex Spot Price); rankings of any mutual fund or mutual fund category tracked
by Lipper Analytical Services, Inc. or Morningstar, Inc.; mutual fund rankings
published in major, nationally distributed periodicals; data provided by the
Investment Company Institute; Ibbotson Associates, Stocks, Bonds, Bills, and
Inflation; major indexes of stock market performance; and indexes and historical
data supplied by major securities brokerage or investment advisory firms. The
Fund may also utilize reprints from newspapers and magazines furnished by third
parties to illustrate historical performance.
Indexes may assume reinvestment of dividends, but generally they do not reflect
administrative and management costs such as those incurred by a mutual fund.
Occasionally, statistics may be used to illustrate Fund volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's net
asset value or performance to a market index. One measure of volatility is
"beta." Beta expresses Fund volatility relative to the total market as
represented by the S&P 500. A beta of more than 1.00 indicates volatility
greater than that of the market, and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
"standard deviation." Standard deviation is used to measure the variability of
net asset value or total return relative to an average over a specified period
of time. The premise is that greater volatility connotes greater risk undertaken
to achieve a desired performance.
The Fund's shares are sold without a sales charge (a "load"). No-load funds
offer an advantage to investors when compared to load funds with comparable
investment objectives and strategies.
The Manager may obtain ratings on the safety of Fund shares from one or more
rating agencies and may publish such ratings in advertisements and sales
literature.
TAXES
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By
so qualifying, the Fund will not incur federal or state income taxes on its net
investment income and net realized capital gains distributed to shareholders.
Distributions from the Fund are taxable to shareholders regardless of whether
they are taken in cash or reinvested in additional shares. For federal income
tax purposes, shareholders receiving distributions in the form of additional
shares will have a basis in each such share equal to the Fund's net asset value
per share on the reinvestment date.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. To the extent that the Fund's
dividends consist of dividend income from domestic
Statement of Additional Information 13
corporations, such dividends may be eligible for the dividends-received
deduction available to corporations. Shareholders will be notified annually of
the federal tax status of distributions.
As of December 31, 1995, the Fund had a capital loss carryover of $7,035,543
that will expire on December 31, 2002 and $4,356,683 that will expire on
December 31, 2003. No capital gain distributions will be made by the Fund until
its capital loss carryovers have been offset or have expired.
Upon redeeming, selling, or exchanging shares of the Fund, a shareholder will
realize a taxable gain or loss depending upon his or her basis in the shares
liquidated. The gain or loss generally will be long-term or short-term,
depending on the length of time the shares were held. However, a loss recognized
by a shareholder in the disposition of shares on which capital gain dividends
were paid (or deemed paid) before the shareholder had held his or her shares for
more than six months would be treated as a long-term capital loss for tax
purposes. A gain realized on the redemption, sale, or exchange of shares would
not be affected by the reacquisition of shares. A loss realized on the
redemption, sale, or exchange of shares would be disallowed to the extent that
the shares disposed of were replaced (whether through reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the date shares were disposed of. Under such
circumstances, the basis of the shares acquired would be adjusted to reflect the
disallowed loss.
The information above is only a summary of some of the tax considerations
affecting the Fund and its shareholders; no attempt has been made to discuss
individual tax consequences. Shareholders who are neither citizens nor residents
of the U.S. may be subject to a nonresident alien withholding tax of 30% or a
lower treaty rate, depending on the country in which they reside. The Fund's
distributions also may be subject to state, local, or foreign taxes. A
prospective investor may wish to consult a tax advisor to determine whether the
Fund is a suitable investment based on the investor's tax situation.
ABOUT AMERICAN CENTURY QUANTITATIVE EQUITY FUNDS
American Century Quantitative Equity Funds (the "Corporation") was organized as
a California corporation on December 31, 1987. The Corporation was formerly
known as the Benham Equity Funds. The Corporation is authorized to issue 10
series and to issue two billion (2,000,000,000) shares of each such series.
Within each series, the Directors may issue an unlimited number of shares.
Currently, there are five series in the Corporation. American Century Utilities
Fund (formerly know as Benham Utilities Income Fund) is described in this
Statement of Additional Information. With respect to each series, shares issued
are fully paid and nonassessable and have no preemptive, conversion, or similar
rights. All consideration received by the Corporation for shares of any series,
and all assets, income, and gains (or losses) earned thereon, belong to that
series exclusively and are subject to related liabilities.
Shares of each series have equal voting rights, provided that each series votes
separately on matters that pertain to it exclusively. Each shareholder is
entitled to vote based on the total dollar interest in the Fund as of the record
date for a shareholder meeting. Under California Corporations Code Section 708,
shareholders have the right to cumulate votes in the election (or removal) of
Directors. For example, if six Directors are proposed for election, a
shareholder may cast six votes for a single candidate, three votes for each of
two candidates, etc.
CUSTODIAN BANK: Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY
11245 and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64106 serve as
custodians of the Fund's assets. Services provided by the custodian bank include
(a) settling portfolio purchases and sales, (b) reporting failed trades, (c)
identifying and collecting portfolio income, and (d) providing safekeeping of
securities. The custodian takes no part in determining the Fund's investment
policies or in determining which securities are sold or purchased by the Fund.
14 American Century Investments
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Fund's independent auditors and provides
services including (a) audit of annual financial statements and (b) preparation
of annual federal income tax returns filed on behalf of the Fund.
DIRECTORS AND OFFICERS
Each Fund's activities are overseen by a Board of Directors, including six
independent Directors. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Corporation (as defined in the
Investment Company Act of 1940) by virtue of, among other considerations, their
affiliation with either the Fund; the Fund's investment advisor, Benham
Management Corporation; the Fund's agent for transfer and administrative
services, American Century Services Corporation (ACS); the Fund's distribution
agent, American Century Investment Services, Inc.; their parent corporation,
American Century Companies, Inc. (ACC) or ACC's subsidiaries; or other funds
advised by the Manager. Each Director listed below also serves as a Trustee or
Director of other funds advised by the Manager. Unless otherwise noted, a date
in parentheses indicates the date the Director or officer began his or her
service in a particular capacity. The Directors' and officers' address, with the
exception of Mr. Stowers III and Ms. Roepke, is 1665 Charleston Road, Mountain
View, California 94043. The address of Mr. Stowers III and Ms. Roepke is 4500
Main Street, Kansas City, Missouri 64111.
DIRECTORS
*JAMES M. BENHAM, Chairman of the Board of Directors (1988), President and Chief
Executive Officer (1996). Mr. Benham is also President and Chairman of the Board
of the Manager (1971); and a member of the Board of Governors of the Investment
Company Institute (1988). Mr. Benham has been in the securities business since
1963, and he frequently comments through the media on economic conditions,
investment strategies, and the securities markets.
ALBERT A. EISENSTAT, independent Director (1995). Mr. Eisenstat is an
independent Director of each of Commercial Metals Co. (1982), Sungard Data
Systems (1991) and Business Objects S/A (1994). Previously, he served as Vice
President of Corporate Development and Corporate Secretary of Apple Computer and
served on its Board of Directors (1985 to 1993).
RONALD J. GILSON, independent Director (1995). Mr. Gilson is the Charles J.
Meyers Professor of Law and Business at Stanford Law School (1979) and the Mark
and Eva Stern Professor of Law and Business at Columbia University School of Law
(1992). He is counsel to Marron, Ried & Sheehy (a San Francisco law firm, 1984).
MYRON S. SCHOLES, independent Director (1988). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983), a Director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a Managing Director of Salomon
Brothers Inc. (securities brokerage).
KENNETH E. SCOTT, independent Director (1988). Mr. Scott is Ralph M. Parsons
Professor of Law and Business at Stanford Law School (1972) and a Director of
RCM Capital Management (1994).
ISAAC STEIN, independent Director (1992). Mr. Stein is former Chairman of the
Board (1990 to 1992) and Chief Executive Officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the Board of Raychem
Corporation (electrical equipment, 1993), President of Waverley Associates, Inc.
(private investment firm, 1983), and a Director of ALZA Corporation
(pharmaceuticals, 1987). He is also a Trustee of Stanford University (1994) and
Chairman of Stanford Health Services (hospital, 1994).
*JAMES STOWERS III, Director (1995). Mr. Stowers III is the President, Chief
Executive Officer and Director of ACC, ACS and ACIS.
JEANNE D. WOHLERS, independent Director (1988). Ms. Wohlers is a private
investor, and an independent Director and Partner of Windy Hill Productions, LP.
Previously, she served as Vice President and Chief Financial Officer of Sybase,
Inc. (software company, 1988 to 1992).
Statement of Additional Information 15
OFFICERS
*JAMES M. BENHAM, President and Chief Executive Officer (1996).
*WILLIAM M. LYONS, Executive Vice President (1996); Executive Vice President,
Chief Operating Officer, General Counsel and Secretary of the Manager, ACS, and
ACIS.
*DOUGLAS A. PAUL, Secretary (1988), Vice President (1990), and General Counsel
(1990); Secretary and Vice President of the funds advised by the Manager.
*MERLE MAY, Controller (1996).
*MARYANNE ROEPKE, CPA, Chief Financial Officer and Treasurer (1995); Vice
President and Assistant Treasurer of ACS.
As of July 31, 1996, the Fund's Directors and officers as a group owned less
than 1% of the Fund's outstanding shares.
The table at the bottom of this page summarizes the compensation that the
Directors of the Fund received for the Fund's fiscal year ended December 31,
1995, as well as the compensation received for serving as Director or Trustee of
all other funds advised by the Manager.
INVESTMENT ADVISORY SERVICES
The Fund has an investment advisory agreement with the Manager, dated June 1,
1995, that was approved by the Fund's shareholders on May 31, 1995.
The Manager is a California corporation and became a wholly owned subsidiary of
ACC on June 1, 1995. The Manager has served as investment advisor to the Fund
since the Fund's inception. ACC is a holding company that owns all of the stock
of the operating companies that provide the investment management, transfer
agency, shareholder service, and other services for the American Century funds.
James E. Stowers, Jr., controls ACC by virtue of his ownership of a majority of
its common stock. The Manager has been a registered investment advisor since
1971.
The Fund's agreement with the Manager continues for an initial period of two
years and thereafter from year-to-year provided that, after the initial two year
period, it is approved at least annually by vote of either a majority of the
Fund's outstanding voting securities or by vote of a majority of the Fund's
Directors, including a majority of those Directors who are neither parties to
the agreement nor interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
The investment advisory agreement is terminable on 60 days' written notice,
either by the Fund or by the Manager, to the other party and terminates
automatically in the event of its assignment.
Pursuant to the investment advisory agreement, the Manager provides the Fund
with investment advice and portfolio management services in accordance with the
Fund's investment objectives, policies, and restrictions. The Manager determines
which securities will be purchased and sold by the Fund. It also assists the
Fund's officers in carrying out decisions made by the Board of Directors.
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Aggregate Pension or Retirement Estimated Total Compensation
Name of Compensation Benefits Accrued As Part Annual Benefits From Fund and Fund
Director* From The Fund of Fund Expenses Upon Retirement Complex** Paid to Directors
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert A. Eisenstat $0 Not Applicable Not Applicable $0
Ronald J. Gilson $801 Not Applicable Not Applicable $48,833
Myron S. Scholes $1,452 Not Applicable Not Applicable $65,625
Kenneth E. Scott $1,394 Not Applicable Not Applicable $65,125
Ezra Solomon $1,465 Not Applicable Not Applicable $58,792
Isaac Stein $1,402 Not Applicable Not Applicable $63,625
Jeanne D. Wohlers $1,469 Not Applicable Not Applicable $67,375
</TABLE>
* Interested Directors receive no compensation for their services as such.
** American Century family of funds includes nearly 70 no-load mutual funds.
16 American Century Investments
For these services, the Fund pays the Manager a monthly investment advisory fee
based on the dollar amount derived from applying the Corporation's average daily
net assets to the following investment advisory fee rate schedule:
.50% of the first $100 million;
.45% of the next $100 million;
.40% of the next $100 million;
.35% of the next $100 million;
.30% of the next $100 million;
.25% of the next $1 billion;
.24% of the next $1 billion;
.23% of the next $1 billion;
.22% of the next $1 billion;
.21% of the next $1 billion;
.20% of the next $1 billion; and
.19% of average daily net assets over $6.5 billion.
For the fiscal years ending December 31, 1995, and December 31, 1994, the Fund
paid $540,339 and $415,129, respectively, in investment advisory fees net of the
fee waiver to the Manager. The Funds paid no investment advisory fees to the
Manager for the fiscal period March 1, 1993 (commencement of operations),
through December 31, 1993.
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri,
64111, (ACS) acts as transfer, administrative services and dividend paying agent
for the Fund. ACS provides facilities, equipment and personnel to the Fund and
is paid for such services by the Fund. For administrative services, the Fund
pays ACS a monthly fee equal to its pro rata share of the dollar amount derived
from applying the average daily net assets of all of the Funds advised by the
Manager to the following administrative fee rate schedule:
Group Assets Administrative Fee Rate
- ---------------------------------------------------
up to $4.5 billion .11%
up to $6 billion .10
up to $9 billion .09
over $9 billion .08
- ---------------------------------------------------
For transfer agent services, the Fund pays ACS monthly fees of $1.3958 for each
shareholder account maintained and $1.35 for each shareholder transaction
executed during the month.
Administrative service and transfer agent fees paid by the Fund for the fiscal
years ended December 31, 1995, 1994 and 1993 are indicated in the following
tables. Fee amounts are net of expense limitations as described under the
section titled "Expense Limitation Agreement."
Fiscal Period Administrative Fees
- ---------------------------------------------------
1995 $170,950
1994 $163,339
1993* $113,358
- ---------------------------------------------------
Fiscal Period Transfer Agent Fees
- ---------------------------------------------------
1995 $414,319
1994 $447,668
1993* $184,307
- ---------------------------------------------------
*For the fiscal period March 1, 1993 (commencement of operations), through
December 31, 1993.
DISTRIBUTION OF FUND SHARES
The Fund's shares are distributed by American Century Investment Services, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the Manager.
The Manager pays all expenses for promoting and distributing the Fund's shares
offered by this Prospectus. The Fund does not pay any commissions or other fees
to the Distributor or to any other broker-dealers or financial intermediaries in
connection with the distribution of Fund shares.
DIRECT FUND EXPENSES
The Fund pays certain operating expenses that are not assumed by the Manager or
ACS. These include fees and expenses of the independent Directors; custodian,
audit, tax preparation and pricing fees; fees of outside counsel and counsel
employed directly by the Corporation; costs of printing and mailing
prospectuses, statements of additional information, proxy statements, notices,
confirmations, and reports to
Statement of Additional Information 17
shareholders; fees for registering the Fund's shares under federal and state
securities laws; brokerage fees and commissions (if any); trade association
dues; costs of fidelity and liability insurance policies covering the Fund;
costs for incoming WATS lines maintained to receive and handle shareholder
inquiries; and organizational costs.
EXPENSE LIMITATION AGREEMENT
The Manager may recover amounts absorbed on behalf of the Fund during the
preceding 11 months if, and to the extent that, for any given month, the Fund's
expenses were less than the expense limitation in effect at that time. The
Manager has agreed to limit the Fund expenses to .75% of the Fund's average
daily net assets until May 31, 1997. The expense limitation is subject to annual
renewal.
For the fiscal years ended 1995 and 1994, the Manager reimbursed $8,882 and
$112,324 respectively, of the Fund's expenses. For the fiscal period March 1,
1993 (commencement of operations), through December 31, 1993, the Manager
reimbursed $515,240 of the Fund's expenses.
VOLUNTARY EXPENSE LIMITATION. The Manager voluntarily agreed to absorb all the
Fund's expenses through May 31, 1993. On June 1, 1993, the Fund began absorbing
expenses equal to .15% of average daily net assets. This expense cap was raised
by .15% of average daily net assets as of the first day of each subsequent month
until the .75% contractual cap was reached on October 1, 1993. The Manager's
voluntary expense limitations are not eligible for recoupment (as described
above with respect to the expense limitation agreement).
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund's shares are continuously offered at net asset value. Share
certificates are issued (without charge) only when requested in writing.
Certificates are not issued for fractional shares. Dividend and voting rights
are not affected by the issuance of certificates.
American Century may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Corporation or one of
its series; to avoid jeopardizing a series' tax status; or whenever, in
management's opinion, such rejection is in the Corporation's or a series' best
interest. As of July 31, 1996, Charles Schwab & Company, 101 Montgomery Street,
San Francisco, California 94104, was the omnibus record holder of 2,108,868.410
shares or 15.0% of the Fund's total outstanding shares.
ACS charges neither fees nor commissions on the purchase and sale of fund
shares. However, TCS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
ACS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Investor Services Guide for more information.
Share purchases and redemptions are governed by California law.
OTHER INFORMATION
The Fund's investment advisor has been continuously registered with the SEC
under the Investment Advisers Act of 1940 since December 14, 1971. The
Corporation has filed a registration statement under the Securities Act of 1933
and the 1940 Act with respect to the shares offered. These registrations do not
imply approval or supervision of the Corporation or the advisor by the SEC.
For further information, refer to the registration statement and exhibits on
file with the SEC in Washington, DC. These documents are available upon payment
of a reproduction fee. Statements in the Prospectus and this Statement of
Additional Information concerning the contents of contracts or other documents,
copies of which are filed as exhibits to the registration statement, are
qualified by reference to such contracts or documents.
18 American Century Investments
NOTES
Statement of Additional Information Notes 19
NOTES
20 American Century Investments
NOTES
Statement of Additional Information Notes 21
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
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