AMERICAN CENTURY
Statement of
Additional Information
Income & Growth Fund
Equity Growth Fund
Small Cap Quantitative Fund
Global Gold Fund
Global Natural Resources Fund
Utilities Fund
[american century logo(reg.sm)]
American
Century
APRIL 1, 1999
THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE
FUNDS' PROSPECTUSES, DATED APRIL 1, 1999, BUT IS NOT A PROSPECTUS. IF YOU WOULD
LIKE A COPY OF A PROSPECTUS, PLEASE CONTACT US AT ONE OF THE ADDRESSES OR
TELEPHONE NUMBERS LISTED ON THE BACK COVER OR VISIT AMERICAN CENTURY'S WEB SITE
AT WWW.AMERICANCENTURY.COM.
THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE
CERTAIN INFORMATION THAT APPEARS IN THE FUNDS' ANNUAL AND SEMIANNUAL REPORTS,
WHICH ARE DELIVERED TO ALL SHAREHOLDERS. YOU MAY OBTAIN A FREE COPY OF THE
FUNDS' ANNUAL OR SEMIANNUAL REPORTS BY CALLING 1-800-345-2021.
Distributed by Funds Distributor, Inc.
/front cover/
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1999
TABLE OF CONTENTS
The Funds' History .......................................................... 2
Fund Investment Guidelines .................................................. 2
Income & Growth, Equity Growth, Small Cap
Quantitative and Global Natural Resources ............................... 2
Global Gold ............................................................. 3
Utilities ............................................................... 4
Detailed Information About The Funds ........................................ 5
Investment Strategies and Risks ......................................... 5
Investment Policies ..................................................... 13
Portfolio Turnover ...................................................... 15
Management .................................................................. 16
The Board of Directors .................................................. 16
Officers ................................................................ 18
The Funds' Principal Shareholders ........................................... 20
Service Providers ........................................................... 21
Investment Advisor ...................................................... 21
Transfer Agent and Administrator ........................................ 23
Distributor ............................................................. 24
Other Service Providers ..................................................... 24
Custodian Banks ......................................................... 24
Independent Accountant .................................................. 24
Brokerage Allocation ........................................................ 24
Information About Fund Shares ............................................... 25
Multiple Class Structure ................................................ 25
Buying and Selling Fund Shares .......................................... 27
Valuation of a Fund's Securities ........................................ 27
Taxes ....................................................................... 28
Federal Income Tax ...................................................... 28
State and Local Income Tax .............................................. 29
How Fund Performance
Information Is Calculated ................................................... 29
Performance Comparisons ................................................. 31
Permissible Advertising Information ..................................... 31
Multiple Class Performance Advertising .................................. 32
Financial Statements ........................................................ 32
Statement of Additional Information
THE FUNDS' HISTORY
American Century Quantitative Equity Funds is a registered open-end management
investment company that was organized as a California corporation named Benham
Equities, Inc. on December 31, 1987. From August 18, 1988, to January 1, 1997,
it was known as Benham Equity Funds. Throughout the Statement of Additional
Information, we refer to American Century Quantitative Equity Funds as the
corporation.
Each fund described in this Statement of Additional Information is a separate
series of the corporation and operates for many purposes as if it were an
independent company. Each fund has its own investment objective, strategy,
management team, assets, tax identification and stock registration number.
<TABLE>
Investor Class Advisor Class Institutional Class
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ticker Inception Ticker Inception Ticker Inception
Fund Symbol Date Symbol Date Symbol Date
- ---------------------------------------------------------------------------------------
Income & Growth BIGRX 12/17/1990 AMADX 12/15/1997 AMGIX 01/28/1998
- ---------------------------------------------------------------------------------------
Equity Growth BEQGX 05/09/1991 BEQAX 10/09/1997 AMEIX 01/02/1998
- ---------------------------------------------------------------------------------------
Small Cap
Quantitative ASQIX 07/31/1998 N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------
Global Gold BGEIX 08/17/1988 N/A 05/06/1998 N/A N/A
- ---------------------------------------------------------------------------------------
Global Natural
Resources BGRIX 09/15/1994 N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------
Utilities BULIX 03/01/1993 N/A 06/25/1998 N/A N/A
- ---------------------------------------------------------------------------------------
</TABLE>
FUND INVESTMENT GUIDELINES
This section explains the extent to which the funds' advisor, American
Century Investment Management, Inc., can use various investment vehicles and
strategies in managing a fund's assets. Descriptions of the investment
techniques and risks associated with individual funds also appear herein, while
techniques and risks applicable to all of the funds appear in the section,
"Investment Strategies and Risks," which begins on page 5. In the case of the
funds' principal investment strategies, these descriptions elaborate upon
discussions contained in the Prospectuses.
Each fund, except Global Gold and Global Natural Resources, is a
diversified open-end investment company as defined in the Investment Company Act
of 1940 (the Investment Company Act). Diversified means that, with respect to
75% of its total assets, each fund will not invest more than 5% of its total
assets in the securities of a single issuer.
To meet federal tax requirements for qualification as a regulated investment
company, each fund must limit its investments so that at the close of each
quarter of its taxable year (1) no more than 25% of its total assets are
invested in the securities of a single issuer (other than the U.S. government or
a regulated investment company), and (2) with respect to at least 50% of its
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer.
INCOME & GROWTH, EQUITY GROWTH, SMALL CAP QUANTITATIVE AND GLOBAL NATURAL
RESOURCES
In general, within the restrictions outlined here and in the funds'
Prospectuses, the fund managers have broad powers to decide how to invest fund
assets, including the power to hold them uninvested.
Investments are varied according to what is judged advantageous under
changing economic conditions. It is the advisor's policy to retain maximum
flexibility in management without restrictive provisions as to the proportion of
one or another class of securities that may be held, subject to the investment
restrictions described below. It is the advisor's intention that each fund will
generally consist of domestic and foreign common stocks and equity equivalent
securities. However, subject to the specific limitations applicable to a fund,
the funds' management teams may invest the assets of each fund in varying
amounts in other instruments, such as those discussed under "Investment
Strategies and Risks," when such a course is deemed appropriate in order to
attempt to attain a
2 American Century Investments
fund's investment objective. Senior securities that, in the opinion of the
manager, are high-grade issues also may be purchased for defensive purposes.
So long as a sufficient number of such securities are available, the
managers intend to keep the funds fully invested in stocks that demonstrate
accelerating growth, regardless of the movement of stock prices, generally. In
most circumstances, the funds' actual level of cash and cash equivalents will be
less than 10%. The managers may use S&P 500 Index futures as a way to expose the
funds' cash assets to the market, while maintaining liquidity. As mentioned in
the Prospectuses, the managers may not leverage the funds' portfolios, so there
is no greater market risk to the funds than if they purchase stocks. See
"Short-Term Securities," page 10, "Futures and Options," page 10, and
"Derivative Securities," page 8.
GLOBAL GOLD
In general, within the restrictions outlined here and in the funds'
Prospectus, the fund managers have broad power to decide how to invest fund
assets, including the power to hold them unrestricted. One of the non-stock
investments the fund managers may make is in gold itself, as described below.
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, Global Gold 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 the diversification requirements that 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. 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.
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 also is 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 generally will 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 fund managers' 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 and insurance
expenses, and 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.
Because 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.
As is the case with respect to virtually all investments, there are risks
inherent in Global Gold'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 elsewhere in
this Statement of Additional Information, such investments may involve the
following special considerations:
FLUCTUATIONS IN THE PRICE OF GOLD. The price of gold has recently been
subject to substantial movements over short periods of time and may be affected
by unpredictable international monetary and political policies, such as currency
devaluations or revaluations,
Statement of Additional Information 3
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 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 any sale of South African bullion. The South African Ministry
of Mines 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 United
States and 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 that 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 United States. 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 fund
managers 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.
UTILITIES
Because the Utilities Fund concentrates its assets in the utilities
industry, its performance depends in part on how favorably investors perceive
this sector
4 American Century Investments
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 also may 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 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 (IPPs) 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.
DETAILED INFORMATION ABOUT THE FUNDS
INVESTMENT STRATEGIES AND RISKS
This section describes various investment vehicles and techniques that the
fund managers can use in managing a fund's assets. It also details the risks
associated with each, because each technique contributes to a fund's overall
risk profile.
FOREIGN SECURITIES
Each fund may invest an unlimited amount of its assets in the securities of
foreign issuers, including foreign governments, when these securities meet its
standards of selection. Securities of foreign issuers may trade in the U.S. or
foreign securities markets.
Investments in foreign securities may present certain risks, including:
Currency Risk: The value of the foreign investments held by the funds may be
significantly affected by changes in currency exchange rates. The dollar value
of a foreign security generally decreases when the value of the dollar rises
against the foreign currency in which the security is denominated and tends to
increase when the value of the dollar falls against such currency. In addition,
the value of fund assets may be affected by losses and other expenses incurred
in converting between various currencies in order to purchase and sell foreign
securities and by currency restrictions, exchange control regulation, currency
devaluations and political developments.
Political and Economic Risk. The economies of many of the countries in which
the funds may invest are not as developed as the economy of the United States
and may be subject to significantly different forces. Political or social
instability, expropriation,
Statement of Additional Information 5
nationalization, or confiscatory taxation, and limitations on the removal of
funds or other assets, could also adversely affect the value of investments.
Further, the funds may encounter difficulties or be unable to enforce ownership
rights, pursue legal remedies or obtain judgments in foreign courts.
Regulatory Risk. Foreign companies generally are not subject to the
regulatory controls imposed on U.S. issuers and, in general, there is less
publicly available information about foreign securities than is available about
domestic securities. Many foreign companies are not subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies. Income from
foreign securities owned by the funds may be reduced by a withholding tax at the
source, which would reduce dividend income payable to shareholders.
Market and Trading Risk. Brokerage commission rates in foreign countries,
which are generally fixed rather than subject to negotiation as in the United
States, are likely to be higher. The securities markets in many of the countries
in which the funds may invest will have substantially less trading volume than
the principal U.S. markets. As a result, the securities of some companies in
these countries may be less liquid and more volatile than comparable U.S.
securities. Furthermore, one securities broker may represent all or a
significant part of the trading volume in a particular country, resulting in
higher trading costs and decreased liquidity due to a lack of alternative
trading partners. There is generally less government regulation and supervision
of foreign stock exchanges, brokers and issuers, which may make it difficult to
enforce contractual obligations.
Clearance and Settlement Risk. Foreign securities markets also have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in clearance and settlement could result in temporary periods when assets
of the funds are uninvested and no return is earned thereon. The inability of
the funds to make intended security purchases due to clearance and settlement
problems could cause the funds to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to clearance and settlement
problems could result either in losses to the funds due to subsequent declines
in the value of the portfolio security or, if the funds have entered into a
contract to sell the security, liability to the purchaser.
Ownership Risk. Evidence of securities ownership may be uncertain in many
foreign countries. In many of these countries, the most notable of which is the
Russian Federation, the ultimate evidence of securities ownership is the share
register held by the issuing company or its registrar. While some companies may
issue share certificates or provide extracts of the company's share register,
these are not negotiable instruments and are not effective evidence of
securities ownership. In an ownership dispute, the company's share register is
controlling. As a result, there is a risk that a fund's trade details could be
incorrectly or fraudulently entered on the issuer's share register at the time
of the transaction, or that a fund's ownership position could thereafter be
altered or deleted entirely, resulting in a loss to the fund.
DEPOSITORY RECEIPTS
American Depositary Receipts (ADRs) and European Depositary Receipts (EDRs)
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.
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 United States. 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 United
States, ADRs, ordinary shares, and New York shares all may be purchased with and
sold for U.S.
6 American Century Investments
dollars, which protects the fund from the foreign settlement risks described
under the section titled "Foreign Securities."
FORWARD CURRENCY EXCHANGE CONTRACTS
Each fund may purchase and sell foreign currency on a spot (i.e. cash) basis
and may engage in forward currency contracts, currency options and futures
transactions for hedging or any lawful purpose. See "Derivative Securities" on
page 8.
The funds expect to use forward contracts under two circumstances:
(1) When the fund managers wish to lock in the U.S. dollar price of a
security when a fund is purchasing or selling a security denominated in a
foreign currency, the fund would be able to enter into a forward contract to do
so; or
(2) When the fund managers believe that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, a fund would
be able to enter into a forward contract to sell foreign currency for a fixed
U.S. dollar amount approximating the value of some or all of its portfolio
securities either denominated in, or whose value is tied to, such foreign
currency.
In the first circumstance, when a fund enters into a trade for the purchase
or sale of a security denominated in a foreign currency, it may be desirable to
establish (lock in) the U.S. dollar cost or proceeds. By entering into forward
contracts in U.S. dollars for the purchase or sale of a foreign currency
involved in an underlying security transaction, the fund will be able to protect
itself against a possible loss between trade and settlement dates resulting from
the adverse change in the relationship between the U.S. dollar at the subject
foreign currency.
Under the second circumstance, when the fund managers believe that the
currency of a particular country may suffer a substantial decline relative to
the U.S. dollar, a fund could enter into a foreign contract to sell for a fixed
dollar amount the amount in foreign currencies approximating the value of some
or all of its portfolio securities either denominated in, or whose value is tied
to, such foreign currency. The fund will segregate on its records cash or
securities in an amount sufficient to cover its obligations under the contract.
The precise matching of forward contracts in the amounts and values of
securities involved generally would not be possible because the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of short-term hedging strategy
is highly uncertain. The fund managers do not intend to enter into such
contracts on a regular basis. Normally, consideration of the prospect for
currency parities will be incorporated into the long-term investment decisions
made with respect to overall diversification strategies. However, the managers
believe that it is important to have flexibility to enter into such forward
contracts when they determine that a fund's best interests may be served.
At the maturity of the forward contract, the fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate the obligation to deliver the foreign currency by
purchasing an offsetting forward contract with the same currency trader
obligating the fund to purchase, on the same maturity date, the same amount of
the foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the forward contract. Accordingly, it
may be necessary for a fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency the fund is obligated to deliver.
CONVERTIBLE SECURITIES
A convertible security is a fixed-income security that offers the potential
for capital appreciation through a conversion feature that enables the holder to
convert the fixed-income security into a stated number of shares of common
stock. As fixed-income securities, convertible securities provide a stable
stream of income, with generally higher yields than common stocks. Because
convertible securities offer the potential to benefit from increases in the
market price of
Statement of Additional Information 7
the underlying common stock, however, they generally offer lower yields than
non-convertible securities of similar quality. Of course, like all fixed-income
securities, there can be no assurance of current income because the issuers of
the convertible securities may default on their obligations. In addition, there
can be no assurance of capital appreciation because the value of the underlying
common stock will fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
Unlike a convertible security that is a single security, a synthetic
convertible security is comprised of two distinct securities that together
resemble convertible securities in certain respects. Synthetic convertible
securities are created by combining non-convertible bonds or preferred stocks
with warrants or stock call options. The options that will form elements of
synthetic convertible securities will be listed on a securities exchange or on
the National Association of Securities Dealers Automated Quotation Systems. The
two components of a synthetic convertible security, which will be issued with
respect to the same entity, generally are not offered as a unit, and may be
purchased and sold by the fund at different times. Synthetic convertible
securities differ from convertible securities in certain respects, including
that each component of a synthetic convertible security has a separate market
value and responds differently to market fluctuations. Investing in synthetic
convertible securities involves the risk normally found in holding the
securities comprising the synthetic convertible security.
SHORT SALES
A fund may engage in short sales if, at the time of the short sale, the fund
owns or has the right to acquire securities equivalent in kind and amount to the
securities being sold short.
In a short sale, the seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
To make delivery to the purchaser, the executing broker borrows the securities
being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If a fund engages in a short sale, the collateral account will be
maintained by the fund's custodian. While the short sale is open, the fund will
maintain in a segregated custodial account an amount of securities convertible
into, or exchangeable for, such equivalent securities at no additional cost.
These securities would constitute the fund's long position.
A fund may make a short sale, as described above, when it wants to sell the
security it owns at a current attractive price, but also wishes to defer
recognition of gain or loss for federal income tax purposes. There will be
certain additional transaction costs associated with short sales, but the fund
will endeavor to offset these costs with income from the investment of the cash
proceeds of short sales.
PORTFOLIO LENDING
In order to realize additional income, a fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
DERIVATIVE SECURITIES
To the extent permitted by its investment objectives and policies, each of
the funds may invest in securities that are commonly referred to as derivative
securities. Generally, a derivative is a financial arrangement the value of
which is based on, or derived from, a traditional security, asset, or market
index. Certain derivative securities are more accurately described as
index/structured securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts), currencies, interest rates, indices or other financial
indicators (reference indices).
Some derivatives such as mortgage-related and
8 American Century Investments
other asset-backed securities are in many respects like any other investment,
although they may be more volatile or less liquid than more traditional debt
securities.
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a fund from exposure to changing interest rates, securities
prices, or currency exchange rates and for cash management purposes as a
low-cost method of gaining exposure to a particular securities market without
investing directly in those securities.
No fund may invest in a derivative security unless the reference index or
the instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the price of oil would
not be a permissible investment because the funds may not invest in oil and gas
leases or futures.
The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates.
There are a range of risks associated with derivative investments,
including:
* the risk that the underlying security, interest rate, market index or other
financial asset will not move in the direction the fund managers anticipate;
* the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a position
when desired;
* the risk that adverse price movements in an instrument can result in a loss
substantially greater than a fund's initial investment; and
* the risk that the counterparty will fail to perform its obligations.
The Board of Directors has approved the advisor's policy regarding
investments in derivative securities. That policy specifies factors that must be
considered in connection with a purchase of derivative securities. The policy
also establishes a committee that must review certain proposed purchases before
the purchases can be made. The advisor will report on fund activity in
derivative securities to the Board of Directors as necessary. In addition, the
Board will review the advisor's policy for investments in the derivative
securities annually.
INVESTMENTS IN COMPANIES WITH LIMITED OPERATING HISTORIES
The funds may invest a portion of their assets in the securities of issuers
with limited operating history. The managers consider an issuer to have a
limited operating history if that issuer has a record of less than three years
of continuous operation. The managers will consider periods of capital
formation, incubation, consolidations, and research and development in
determining whether a particular issuer has a record of three years of
continuous operation.
Investments in securities of issuers with limited operating history may
involve greater risks than investments in securities of more mature issuers. By
their nature, such issuers present limited operating history and financial
information upon which the managers may base their investment decision on behalf
of the funds. In addition, financial and other information regarding such
issuers, when available, may be incomplete or inaccurate.
REPURCHASE AGREEMENTS
Each fund may invest in repurchase agreements when such transactions present
an attractive short-term return on cash that is not otherwise committed to the
purchase of securities pursuant to the investment policies of that fund.
A repurchase agreement occurs when, at the time the fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to purchase it on a specified
date in the future at an agreed-upon price. The repurchase price reflects an
agreed-upon interest rate during the time the fund's money is invested in the
security.
Because the security purchased constitutes security for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The fund's risk is the ability of the seller to pay the
agreed-upon repurchase price on the repurchase date. If the seller defaults, the
fund may incur costs in disposing of the collateral, which would reduce the
amount realized thereon. If the seller seeks relief under the bankruptcy laws,
the
Statement of Additional Information
disposition of the collateral may be delayed or limited. To the extent the
value of the security decreases, the fund could experience a loss.
The funds will limit repurchase agreement transactions to securities issued by
the U.S. government, its agencies and instrumentalities, and will enter into
such transactions with those banks and securities dealers who are deemed
creditworthy pursuant to criteria adopted by the funds' Board of Directors.
No fund will invest more than 15% of its assets in repurchase agreements
maturing in more than seven days.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The funds may sometimes purchase new issues of securities on a when-issued
or forward commitment basis in which the transaction price and yield are each
fixed at the time the commitment is made, but payment and delivery occur at a
future date (typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, a
fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. Market rates of interest on debt securities at the time of
delivery may be higher or lower than those contracted for on the when-issued
security. Accordingly, the value of such security may decline prior to delivery,
which could result in a loss to the fund. While the fund will make commitments
to purchase or sell securities with the intention of actually receiving or
delivering them, it may sell the securities before the settlement date if doing
so is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a
fund will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents or other appropriate liquid securities in
an amount sufficient to meet the purchase price. When the time comes to pay for
the when-issued securities, the fund will meet its obligations with available
cash, through the sale of securities, or, although it would not normally expect
to do so, by selling the when-issued securities themselves (which may have a
market value greater or less than the fund's payment obligation). Selling
securities to meet when-issued or forward commitment obligations may generate
taxable capital gains or losses.
SHORT-TERM SECURITIES
In order to meet anticipated redemptions, to hold pending the purchase of
additional securities for a fund's portfolio, or, in some cases, for temporary
defensive purposes, the funds may invest a portion of their assets in money
market and other short-term securities.
Examples of those securities include:
* Securities issued or guaranteed by the U.S. government and its agencies and
instrumentalities;
* Commercial Paper;
* Certificates of Deposit and Euro Dollar Certificates of Deposit;
* Bankers' Acceptances;
* Short-term notes, bonds, debentures, or other debt instruments; and
* Repurchase agreements.
OTHER INVESTMENT COMPANIES
Each of the funds may invest up to 10% of its total assets in any other
mutual fund, including those of the advisor, provided that the investment is
consistent with the fund's investment policies and restrictions. Under the
Investment Company Act, the fund's investment in such securities, subject to
certain exceptions, currently is limited to (a) 3% of the total voting stock of
any one investment company, (b) 5% of the fund's total assets with respect to
any one investment company and (c) 10% of the fund's total assets in the
aggregate. Such purchases will be made in the open market where no commission or
profit to a sponsor or dealer results from the purchase other than the customary
brokers' commissions. As a shareholder of another investment company, a fund
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the management fee that each fund bears directly in connection
with its own operations.
FUTURES AND OPTIONS
Each fund may enter into futures contracts, options or options on futures
contracts. Funds may not, however, enter into a futures transaction for
speculative purposes. Generally, futures transactions will be used to:
10 American Century Investments
* protect against a decline in market value of the fund's securities (taking a
short futures position), or
* protect against the risk of an increase in market value for securities in
which the fund generally invests at a time when the fund is not
fully-invested (taking a long futures position), or
* provide a temporary substitute for the purchase of an individual security
that may be purchased in an orderly fashion.
Some futures and options strategies, such as selling futures, buying puts
and writing calls, hedge a fund's investments against price fluctuations. Other
strategies, such as buying futures, writing puts and buying calls, tend to
increase market exposure.
Although other techniques may be used to control a fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
For example, the sale of a future by a fund means the fund becomes obligated
to deliver the security (or securities, in the case of an index future) at a
specified price on a specified date. The "purchase" of a future means the fund
becomes obligated to buy the security (or securities) at a specified price on a
specified date. Futures contracts provide for the sale by one party and purchase
by another party of a specific security at a specified future time and price.
The fund may engage in futures and options transactions based on securities
indexes that are consistent with the fund's investment objectives. Examples of
indices that may be used include the Bond Buyer Index of Municipal Bonds for
fixed-income funds, or the S&P 500 Index for equity funds. The fund also may
engage in futures and options transactions based on specific securities, such as
U.S. Treasury bonds or notes. Futures contracts are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission (CFTC), a U.S.
government agency.
Index futures contracts differ from traditional futures contracts in that
when delivery takes place, no stocks or bonds change hands. Instead, these
contracts settle in cash at the spot market value of the index. Although other
types of futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date. A futures position may be closed by taking an opposite
position in an identical contract (i.e., buying a contract that has previously
been sold or selling a contract that has previously been bought).
Unlike when the fund purchases or sells a bond, no price is paid or received
by the fund upon the purchase or sale of the future. Initially, the fund will be
required to deposit an amount of cash or securities equal to a varying specified
percentage of the contract amount. This amount is known as initial margin. The
margin deposit is intended to assure completion of the contract (delivery or
acceptance of the underlying security) if it is not terminated prior to the
specified delivery date. A margin deposit does not constitute margin
transactions for purposes of the funds' investment restrictions. Minimum initial
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish margin deposit requirements that are higher
than the exchange minimums. Cash held in the margin account is not income
producing. Subsequent payments, called variation margin, to and from the broker,
will be made on a daily basis as the price of the underlying debt securities or
index fluctuates, making the future more or less valuable, a process known as
marking the contract to market. Changes in variation margin are recorded by the
fund as unrealized gains or losses. At any time prior to expiration of the
future, the fund may elect to close the position by taking an opposite position
that will operate to terminate its position in the future. A final determination
of variation margin is then made; additional cash is required to be paid by or
released to the fund and the fund realizes a loss or gain.
RISKS RELATED TO FUTURES AND OPTIONS TRANSACTIONS
Futures and options prices can be volatile, and trading in these markets
involves certain risks. If the fund managers apply a hedge at an inappropriate
time or judge interest rate or equity market trends
Statement of Additional Information 11
incorrectly, futures and options strategies may lower a fund's return.
A fund could suffer losses if it is unable to close out its position because
of an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when the fund managers consider it appropriate or desirable to
do so. In the event of adverse price movements, a fund would be required to
continue making daily cash payments to maintain its required margin. If the fund
had insufficient cash, it might have to sell portfolio securities to meet daily
margin requirements at a time when the fund managers would not otherwise elect
to do so. In addition, a fund may be required to deliver or take delivery of
instruments underlying futures contracts it holds. The fund manager will seek to
minimize these risks by limiting the contracts entered into on behalf of the
funds to those traded on national futures exchanges and for which there appears
to be a liquid secondary market.
A fund could suffer losses if the prices of its futures and options
positions were poorly correlated with its other investments, or if securities
underlying futures contracts purchased by a fund had different maturities than
those of the portfolio securities being hedged. Such imperfect correlation may
give rise to circumstances in which a fund loses money on a futures contract at
the same time that it experiences a decline in the value of its "hedged"
portfolio securities. A fund also could lose margin payments it has deposited
with a margin broker, if, for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond the limit. However, the daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses. In addition, the daily limit may prevent liquidation
of unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
OPTIONS ON FUTURES
By purchasing an option on a futures contract, a fund obtains the right, but
not the obligation, to sell the futures contract (a put option) or to buy the
contract (a call option) at a fixed strike price. A fund can terminate its
position in a put option by allowing it to expire or by exercising the option.
If the option is exercised, the fund completes the sale of the underlying
security at the strike price. Purchasing an option on a futures contract does
not require a fund to make margin payments unless the option is exercised.
Although they do not currently intend to do so, the funds may write (or
sell) call options that obligate it to sell (or deliver) the option's underlying
instrument upon exercise of the option. While the receipt of option premiums
would mitigate the effects of price declines, the funds would give up some
ability to participate in a price increase on the underlying security. If a fund
were to engage in options transactions, it would own the futures contract at the
time a call were written and would keep the contract open until the obligation
to deliver it pursuant to the call expired.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS
Each fund may enter into futures contracts, options or options on futures
contracts.
Under the Commodity Exchange Act, a fund may enter into futures and options
transactions (a) for hedging purposes without regard to the percentage of assets
committed to initial margin and option premiums or (b) for other than hedging
purposes, provided that assets committed to initial margin and option premiums
do not exceed 5% of the fund's total assets. To the extent required by law, each
fund will segregate cash or securities, in an amount sufficient on its records
to cover its obligations under the futures contracts and options.
RESTRICTED AND ILLIQUID SECURITIES
The funds may, from time to time, purchase restricted or illiquid
securities, including Rule 144A
12 American Century Investments
securities, when they present attractive investment opportunities that otherwise
meet the funds' criteria for selection. Rule 144A securities are securities that
are privately placed with and traded among qualified institutional investors
rather than the general public. Although Rule 144A securities are considered
restricted securities, they are not necessarily illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of
the SEC has taken the position that the liquidity of such securities in the
portfolio of a fund offering redeemable securities is a question of fact for the
Board of Directors to determine, such determination to be based upon a
consideration of the readily available trading markets and the review of any
contractual restrictions. Accordingly, the Board of Directors is responsible for
developing and establishing the guidelines and procedures for determining the
liquidity of Rule 144A securities. As allowed by Rule 144A, the Board of
Directors of the funds has delegated the day-to-day function of determining the
liquidity of Rule 144A securities to the fund managers. The Board retains the
responsibility to monitor the implementation of the guidelines and procedures it
has adopted.
Since the secondary market for such securities is limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and a fund may, from time to time, hold a Rule 144A or other
security that is illiquid. In such an event, the fund manager will consider
appropriate remedies to minimize the effect on such fund's liquidity.
U.S. GOVERNMENT SECURITIES
Each 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 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 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.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations
on borrowing, the restrictions apply at the time transactions are entered.
Accordingly, any later increase or decrease beyond the specified limitation
resulting from a change in a fund's net assets will not be considered in
determining whether it has complied with its investment restrictions.
FUNDAMENTAL INVESTMENT POLICIES
The funds' investment restrictions are set forth on the following page.
These investment restrictions are fundamental and may not be changed without
approval of a majority of the outstanding votes of shareholders of a fund, as
determined in accordance with the Investment Company Act.
For purposes of the investment restriction relating to concentration, a fund
shall not purchase any securities that would cause 25% or more of the value of
the fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions and
repurchase agreements secured by such instruments, (b) wholly owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, (c)
utilities will be divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry, and (d) personal credit and business credit businesses will
be considered separate industries.
Statement of Additional Information 13
Subject Policy
- --------------------------------------------------------------------------------
Senior Securities A fund may not issue senior securities, except
as permitted under the Investment Company Act.
- --------------------------------------------------------------------------------
Borrowing A fund may not borrow money, except for temporary or
emergency purposes (not for leveraging or investment) in
an amount not exceeding 33-1/3% of the fund's total assets
(including the amount borrowed) less liabilities (other
than borrowings).
- --------------------------------------------------------------------------------
Lending A fund may not lend any security or make any other
loan if, as a result, more than 33(1)/(3)% of the fund's
total assets would be lent to other parties, except,
(i) through the purchase of debt securities in
accordance with its investment objective, policies and
limitations or (ii) by engaging in repurchase
agreements with respect to portfolio securities.
- --------------------------------------------------------------------------------
Real Estate A fund may not purchase or sell real estate unless
acquired as a result of ownership of securities or other
instruments. This policy shall not prevent a fund from
investing in securities or other instruments backed by
real estate or securities of companies that deal in real
estate or are engaged in the real estate business.
- --------------------------------------------------------------------------------
Concentration Income & Growth, Equity Growth and Small Cap
Quantitative may not concentrate their investments in
securities of issuers in a particular industry (other than
securities issued or guaranteed by the U.S. government
or any of its agencies or instrumentalities). The other
funds may not deviate from their policies of
concentrating investments in securities of issuers
as follows: engaged in mining, fabricating, processing or
dealing in gold or other precious metals, such as silver,
platinum and palladium [Global Gold only]; engaged in
the natural resources industry [Global Natural
Resources only]; or engaged in the utilities industry
[Utilities only].
- --------------------------------------------------------------------------------
Underwriting A fund may not act as an underwriter of securities
issued by others, except to the extent that the fund
may be considered an underwriter within the meaning
of the Securities Act of 1933 in the disposition of
restricted securities.
- --------------------------------------------------------------------------------
Commodities For all funds except Global Gold: A fund may not
purchase or sell physical commodities unless acquired
as a result of ownership of securities or other
instruments; provided that this limitation shall not
prohibit the fund from purchasing or selling options
and futures contracts or from investing in securities or
other instruments backed by physical commodities.
For Global Gold only: The fund may not 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.
- --------------------------------------------------------------------------------
Control A fund may not invest for purposes of exercising control
over management.
- --------------------------------------------------------------------------------
14 American Century Investments
NONFUNDAMENTAL INVESTMENT POLICIES
In addition, the funds are subject to the following additional investment
restrictions that are not fundamental and may be changed by the Board of
Directors.
Subject Policy
- -------------------------------------------------------------------------------
Diversification For all funds except Global Gold and Global Natural
Resources: A fund may not purchase additional investment
securities at any time during which outstanding borrowings
exceed 5% of the total assets of the fund.
For Global Gold and Global Natural Resources only: In order
to meet federal tax requirements for qualification as a
regulated investment company, each fund limits its
investment so that at the close of each quarter of its
taxable year: (i) with regard to at least 50% of total
assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (ii) no more than 25% of
total assets are invested in the securities of a single
issuer. Limitations (i) and (ii) do not apply to government
securities as defined for federal tax purposes. Each fund
does not, with respect to 75% of its total assets, currently
intend to purchase the securities of any 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 the outstanding
voting securities of such issuer.
- -------------------------------------------------------------------------------
Liquidity A fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 15% of its
net assets would be invested in repurchase agreements
not entitling the holder to payment of principal and
interest within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions on
resale or the absence of a readily available market.
- -------------------------------------------------------------------------------
Short Sales A fund may not sell securities short, unless it owns
or has the right to obtain securities equivalent in kind and
amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed
to constitute selling securities short.
- -------------------------------------------------------------------------------
Margin A fund may not purchase securities on margin, except to
obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin
payments in connection with futures contracts and options
on futures contracts shall not constitute purchasing
securities on margin.
- -------------------------------------------------------------------------------
The Investment Company Act imposes certain additional restrictions upon
acquisition by the funds of securities issued by insurance companies,
broker-dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership. Neither the Securities and Exchange Commission
nor any other agency of the federal or state agency participates in or
supervises the management of the funds or their investment practices or
policies.
The Investment Company Act also provides that the funds may not invest more
than 25% of their assets in the securities of issuers engaged in a single
industry. In determining industry groups for purposes of this restriction, the
SEC ordinarily uses the Standard Industry Classification codes developed by the
United States Office of Management and Budget. In the interest of ensuring
adequate diversification, the funds monitor industry concentration using a more
restrictive list of industry groups than that recommended by the SEC. The funds
believe that these classifications are reasonable and are not so broad that the
primary economic characteristics of the companies in a single class are
materially different. The use of these restrictive industry classifications may,
however, cause the funds to forego investment possibilities that may otherwise
be available to them under the Investment Company Act.
PORTFOLIO TURNOVER
The portfolio turnover rates of the funds are shown in the Financial
Highlights tables in the prospectuses.
INCOME & GROWTH, EQUITY GROWTH, UTILITIES AND SMALL CAP QUANTITATIVE
The fund managers will consider the length of time a security has been held
in determining whether to sell it. Accordingly, the funds' rate of portfolio
turnover is not expected to exceed 150%.
Statement of Additional Information 15
GLOBAL GOLD AND GLOBAL NATURAL RESOURCES
With respect to these funds, the managers will purchase and sell securities
without regard to the length of time the security has been held. Accordingly,
the fund's rate of portfolio turnover may be substantial. The fund managers
intend to purchase a given security whenever the managers believe it will
contribute to the stated objective of the fund. In order to achieve each fund's
investment objective, the managers may sell a given security, no matter for how
long or for how short a period it has been held in the portfolio, and no matter
whether the sale is at a gain or at a loss, if the managers believe that the
security is not fulfilling its purpose, either because, among other things, it
did not live up to the managers' expectations, or because it may be replaced
with another security holding greater promise, or because it has reached its
optimum potential, or because of a change in the circumstances of a particular
company or industry or in general economic conditions, or because of some
combination of such reasons.
Because investment decisions are based on the anticipated contribution of
the security in question to the fund's objectives, the managers believe that the
rate of portfolio turnover is irrelevant when they believe a change is in order
to achieve those objectives. As a result, the funds' annual portfolio turnover
rate cannot be anticipated and may be higher than other mutual funds with
similar investment objectives. Higher turnover would generate correspondingly
greater brokerage commissions, which is a cost the funds pay directly. Portfolio
turnover also may affect the character of capital gains realized and distributed
by the fund, if any, since short-term capital gains are taxable as ordinary
income. This disclosure regarding portfolio turnover is a statement of
fundamental policy and may be changed only by a vote of the shareholders.
Because the managers do not take portfolio turnover rate into account in
making investment decisions, (1) the managers have no intention of accomplishing
any particular rate of portfolio turnover, whether high or low, and (2) the
portfolio turnover rates in the past should not be considered as representative
of the rates that will be attained in the future.
MANAGEMENT
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the funds and meets at
least quarterly to review reports about fund operations. Although the Board of
Directors does not manage the funds, it has hired the advisor to do so.
Two-thirds of the directors are independent of the funds' advisor; that is, they
are not employed by and have no financial interest in the advisor.
The individuals listed in the table on the next page whose names are marked
by an asterisk (*) are interested persons of the funds (as defined in the
Investment Company Act) by virtue of, among other considerations, their
affiliation with either the funds; the advisor, American Century Investment
Management, Inc. (ACIM); the funds' agent for transfer and administrative
services, American Century Services Corporation (ACSC); the parent corporation,
American Century Companies, Inc. (ACC) or ACC's subsidiaries; the funds'
distribution agent and co-administrator, Funds Distributor, Inc. (FDI); or other
funds advised by the advisor. Each director listed below serves as a director of
six registered investment companies in the American Century family of funds,
which are also advised by the advisor.
16 American Century Investments
Name (Age) Position(s) Held Principal Occupation(s)
Address With Fund During Past Five Years
- --------------------------------------------------------------------------------
James E. Stowers III* (40) Director, Chief Executive Officer
4500 Main Street Chairman of and Director, ACC
Kansas City, MO 64111 the Board President, Chief Executive
Officer and Director, ACSC
and ACIS
Son of James E. Stowers,
Jr. (founder)
- --------------------------------------------------------------------------------
Albert A. Eisenstat (68) Director Independent Director,
1665 Charleston Road Commercial Metals Co.
Mountain View, CA 94043 (1982 to present)
Independent Director, Sungard
Data Systems (1991 to present)
Independent Director, Business
Objects S/A (software &
programming, 1994 to present)
- --------------------------------------------------------------------------------
Ronald J. Gilson (52) Director Charles J. Meyers Professor
1665 Charleston Road of Law and Business,
Mountain View, CA 94043 Stanford Law School
(since 1979)
Mark and Eva Stern Professor
of Law and Business, Columbia
University School of Law
(since 1992);
Counsel, Marron, Reid & Sheehy
(a San Francisco law firm,
since 1984)
- --------------------------------------------------------------------------------
William M. Lyons* (43) Director President, Chief Operating
4500 Main Street Officer and Assistant
Kansas City, MO 64111 Secretary, ACC
Executive Vice President,
Chief Operating Officer,
Secretary and Director,
ACSC and ACIS
- --------------------------------------------------------------------------------
Myron S. Scholes (57) Director Limited Partner, Long-Term
1665 Charleston Road Capital Management
Mountain View, CA 94043 (since February 1999)
Principal, Long-Term Capital
Management (investment
advisor, 1993 to January 1999)
Frank E. Buck Professor of
Finance, Stanford Graduate
School of Business
- --------------------------------------------------------------------------------
Kenneth E. Scott (70) Director Ralph M. Parsons Professor of
1665 Charleston Road Law and Business, Stanford Law
Mountain View, CA 94043 School (since 1972)
Director, RCM Capital Funds,
Inc. (since 1994)
- --------------------------------------------------------------------------------
Isaac Stein (52) Director Director, Raychem Corporation
1665 Charleston Road (electrical equipment, since
Mountain View, CA 94043 1993)
President, Waverley
Associates, Inc. (private
investment firm, since 1983)
Director, ALZA Corporation
(pharmaceuticals, since 1987).
Trustee, Stanford University
(since 1994)
Chairman, Stanford Health
Services (since 1994)
- --------------------------------------------------------------------------------
Jeanne D. Wohlers (53) Director Private Investor
1665 Charleston Road Director and Partner, Windy
Mountain View, CA 94043 Hill Productions, LP
Vice President and Chief
Financial Officer, Sybase,
Inc. (software company,
1988 to 1992)
- --------------------------------------------------------------------------------
Statement of Additional Information 17
COMMITTEES
The Board has four committees to oversee specific functions of the funds'
operations. Information about these committees appears in the table below:
<TABLE>
Committee Members Function of Committee
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Audit Albert A. Eisenstat The Audit Committee selects and oversees the activities of the Trust's
Kenneth E. Scott independent auditor. The Committee receives reports from the advisor's
Jeanne D. Wohlers Internal Audit Department, which is accountable solely to the
Committee. The Committee also receives reporting about compliance
matters affecting the Trust.
- --------------------------------------------------------------------------------------------------------------
Nominating Albert A. Eisenstat The Nominating Committee primarily considers and recommends individuals
Ronald J. Gilson for nomination as trustees. The names of potential trustee candidates
Myron S. Scholes are drawn from a number of sources, including recommendations from
Kenneth E. Scott members of the Board, management and shareholders. This committee
Isaac Stein also reviews and makes recommendations to the Board with respect to
Jeanne D. Wohlers the composition of Board committees and other Board-related matters,
including its organization, size, composition, responsibilities, functions
and compensation.
- --------------------------------------------------------------------------------------------------------------
Portfolio William M. Lyons The Portfolio Committee reviews quarterly the investment activities
Ronald J. Gilson and strategies used to manage fund assets. The Committee regularly
Myron S. Scholes receives reports from portfolio managers, credit analysts and other
Isaac Stein investment personnel concerning the funds' investments.
- --------------------------------------------------------------------------------------------------------------
Quality of William M. Lyons The Quality of Service Committee reviews the level and quality of
Service Ronald J. Gilson transfer agent and administrative services provided to the funds and
Myron S. Scholes their shareholders. It receives and reviews reports comparing those
Isaac Stein services to fund competitors and seeks to improve such services where
feasible and appropriate.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION OF DIRECTORS
The directors also serve as directors for six American Century investment
companies other than the corporation. Each director who is not an interested
person as defined in the Investment Company Act receives compensation for
service as a member of the Board of all seven such companies based on a schedule
that takes into account the number of meetings attended and the assets of the
funds for which the meetings are held. These fees and expenses are divided among
the seven investment companies based, in part, upon their relative net assets.
Under the terms of the management agreement with the advisor, the funds are
responsible for paying such fees and expenses.
The table presented shows the aggregate compensation paid by the corporation
for the periods indicated and by the seven investment companies served by this
Board to each director who is not an interested person as defined in the
Investment Company Act.
Aggregate Director Compensation for Fiscal Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Total Compensation
Total from the
Compensation American Century
Name of Director from the Funds(1) Family of Funds(2)
- --------------------------------------------------------------------------------
Albert A. Eisenstat $9,226 $65,750
Ronald J. Gilson 11,083 73,000
Myron S. Scholes 7,987 61,750
Kenneth E. Scott 11,061 73,000
Isaac Stein 9,437 67,500
Jeanne D. Wohlers 11,061 73,000
- --------------------------------------------------------------------------------
(1) Includes compensation paid to the directors during the fiscal year ended
December 31, 1998, and also includes amounts deferred at the election of the
directors under the American Century Mutual Funds Deferred Compensation Plan
for Non-Interested Directors and Trustees. The total amount of deferred
compensation included in the preceding table is as follows: Mr. Eisenstat,
$9,226; Mr. Gilson, $5,542; Mr. Scholes, $7,987; Mr. Scott, $5,531; and Ms.
Wohlers, $5,531
(2) Includes compensation paid by the seven investment company members of the
American Century family of funds served by this Board.
18 American Century Investments
The funds have adopted the American Century Deferred Compensation Plan for
Non-Interested Directors and Trustees. Under the plan, the independent directors
may defer receipt of all or any part of the fees to be paid to them for serving
as directors of the funds.
All deferred fees are credited to an account established in the name of the
directors. The amounts credited to the account then increase or decrease, as the
case may be, in accordance with the performance of one or more of the American
Century funds that are selected by the director. The account balance continues
to fluctuate in accordance with the performance of the selected fund or funds
until final payment of all amounts credited to the account. Directors are
allowed to change their designation of mutual funds from time to time.
No deferred fees are payable until such time as a director resigns, retires
or otherwise ceases to be a member of the Board of Directors. Directors may
receive deferred fee account balances either in a lump sum payment or in
substantially equal installment payments to be made over a period not to exceed
10 years. Upon the death of a director, all remaining deferred fee account
balances are paid to the director's beneficiary or, if none, to the director's
estate.
The plan is an unfunded plan and, accordingly, the funds have no obligation
to segregate assets to secure or fund the deferred fees. The rights of directors
to receive their deferred fee account balances are the same as the rights of a
general unsecured creditor of the funds. The plan may be terminated at any time
by the administrative committee of the plan. If terminated, all deferred fee
account balances will be paid in a lump sum.
No deferred fees were paid to any director under the plan during the fiscal
year ended December 31, 1998.
OFFICERS
Background information for the officers of the funds is provided in the
following table. All persons named as officers of the funds also serve in
similar capacities for the 12 other investment companies advised by ACIM. Not
all officers of the funds are listed; only those officers with policy-making
functions for the funds are listed. No officer is compensated for his or her
service as an officer of the funds. The individuals listed in the following
table are interested persons of the funds (as defined in the Investment Company
Act) by virtue of, among other considerations, their affiliation with either the
funds, ACC, ACC's subsidiaries (including ACIM and ACSC), or the funds'
distributor (FDI), as specified in the following table.
Statement of Additional Information 19
Name (Age) Position(s) Held Principal Occupation(s)
Address With Fund During Past Five Years
- --------------------------------------------------------------------------------
George A. Rio (44) President Executive Vice President and
60 State Street, Director of Client Services,
Suite 1300 FDI (March 1998 to present).
Boston, MA 02109 Senior Vice President and
Senior Key Account Manager,
Putnam Mutual Funds (June 1995
to March 1998) Director
Business Development, First
Data Corporation (May 1994 to
June 1995) Senior Vice
President and Manager of
Client Services and Director
of Internal Audit, The Boston
Company, Inc. (September 1983
to May 1994)
- --------------------------------------------------------------------------------
Christopher J. Kelley (34) Vice President Vice President and Associate
60 State Street, General Counsel, FDI
Suite 1300 (since July 1996) Assistant
Boston, MA 02109 Counsel, Forum Financial Group
(from April 1994 to July 1996)
Compliance Officer, Putnam
Investments (1992 to 1994).
- --------------------------------------------------------------------------------
Mary A. Nelson (34) Vice President Vice President and Manager of
60 State Street, Treasury Services and
Suite 1300 Administration of FDI (1994
Boston, MA 02109 to present). Assistant Vice
President and Client
Manager, The Boston Company,
Inc. (1989 to 1994)
- --------------------------------------------------------------------------------
David C. Tucker (40) Vice President Senior Vice President and
4500 Main Street General Counsel ACSC and ACIM
Kansas City, MO 64111 (June 1998 to present)
General Counsel, ACC
Consultant to Mutual Fund
Industry (May 1997 to April
1998) Vice President and
General Counsel, Janus
Companies (1990 to May 1997).
- --------------------------------------------------------------------------------
Maryanne Roepke, CPA (43) Vice President Senior Vice President,
4500 Main Street and Treasurer Treasurer and Principal
Accounting Officer, ACSC
- --------------------------------------------------------------------------------
Douglas A. Paul (52) Secretary and Vice President and Associate
1665 Charleston Road Vice President General Counsel, ACSC
Mountain View, CA 94043
- --------------------------------------------------------------------------------
Robert J. Leach (32) Controller Controller-Fund Accounting,
4500 Main Street ACSC
Kansas City, MO 64111
- --------------------------------------------------------------------------------
Merele A. May (36) Controller Controller-Fund Accounting,
4500 Main Street ACSC
Kansas City, MO 64111
- --------------------------------------------------------------------------------
C. Jean Wade (35) Controller Controller-Fund Accounting,
4500 Main Street ACSC
Kansas City, MO 64111
- --------------------------------------------------------------------------------
Jon Zindel (31) Tax Officer Director of Taxation, ACSC
4500 Main Street (since 1996)
Kansas City, MO 64111 Tax Manager, Price Waterhouse
LLPC (1989 to 1996)
- --------------------------------------------------------------------------------
20 American Century Investments
THE FUNDS' PRINCIPAL SHAREHOLDERS
As of February 26, 1999, the following companies were the record owners of
more than 5% of a fund's outstanding shares. The funds are unaware of any other
shareholders, beneficial or of record, who own more than 5% of a fund's
outstanding shares. As of February 26, 1999, the officers and directors of the
funds, as a group, own less than 1% of any fund's outstanding shares.
Percentage
of Shares
Fund Shareholder Outstanding
- --------------------------------------------------------------------------------
Income & Growth Charles Schwab & Company
San Francisco, California 22.4
- --------------------------------------------------------------------------------
Equity Growth Charles Schwab & Company
San Francisco, California 19.2
- --------------------------------------------------------------------------------
Small Cap Quantitative UMB as Trustee for
American Century Services 10.8
- --------------------------------------------------------------------------------
Global Gold Charles Schwab & Company
San Francisco, California 17.2
- --------------------------------------------------------------------------------
Global Natural Resources Charles Schwab & Company
San Francisco, California 32.3
- --------------------------------------------------------------------------------
Utilities Charles Schwab & Company
Statement of Additional Information 21
SERVICE PROVIDERS
The funds have no employees. To conduct the funds' day-to-day activities,
the funds have hired a number of service providers. Each service provider has a
specific function to fill on behalf of the funds and is described below.
ACIM and ACSC, are both wholly owned by ACC. James E. Stowers Jr., Chairman
of ACC, controls ACC by virtue of his ownership of a majority of its voting
stock.
INVESTMENT ADVISOR
Each fund has an investment management agreement with the advisor, American
Century Investment Management, Inc., dated August 1, 1997. This agreement was
approved by the shareholders of Income & Growth, Equity Growth, Global Gold,
Global Natural Resources and Utilities on July 30, 1997 and by the shareholders
of Small Cap Quantitative on July 29, 1998.
A description of the responsibilities of the advisor appears in each
Prospectus under the heading "Management."
For the services provided to the funds, the advisor receives a monthly fee
based on a percentage of the average net assets of the fund. The annual rate at
which this fee is assessed is determined monthly in a two-step process: First, a
fee rate schedule is applied to the assets of all of the funds of its investment
category managed by the advisor (the Investment Category Fee). For example, when
calculating the fee for a money market fund, all of the assets of the money
market funds managed by the advisor are aggregated. The three investment
categories are money market funds, bond funds and equity funds. Second, a
separate fee rate schedule is applied to the assets of all of the funds managed
by the advisor (the Complex Fee). The Investment Category Fee and the Complex
Fee are then added to determine the unified management fee payable by the fund
to the advisor.
The schedules by which the Investment Category Fees are determined are as
follows:
INVESTMENT CATEGORY FEE SCHEDULE FOR
* Income & Growth
* Equity Growth
* Global Gold
* Global Natural Resources
* Utilities
Category Assets Fee Rate
- --------------------------------------------------------------------------------
First $1 billion 0.5200%
Next $5 billion 0.4600%
Next $15 billion 0.4160%
Next $25 billion 0.3690%
Next $50 billion 0.3420%
Next $150 billion 0.3390%
Thereafter 0.3380%
- --------------------------------------------------------------------------------
INVESTMENT CATEGORY FEE SCHEDULE FOR
* Small Cap Quantitative
Category Assets Fee Rate
- --------------------------------------------------------------------------------
First $1 billion 0.7200%
Next $5 billion 0.6600%
Next $15 billion 0.6160%
Next $25 billion 0.5690%
Next $50 billion 0.5420%
Next $150 billion 0.5390%
Thereafter 0.5380%
- --------------------------------------------------------------------------------
The Complex Fee (investor Class) is as follows:
COMPLEX FEE SCHEDULE
Complex Assets Fee Rate
- --------------------------------------------------------------------------------
First $2.5 billion 0.3100%
Next $7.5 billion 0.3000%
Next $15.0 billion 0.2985%
Next $25.0 billion 0.2970%
Next $50.0 billion 0.2960%
Next $100.0 billion 0.2950%
Next $100.0 billion 0.2940%
Next $200.0 billion 0.2930%
Next $250.0 billion 0.2920%
Next $500.0 billion 0.2910%
Thereafter 0.2900%
- --------------------------------------------------------------------------------
22 American Century Investments
The Complex Fee schedule for the Institutional Class is lower by 0.2000% at
each graduated step. For example, if the Investor Class Complex Fee is 0.3000%
for the first $2 billion, the Institutional Class Complex Fee is 0.1000%
(0.3000% minus 0.2000%) for the first $2 billion. The Complex Fee schedule for
the Advisor Class is lower by 0.2500% at each graduated step.
On the first business day of each month, the funds pay a management fee to
the advisor for the previous month at the specified rate. The fee for the
previous month is calculated by multiplying the applicable fee for the fund by
the aggregate average daily closing value of a fund's net assets during the
previous month, by a fraction, the numerator of which is the number of days in
the previous month and the denominator of which is 365 (366 in leap years).
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually by (1) the funds'
Board of Directors, or by the vote of a majority of outstanding votes (as
defined in the Investment Company Act) and (2) by the vote of a majority of the
directors of the funds who are not parties to the agreement or interested
persons of the advisor, cast in person at a meeting called for the purpose of
voting on such approval.
The management agreement provides that it may be terminated at any time
without payment of any penalty by the funds' Board of Directors, or by a vote of
a majority of outstanding votes, on 60 days' written notice to the advisor, and
that it shall be automatically terminated if it is assigned.
The management agreement provides that the advisor shall not be liable to
the funds or their shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties.
The management agreement also provides that the advisor and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
Certain investments may be appropriate for the funds and also for other
clients advised by the advisor. Investment decisions for the funds and other
clients are made with a view to achieving their respective investment objectives
after consideration of such factors as their current holdings, availability of
cash for investment and the size of their investment generally. A particular
security may be bought or sold for only one client or fund, or in different
amounts and at different times for more than one but less than all clients or
funds. In addition, purchases or sales of the same security may be made for two
or more clients or funds on the same date. Such transactions will be allocated
among clients in a manner believed by the advisor to be equitable to each. In
some cases this procedure could have an adverse effect on the price or amount of
the securities purchased or sold by a fund.
The advisor may aggregate purchase and sale orders of the funds with
purchase and sale orders of its other clients when the advisor believes that
such aggregation provides the best execution for the funds. The corporation's
Board of Directors has approved the policy of the advisor with respect to the
aggregation of portfolio transactions. Where portfolio transactions have been
aggregated, the funds participate at the average share price for all
transactions in that security on a given day and share transaction costs on a
pro rata basis. The advisor will not aggregate portfolio transactions of the
funds unless it believes such aggregation is consistent with its duty to seek
best execution on behalf of the funds and the terms of the management agreement.
The advisor receives no additional compensation or remuneration as a result of
such aggregation.
Prior to August 1, 1997, Benham Management Corporation served as the
investment advisor to the funds. Benham Management Corporation was merged into
the advisor in late 1997.
Unified management fees incurred by each fund for the fiscal periods ended
December 31, 1998, 1997 and 1996, are indicated in the following table. Fee
amounts are net of amounts reimbursed or recouped under the funds' previous
investment advisory agreement with Benham Management Corporation.
Statement of Additional Information 23
UNIFIED MANAGEMENT FEES*
Fund 1998 1997**
- --------------------------------------------------------------------------------
Income & Growth
Investor $20,761,820 $4,621,006
Advisor 85,755
Institutional 128,089
Equity Growth
Investor 9,768,776 1,904,594
Advisor 103,002
Institutional 23,566
Small Cap Quantitative
Investor 25,213 N/A
Global Gold
Investor 1,760,165 900,609
Advisor 100
Global Natural Resources
Investor 297,762 161,611
Utilities
Investor 1,604,996 423,153
Advisor 58
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY FEES*
Fund 1997*** 1996
- --------------------------------------------------------------------------------
Income & Growth $1,653,298 $1,584,256
Equity Growth 650,862 601,691
Small Cap Quantitative N/A N/A
Global Gold 633,691 1,645,729
Global Natural Resources 120,156 74,093
Utilities 207,981 526,012
- --------------------------------------------------------------------------------
* Net of reimbursements.
** From August 1 through December 31, 1997.
*** From January 1 through July 31, 1997.
American Century Services Corporation provides physical facilities,
including computer hardware and software and personnel, for the day-to-day
administration of the funds and of the manager. The manager pays American
Century Services Corporation for such services.
Prior to August 1, 1997, the funds paid American Century Services
Corporation directly for its services as transfer agent and administrative
services agent. After that date, these fees are included in the unified
management fee.
Administrative service and transfer agent fees paid by the funds for the
fiscal years ended December 31, 1997 and 1996, are indicated in the following
tables. Fee amounts are net of expense limitations.
ADMINISTRATIVE FEES*
Fund 1997 1996
- ----------------------------------------------------------------------
Income & Growth 548,851 $506,544
Equity Growth 216,774 192,378
Small Cap Quantitative N/A N/A
Global Gold 210,125 525,854
Global Natural Resources 34,367 45,527
Utilities Fund 70,612 160,940
- ----------------------------------------------------------------------
* Net of reimbursements
TRANSFER AGENT FEES*
Fund 1997 1996
- ----------------------------------------------------------------------
Income & Growth 732,727 $770,136
Equity Growth 347,736 301,615
Small Cap Quantitative N/A N/A
Global Gold 320,161 644,392
Global Natural Resources 63,879 113,382
Utilities 158,168 370,118
- ----------------------------------------------------------------------
* Net of reimbursements
OTHER ADVISORY RELATIONSHIPS
In addition to managing the funds, the advisor also acts as an investment
advisor to 9 institutional accounts and to the following registered investment
companies:
American Century World Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Variable Portfolios, Inc.
American Century Capital Portfolios, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Municipal Trust
American Century Government Income Trust
American Century Investment Trust
American Century Target Maturities Trust
American Century Mutual Funds, Inc.
American Century International Bond Funds
American Century California Tax-Free and Municipal Funds
TRANSFER AGENT AND ADMINISTRATOR
American Century Services Corporation, 4500 Main Street, Kansas City,
Missouri 64111, acts as transfer agent and dividend-paying agent for the funds.
It provides physical facilities, computer
24 American Century Investments
hardware and software and personnel, for the day-to-day administration of
the funds and of the advisor. The advisor pays ACSC for such services.
From time to time, special services may be offered to shareholders who
maintain higher share balances in our family of funds. These services may
include the waiver of minimum investment requirements, expedited confirmation of
shareholder transactions, newsletters and a team of personal representatives.
Any expenses associated with these special services will be paid by the manager
Pursuant to a Sub-Administration Agreement with the manager, Funds
Distributor, Inc. (FDI) serves as the Co-Administrator for the funds. FDI is
responsible for (i) providing certain officers of the funds and (ii) reviewing
and filing marketing and sales literature on behalf of the funds. The fees and
expenses of FDI are paid by the advisor out of its unified fee.
DISTRIBUTOR
The funds' shares are distributed by FDI a registered broker-dealer. The
distributor is a wholly owned indirect subsidiary of Boston Institutional Group,
Inc. The distributor's principal business address is 60 State Street, Suite
1300, Boston, Massachusetts 02109.
The distributor is the principal underwriter of the funds' shares. The
distributor makes a continuous, best efforts underwriting of the funds' shares.
This means that the distributor has no liability for unsold shares.
OTHER SERVICE PROVIDERS
CUSTODIAN BANKS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York
10003-9598, and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105,
each serves as custodian of the assets of the funds. The custodians take no part
in determining the investment policies of the funds or in deciding which
securities are purchased or sold by the funds. The funds, however, may invest in
certain obligations of the custodians and may purchase or sell certain
securities from or to the custodians.
INDEPENDENT ACCOUNTANT
PricewaterhouseCoopers LLP is the independent accountant of the funds. The
address of PricewaterhouseCoopers LLP is 1055 Broadway, 10th Floor, Kansas City,
Missouri 64105. As the independent accountant of the funds,
PricewaterhouseCoopers provides services including (1) audit of the annual
financial statements for each fund, (2) assistance and consultation in
connection with SEC filings and (3) review of the annual federal income tax
return filed for each fund.
BROKERAGE ALLOCATION
Under the management agreement between the funds and the advisor, the
advisor has the responsibility of selecting brokers to execute portfolio
transactions. The funds' policy is to secure the most favorable prices and
execution of orders on its portfolio transactions. So long as that policy is
met, the advisor may take into consideration the factors discussed below when
selecting brokers.
The advisor receives statistical and other information and services,
including research, without cost from brokers and dealers. The advisor evaluates
such information and services, together with all other information that it may
have, in supervising and managing the investments of the funds. Because such
information and services may vary in amount, quality and reliability, their
influence in selecting brokers varies from none to very substantial. The advisor
proposes to continue to place some of the funds' brokerage business with one or
more brokers who provide information and services. Such information and services
will be in addition to and not in lieu of services required to be performed by
the advisor. The advisor does not utilize brokers that provide such information
and services for the purpose of reducing the expense of providing required
services to the funds.
In the years ended December 31, 1998, 1997 and 1996, the brokerage
commissions of each fund were as follows:
Fund 1998 1997 1996
- -------------------------------------------------------------------------
Income & Growth 9,085,557 $2,758,046 $1,029,549
Equity Growth 4,424,628 1,585,817 495,709
Small Cap Quantitative 14,349 N/A N/A
Global Gold 1,071,884 588,515 1,350,735
Global Natural Resources 96,444 119,686 144,442
Utilities Fund 621,666 327,582 442,714
- -------------------------------------------------------------------------
The brokerage commissions paid by the funds may exceed those which another
broker might have charged
Statement of Additional Information 25
for effecting the same transactions, because of the value of the brokerage and
research services provided by the broker. Research services furnished by brokers
through whom the funds effect securities transactions may be used by the advisor
in servicing all of its accounts, and not all such services may be used by the
advisor in managing the portfolios of the funds.
The staff of the SEC has expressed the view that the best price and
execution of over-the-counter transactions in portfolio securities may be
secured by dealing directly with principal market makers, thereby avoiding the
payment of compensation to another broker. In certain situations, the officers
of the funds and the advisor believe that the facilities, expert personnel and
technological systems of a broker often enable the funds to secure as good a net
price by dealing with a broker instead of a principal market maker, even after
payment of the compensation to the broker. The funds regularly place their
over-the-counter transactions with principal market makers, but may also deal on
a brokerage basis when utilizing electronic trading networks or as circumstances
warrant.
INFORMATION ABOUT FUND SHARES
Each of the six funds named on the front of this Statement of Additional
Information is a series of shares issued by the corporation, and shares of each
fund have equal voting rights. In addition, each series (or fund) may be divided
into separate classes. See "Multiple Class Structure" that follows. Additional
funds and classes may be added without a shareholder vote.
Each fund votes separately on matters affecting that fund exclusively.
Voting rights are not cumulative, so that investors holding more than 50% of the
corporation (i.e., all funds') outstanding shares may be able to elect a Board
of Directors. The corporation undertakes dollar-based voting, meaning that the
number of votes 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 the corporation's shareholders without regard to whether a majority of
shares of any one fund voted in favor of a particular nominee or all nominees as
a group.
The assets belonging to each series or class of shares are held separately
by the custodian and the shares of each series or class represent a beneficial
interest in the principal, earnings and profit (or losses) of investment and
other assets held for each series or class. Your rights as a shareholder are the
same for all series or class of securities unless otherwise stated. Within their
respective series or class, all shares have equal redemption rights. Each share,
when issued, is fully paid and non-assessable.
In the event of complete liquidation or dissolution of the funds,
shareholders of each series or class of shares shall be entitled to receive, pro
rata, all of the assets less the liabilities of that series or class.
Each shareholder has rights to dividends and distributions declared by the
fund he or she owns and to the net assets of such fund upon its liquidation or
dissolution proportionate to his or her share ownership interest in the fund.
MULTIPLE CLASS STRUCTURE
The corporation's Board of Directors has adopted a multiple class plan (the
Multiclass Plan) pursuant to Rule 18f-3 adopted by the SEC. Pursuant to such
plan, the funds may issue up to three classes of shares: an Investor Class, an
Institutional Class and an Advisor Class. Not all funds offer all three classes.
The Investor Class is made available to investors directly without any load
or commission, for a single unified management fee. The Institutional and
Advisor Classes are made available to institutional shareholders or through
financial intermediaries that do not require the same level of shareholder and
administrative services from the advisor as Investor Class shareholders. As a
result, the advisor is able to charge these classes a lower total management
fee. In addition to the management fee, however the Advisor Class shares are
subject to a Master Distribution and Shareholder Services Plan (described
beginning on page 26). The plan has been adopted by the funds' Board of
Directors and initial shareholder in accordance with Rule 12b-1 adopted by the
SEC under the Investment Company Act.
RULE 12b-1
Rule 12b-1 permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a plan adopted by the investment
company's Board of Directors and approved by its shareholders. Pursuant to such
rule, the Board of Directors and initial shareholder of the funds' Advisor
26 American Century Investments
Class have approved and entered into a Master Distribution and Shareholder
Services Plan, with respect to the Advisor Class (the Plan). The Plan is
described below.
In adopting the Plan, the Board of Directors (including a majority of
directors who are not "interested persons" of the funds [as defined in the
Investment Company Act], hereafter referred to as the "independent directors")
determined that there was a reasonable likelihood that the Plan would benefit
the funds and the shareholders of the affected classes. Pursuant to Rule 12b-1,
information with respect to revenues and expenses under the Plan is presented to
the Board of Directors quarterly for its consideration in connection with its
deliberations as to the continuance of the Plan. Continuance of the Plan must be
approved by the Board of Directors (including a majority of the independent
directors) annually. The Plan may be amended by a vote of the Board of Directors
(including a majority of the independent directors), except that the Plan may
not be amended to materially increase the amount to be spent for distribution
without majority approval of the shareholders of the affected class. The Plan
terminates automatically in the event of an assignment and may be terminated
upon a vote of a majority of the independent directors or by vote of a majority
of the outstanding voting securities of the affected class.
All fees paid under the Plan will be made in accordance with Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers.
MASTER DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
As described in the Prospectuses, the funds' Advisor Class of shares are
also made available to participants in employer-sponsored retirement or savings
plans and to persons purchasing through financial intermediaries, such as banks,
broker-dealers and insurance companies. The Distributor enters into contracts
with various banks, broker-dealers, insurance companies and other financial
intermediaries with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for shareholders in
the Advisor Class. In addition to such services, the financial intermediaries
provide various distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
advisor has reduced its management fee by 0.25% per annum with respect to the
Advisor Class shares and the funds' Board of Directors has adopted a Master
Distribution and Shareholder Services Plan. Pursuant to the Plan, the Advisor
Class shares pay a fee of 0.50% annually of the aggregate average daily assets
of the funds' Advisor Class shares, 0.25% of which is paid for shareholder
services (as described below) and 0.25% of which is paid for distribution
services.
Payments may be made for a variety of shareholder services, including, but
are not limited to, (a) receiving, aggregating and processing purchase, exchange
and redemption requests from beneficial owners (including contract owners of
insurance products that utilize the funds as underlying investment media) of
shares and placing purchase, exchange and redemption orders with the
distributor; (b) providing shareholders with a service that invests the assets
of their accounts in shares pursuant to specific or pre-authorized instructions;
(c) processing dividend payments from a fund on behalf of shareholders and
assisting shareholders in changing dividend options, account designations and
addresses; (d) providing and maintaining elective services such as check writing
and wire transfer services; (e) acting as shareholder of record and nominee for
beneficial owners; (f) maintaining account records for shareholders and/or other
beneficial owners; (g) issuing confirmations of transactions; (h) providing
subaccounting with respect to shares beneficially owned by customers of third
parties or providing the information to a fund as necessary for such
subaccounting; (i) preparing and forwarding shareholder communications from the
funds (such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to shareholders and/or
other beneficial owners; and (j) providing other similar administrative and
sub-transfer agency services. Shareholder Services do not include those
activities and expenses that are primarily intended to result in the sale of
additional shares of the funds.
Statement of Additional Information 27
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of Advisor Class shares, which
services may include but are not limited to, (a) the payment of sales
commissions, on going commissions and other payments to brokers, dealers,
financial institutions or others who sell Advisor Class shares pursuant to
selling agreements; (b) compensation to registered representatives or other
employees of distributor who engage in or support distribution of the funds'
Advisor Class shares; (c) compensation to, and expenses (including overhead and
telephone expenses) of, Distributor; (d) the printing of prospectuses,
statements of additional information and reports for other than existing
shareholders; (e) the preparation, printing and distribution of sales literature
and advertising materials provided to the funds' shareholders and prospective
shareholders; (f) receiving and answering correspondence from prospective
shareholders, including distributing prospectuses, statements of additional
information, and shareholder reports; (g) the providing of facilities to answer
questions from prospective investors about fund shares; (h) complying with
federal and state securities laws pertaining to the sale of fund shares; (i)
assisting investors in completing application forms and selecting dividend and
other account options; (j) the providing of other reasonable assistance in
connection with the distribution of fund shares; (k) the organizing and
conducting of sales seminars and payments in the form of transactional and
compensation or promotional incentives; (l) profit on the foregoing; (m) the
payment of "service fees" for the provision of personal, continuing services to
investors, as contemplated by the Rules of Fair Practice of the NASD; and (n)
such other distribution and services activities as the advisor determines may be
paid for by the funds pursuant to the terms of this Agreement and in accordance
with Rule 12b-1 of the Investment Company Act.
BUYING AND SELLING FUND SHARES
Information about buying, selling and exchanging fund shares is contained in
the American Century Investor Services Guide. The guide is available to
investors without charge and may be obtained by calling us.
VALUATION OF A FUND'S SECURITIES
Each fund's net asset value per share (NAV) is calculated as of the close of
business of the New York Stock Exchange (the Exchange), usually at 4 p.m.
Eastern time each day the Exchange is open for business. The Exchange has
designated the following holiday closings for 1999: New Year's Day (observed),
Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Although the
funds expect the same holiday schedule to be observed in the future, the
Exchange may modify its holiday schedule at any time.
Each fund's NAV is calculated by adding the value of all portfolio
securities and other assets, deducting liabilities and dividing the result by
the number of shares outstanding. Expenses and interest earned on portfolio
securities are accrued daily.
The portfolio securities of the fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
prices is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices, or
at the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the Board of Directors.
Debt securities not traded on a principal securities exchange are valued
through valuations obtained from a commercial pricing service or at the most
recent mean of the bid and asked prices provided by investment dealers in
accordance with procedures established by the Board of Directors.
Because there are hundreds of thousands of municipal issues outstanding, and
the majority of them do not trade daily, the prices provided by pricing services
for these types of securities are generally determined without regard to bid or
last sale prices. In valuing securities, the pricing services generally
28 American Century Investments
take into account institutional trading activity, trading in similar groups of
securities, and any developments related to specific securities. The methods
used by the pricing service and the valuations so established are reviewed by
the advisor under the general supervision of the Board of Directors. There are a
number of pricing services available, and the advisor, on the basis of ongoing
evaluation of these services, may use other pricing services or discontinue the
use of any pricing service in whole or in part.
Securities maturing within 60 days of the valuation date may be valued at
cost, plus or minus any amortized discount or premium, unless the trustees
determine that this would not result in fair valuation of a given security.
Other assets and securities for which quotations are not readily available are
valued in good faith at their fair value using methods approved by the Board of
Directors.
The value of an exchange-traded foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which it
is traded or as of the close of business on the Exchange, if that is earlier.
That value is then translated to dollars at the prevailing foreign exchange
rate.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day that the Exchange is open. If an event were to occur
after the value of a security was established but before the net asset value per
share was determined that was likely to materially change the net asset value,
then that security would be valued at fair value as determined in accordance
with procedures adopted by the Board of Directors.
Trading of these securities in foreign markets may not take place on every
Exchange business day. In addition, trading may take place in various foreign
markets on Saturdays or on other days when the Exchange is not open and on which
the fund's net asset value is not calculated. Therefore, such calculation does
not take place contemporaneously with the determination of the prices of many of
the portfolio securities used in such calculation and the value of the fund's
portfolio may be affected on days when shares of the fund may not be purchased
or redeemed.
TAXES
FEDERAL INCOME 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 be exempt from federal income taxes to the extent
that it distributes substantially all of its net investment income and net
realized capital gains (if any) to shareholders. If a fund fails to qualify as a
regulated investment company, it will be liable for taxes, significantly
reducing its distributions to shareholders and eliminating shareholders' ability
to treat distributions of the funds in the manner they were realized by the
funds.
If fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income. The dividends from net income may quality for the 70% dividends
received deduction for corporations to the extent that the fund held shares
receiving the dividend for more than 45 days.
Distributions from gains on assets held greater than 12 months are taxable
as long-term gains regardless of the length of time you have held the shares.
However, you should note that any loss realized upon the sale or redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any distributions of long-term capital gain to you with respect
to such shares.
Dividends and interest received by a fund on foreign securities may give
rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Foreign countries generally do not impose taxes on capital
gains in respect of investments by non-resident investors. The foreign taxes
paid by a fund will reduce its dividends.
If more than 50% of the value of a fund's total assets at the end of each
quarter of its fiscal year consists of securities of foreign corporations, the
fund may qualify for and make an election with the Internal Revenue Service with
respect to such fiscal year so that fund shareholders may be able to claim a
foreign tax credit in lieu of a deduction for foreign income taxes paid by the
fund. If such an election is
Statement of Additional Information 29
made, the foreign taxes paid by the fund will be treated as income received by
you. In order for the shareholder to utilize the foreign tax credit, the mutual
fund shares must have been held for 16 days or more during the 30-day period,
beginning 15 days prior to the ex-dividend date for the mutual fund shares. The
mutual fund must meet a similar holding period requirement with respect to
foreign securities to which a dividend is attributable. Any portion of the
foreign tax credit that is ineligible as a result of the fund not meeting the
holding period requirement will be separately disclosed and may be eligible as
an itemized deduction.
If a fund purchases the securities of certain foreign investment funds or
trusts called passive foreign investment companies (PFIC), capital gains on the
sale of such holdings will be deemed to be ordinary income regardless of how
long the fund holds its investment. The fund also may be subject to corporate
income tax and an interest charge on certain dividends and capital gains earned
from these investments, regardless of whether such income and gains are
distributed to shareholders. In the alternative, the fund may elect to recognize
cumulative gains on such investments as of the last day of its fiscal year and
distribute it to shareholders. Any distribution attributable to a PFIC is
characterized as ordinary income.
If you have not complied with certain provisions of the Internal Revenue
Code and Regulations, either we or your financial intermediary is required by
federal law to withhold and remit to the IRS 31% of reportable payments (which
may include dividends, capital gains distributions and redemptions). Those
regulations require you to certify that the Social Security number or tax
identification number you provide is correct and that you are not subject to 31%
withholding for previous under-reporting to the IRS. You will be asked to make
the appropriate certification on your application. Payments reported by us that
omit your Social Security number or tax identification number will subject us to
a penalty of $50, which will be charged against your account if you fail to
provide the certification by the time the report is filed, and is not
refundable.
Redemption of shares of a fund (including redemption made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize gain or loss in an amount equal to the
difference between the basis of the shares and the amount received. If a loss is
realized on the redemption of fund shares, the reinvestment in additional fund
shares within 30 days before or after the redemption may be subject to the wash
sale rules of the Code, resulting in a postponement of the recognition of such
loss for federal income tax purposes.
STATE AND LOCAL TAXES
Distributions may also be subject to state and local taxes, even if all or a
substantial part of such distributions are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. However, most but not all states allow this tax exemption
to pass through to fund shareholders when a fund pays distributions to its
shareholders. You should consult your tax advisor about the tax status of such
distributions in your own state.
HOW FUND PERFORMANCE INFORMATION IS CALCULATED
The funds may quote performance in various ways. Fund performance may be
shown by presenting one or more performance measurements, including cumulative
total return, average annual total return or yield.
All performance information advertised by the funds is historical in nature
and is not intended to represent or guarantee future results. The value of fund
shares when redeemed may be more or less than their original cost.
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
30 American Century Investments
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 December 31, 1998, Utilities' yield was 2.44%.
Total returns quoted in advertising and sales literature reflect all aspects
of a fund's return, including the effect of reinvesting dividends and capital
gain distributions (if any) and any change in a fund's net asset value per share
during 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 (if any) and any change in the fund's NAV during the period.
Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in a fund during a
stated period and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant throughout the period. For example, a cumulative total return
of 100% over 10 years would produce an average annual return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the funds' performance is
not constant over time, but changes from year-to-year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
The following tables set forth the average annual total return for the
various classes of the funds for the one-, five- and 10-year periods (or the
period since inception) ended December 31, 1998, the last day of the funds'
fiscal year.
Average annual total returns for periods of less than one year are
calculated by determining a 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 a 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 total returns, each fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period, including periods other than one, five and 10
years. Average annual and cumulative total returns may be quoted as percentages
or as dollar amounts and may be calculated for a single investment, a series of
investments, or a series of redemptions over any time period. Total returns may
be broken down into their components of income and capital (including capital
gains and changes in share price) to illustrate the relationship of these
factors and their contributions to total return.
AVERAGE ANNUAL TOTAL RETURNS -- INVESTOR CLASS
Fund 1 year 5 years 10 years Life of Fund
- -------------------------------------------------------------------------------
Income & Growth(1) 27.67 23.74 N/A 21.88
Equity Growth(2) 25.45 23.88 N/A 19.79
Small Cap Quantitative(3) N/A N/A N/A .40
Global Gold(4) -12.18 -14.58 -3.51 -4.36
Global Natural Resources(5) -6.30 N/A N/A 4.83
Utilities(6) 27.43 17.24 N/A 15.86
- -------------------------------------------------------------------------------
(1) Commenced operations on December 17, 1990.
(2) Commenced operations on May 9, 1991.
(3) Commenced operations on July 31, 1998.
(4) Commenced operations on August 17, 1988.
(5) Commenced operations on September 15, 1994.
(6) Commenced operations on March 1, 1993.
Statement of Additional Information 31
AVERAGE ANNUAL TOTAL RETURNS -- INSTITUTIONAL CLASS
Fund Life of Fund
- --------------------------------------------------------------------------------
Income & Growth(1) 27.87
Equity Growth(2) 25.59
- --------------------------------------------------------------------------------
(1) Commenced operations on January 28, 1998.
(2) Commenced operations on January 2, 1998.
AVERAGE ANNUAL TOTAL RETURNS -- ADVISOR CLASS
Fund 1 year Life of Fund
- --------------------------------------------------------------------------------
Income & Growth(1) 27.37 27.63
Equity Growth(2) 25.14 19.55
Global Gold(3) N/A -24.00
Utilities(4) N/A 18.43
- --------------------------------------------------------------------------------
(1) Commenced operations on December 15, 1997.
(2) Commenced operations on October 9, 1997.
(3) Commenced operations on May 6, 1998.
(4) Commenced operations on June 25, 1998.
PERFORMANCE COMPARISONS
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 the American
Century funds, are sold with a sales charge or deferred sales charge, and with
indexes which do not reflect administrative and management costs such as those
incurred by mutual funds. Sources of economic data that may be used for such
comparisons may include, but are not limited to, U.S. Treasury bill, note and
bond yields, money market fund yields, U.S. government debt and percentage held
by foreigners, the U.S. money supply, net free reserves, and yields on
current-coupon GNMAs (source: Board of Governors of the Federal Reserve System);
the federal funds and discount rates (source: Federal Reserve Bank of New York);
yield curves for U.S. Treasury securities and AA/AAA-rated corporate securities
(source: Bloomberg Financial Markets); yield curves for AAA-rated tax-free
municipal securities (source: Telerate); yield curves for foreign government
securities (sources: Bloomberg Financial Markets and Data Resources, Inc.);
total returns on foreign bonds (source: J.P. Morgan Securities Inc.); various
U.S. and foreign government reports; the junk bond market (source: Data
Resources, Inc.); the CRB Futures Index (source: Commodity Index Report); the
price of gold (sources: London a.m./p.m. fixing and New York Comex Spot Price);
rankings of any mutual fund or mutual fund category tracked by Lipper Inc. or
Morningstar, Inc.; mutual fund rankings published in major, nationally
distributed periodicals; data provided by the Investment Company Institute;
Ibbotson Associates, Stocks, Bonds, Bills, and Inflation; major indexes of stock
market performance; and indexes and historical data supplied by major securities
brokerage or investment advisory firms. The funds also may utilize reprints from
newspapers and magazines furnished by third parties to illustrate historical
performance or to provide general information about the funds.
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends, including illustrations of particular markets (like the gold market);
(3) presentations of statistical data to supplement such discussions and to
illustrate historical and projected demand for certain commodities; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
funds; (5) descriptions of investment strategies for one or more of the funds;
(6) descriptions or comparisons of various savings and investment products
(including, but not limited to, qualified retirement plans and individual stocks
and bonds), which may or may not include the funds; (7) comparisons of
investment products (including the funds) with relevant market or industry
indices or other appropriate benchmarks; (8) discussions of fund rankings or
ratings by recognized rating organizations; and (9) testimonials describing the
experience of persons that have invested in one or more of the funds. The funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results. Such performance examples will be
based on an express set of assumptions and are not indicative of the performance
of any of the funds.
32 American Century Investments
MULTIPLE CLASS PERFORMANCE ADVERTISING
Pursuant to the Multiple Class Plan, the funds may issue additional classes
of existing funds or introduce new funds with multiple classes available for
purchase. To the extent a new class is added to an existing fund, the manager
may, in compliance with SEC and NASD rules, regulations and guidelines, market
the new class of shares using the historical performance information of the
original class of shares. When quoting performance information for the new class
of shares for periods prior to the first full quarter after inception, the
original class's performance will be restated to reflect the expenses of the new
class and for periods after the first full quarter after inception, actual
performance of the new class will be used.
FINANCIAL STATEMENTS
The financial statements of the funds are included in the Annual Reports to
shareholders for the fiscal year ended December 31, 1998. The Annual Reports are
incorporated herein by reference. You may receive copies of the reports without
charge upon request to American Century at the address and telephone number
shown on the back cover of this
Statement of Additional Information. 33
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
ANNUAL AND SEMIANNUAL REPORTS
These contain more information about the funds' investments and the market
conditions and investment strategies that significantly affected the funds'
performance during the most recent fiscal period. The annual and semiannual
reports are incorporated by reference into this SAI. This means that these are
legally part of this SAI.
You can receive a free copy of the annual and semiannual reports, and ask any
questions about the funds, by contacting us at one of the addresses or telephone
numbers listed below.
If you own or are considering purchasing fund shares through
* an employer-sponsored retirement plan
* a bank
* a broker-dealer
* an insurance company
* another financial intermediary
you can receive the annual and semiannual reports directly from them.
You also can get information about the funds from the Security and Exchange
Commission (SEC).
* In person SEC Public Reference Room
Washington, D.C.
Call 1-800-SEC-0330 for location and hours.
* On the Internet www.sec.gov
* By mail SEC Public Reference Section
Washington, D.C. 20549-6009
(The SEC will charge a fee for copying the documents.)
Investment Company Act File No. 811-5447
[american century logo(reg.sm)]
American
Century
AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri 64141-6200
INVESTOR RELATIONS
1-800-345-2021 or 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
WWW.AMERICANCENTURY.COM
FAX
816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 or 816-444-3485
BUSINESS; NOT-FOR-PROFIT AND
EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
SH-SAI-17249 9907
