STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
AMERICAN
CENTURY
GROUP
Value
Equity Income
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
This is the Statement of Additional Information for the American Century
Value Fund and American Century Equity Income Fund. This Statement is not a
prospectus but should be read in conjunction with the current Prospectus of
American Century Capital Portfolios, Inc., dated September 3, 1996. Please
retain this document for future reference. To obtain the Prospectus: call
American Century toll-free at 1-800-345-2021 (international calls:
816-531-5575), or write P.O. Box 419200, Kansas City, Missouri 64141-6200.
TABLE OF CONTENTS
Investment Objective of the Funds..............................................2
Investment Restrictions........................................................2
Forward Currency Exchange Contracts............................................3
Index Futures Contracts........................................................4
An Explanation of Fixed Income Securities Ratings..............................5
Short Sales....................................................................7
Portfolio Turnover.............................................................7
Officers and Directors.........................................................8
Management.....................................................................9
Custodians....................................................................10
Independent Auditors..........................................................11
Capital Stock.................................................................11
Multiple Class Structure......................................................11
Taxes.........................................................................13
Brokerage.....................................................................14
Performance Advertising.......................................................15
Redemptions in Kind...........................................................16
Holidays......................................................................16
Financial Statements..........................................................16
Statement of Additional Information 1
INVESTMENT OBJECTIVE OF THE FUNDS
The investment objective of each series of shares of American Century
Capital Portfolios, Inc. is described on page 2 of the Prospectus. In achieving
its objective, a fund must conform to certain policies, some of which are
designated in the Prospectus or in this Statement of Additional Information as
"fundamental" and cannot be changed without shareholder approval. The following
paragraph is also a statement of fundamental policy with respect to selection of
investments:
In general, within the restrictions outlined herein, each series has broad
powers with respect to investing funds or holding them uninvested. Investments
are varied according to what is judged advantageous under changing economic
conditions. It is our policy to retain maximum flexibility in management without
restrictive provisions as to the proportion of one or another class of
securities that may be held, subject to the investment restrictions described
below. It is the manager's intention that each fund will generally consist of
equity securities. However, the manager may invest the assets of a fund in
varying amounts in other instruments and in senior securities, such as bonds,
debentures, preferred stocks and convertible issues, when such a course is
deemed appropriate in order to attempt to attain its financial objective.
Neither the Securities and Exchange Commission nor any other federal or
state agency participates in or supervises the management of the funds or their
investment practices or policies.
INVESTMENT RESTRICTIONS
Additional fundamental policies that may be changed only with shareholder
approval provide that neither series of shares:
(1) Shall invest more than 15% of its assets in illiquid investments.
(2) Shall invest in the securities of companies that, including predecessors,
have a record of less than three years of continuous operation.
(3) Shall lend its portfolio securities except to unaffiliated persons and
subject to the rules and regulations adopted under the Investment Company
Act of 1940. No such rules and regulations have been issued, but it is our
policy that such loans must be secured continuously by cash collateral
maintained on a current basis in an amount at least equal to the market
value of the securities loaned or by irrevocable letters of credit. During
the existence of the loan, a fund must continue to receive the equivalent
of the interest and dividends paid by the issuer on the securities loaned
and interest on the investment of the collateral; the fund must have the
right to call the loan and obtain the securities loaned at any time on five
days' notice, including the right to call the loan to enable the fund to
vote the securities. To comply with the regulations of certain state
securities administrators, such loans may not exceed one-third of the
fund's net assets valued at market.
(4) Shall, with regard to 75% of its portfolio, purchase the security of any
one issuer if such purchase would cause more than 5% of the fund's assets
at market to be invested in the securities of such issuer, except U.S.
government securities, or if the purchase would cause more than 10% of the
outstanding voting securities of any one issuer to be held in a fund's
portfolio.
(5) Shall invest for control or for management or concentrate its investment in
a particular company or a particular industry. No more than 25% of the
assets of a fund, exclusive of cash and U.S. government securities, will be
invested in securities of any one industry.
(6) Shall buy securities on margin or sell short (unless it owns or by virtue
of its ownership of other securities has the right to obtain securities
equivalent in kind and amount to the securities sold without additional
cost); however, a fund may make margin deposits in connection with the use
of any financial instrument or any transaction in securities permitted by
its fundamental policies.
(7) Shall invest in the securities of other investment companies except by
purchases in the open market involving only customary brokers' commission
and no sales charges.
(8) Shall issue any senior security.
(9) Shall underwrite any securities.
(10) Shall borrow any money, except in an amount not in excess of 5% of the
total assets of the
2 American Century Investments
series and then only for emergency and extraordinary purposes. Note: This
investment restriction does not prohibit escrow and collateral arrangements
in connection with investment in futures contracts and related options by a
fund.
(11) Shall purchase or sell real estate, except that a fund may purchase
securities of issuers that deal in real estate and may purchase securities
that are secured by interests in real estate.
The Investment Company Act imposes certain additional restrictions upon
acquisition by the fund of securities issued by insurance companies, brokers,
dealers, underwriters or investment advisers, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership.
The Investment Company Act also provides that the funds may not invest more
than 25% of their assets in the securities of issuers engaged in a single
industry. In determining industry groups for purposes of this standard, the 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 that the recommended by the SEC. The funds
believe that these classifications are reasonable and are not so broad that the
primary economic characteristics of the companies in a single class are
materially different. The use of these more restrictive industry classifications
may, however, cause the funds to forego investment possibilities which may
otherwise be available to them under the Investment Company Act.
Neither the SEC nor any other agency of the federal or state government
participates in or supervises the funds' management or their investment
practices or policies.
FORWARD CURRENCY EXCHANGE CONTRACTS
Each fund conducts its foreign currency exchange transactions either on a
spot basis at the spot rate prevailing in the foreign currency exchange market
or through entering into forward currency exchange contracts to purchase or sell
foreign currencies.
Each fund expects to use forward contracts under two circumstances:
(1) When the manager wishes to "lock in" the U.S. dollar price of a security
when a fund is purchasing or selling a security denominated in a foreign
currency, the fund would be able to enter into a forward contract to do so;
(2) When the manager believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, a fund would be
able to enter into a forward contract to sell foreign currency for a fixed
U.S. dollar amount approximating the value of some or all of its portfolio
securities either denominated in, or whose value is tied to, such foreign
currency.
As to the first circumstance, when a fund enters into a trade for the
purchase or sale of a security denominated in a foreign currency, it may be
desirable to establish (lock in) the U.S. dollar cost or proceeds. By entering
into forward contracts in U.S. dollars for the purchase or sale of a foreign
currency involved in an underlying security transaction, the fund will be able
to protect itself against a possible loss between trade and settlement dates
resulting from the adverse change in the relationship between the U.S. dollar
and the subject foreign currency.
Under the second circumstance, when the manager believes that the currency
of a particular country may suffer a substantial decline relative to the U.S.
dollar, a fund could enter into a forward contract to sell for a fixed dollar
amount the amount in foreign currencies approximating the value of some or all
of its portfolio securities either denominated in, or whose value is tied to,
such foreign currency. The fund will place cash or high-grade liquid securities
in a separate account with its custodian in an amount equal to the value of the
forward contracts entered into under the second circumstance. If the value of
the securities placed in the separate account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account equals the amount of the fund's commitments with respect to such
contracts.
The precise matching of forward contracts in the amounts and values of
securities involved generally would not be possible since the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
Statement of Additional Information 3
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The manager does not intend to enter into such
contracts on a regular basis. Normally, consideration of the prospect for
currency parities will be incorporated into the long-term investment decisions
made with respect to overall diversification strategies. However, the manager
believes that it is important to have flexibility to enter into such forward
contracts when it determines that a fund's best interests may be served.
Generally, a fund will not enter into a forward contract with a term of
greater than one year. At the maturity of the forward contract, the fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate the obligation to deliver the foreign
currency by purchasing an "offsetting" forward contract with the same currency
trader obligating the fund to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the forward contract. Accordingly, it
may be necessary for a fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency the fund is obligated to deliver.
INDEX FUTURES CONTRACTS
As described in the Prospectus, each fund may enter into domestic stock
index futures contracts. Unlike when a fund purchases securities, no purchase
price for the underlying securities is paid by the fund at the time it purchases
a futures contract. When a futures contract is entered into, both the buyer and
seller of the contract are required to deposit with a futures commission
merchant ("FCM") cash or high-grade debt securities in an amount equal to a
percentage of the contract's value, as set by the exchange on which the contract
is traded. This amount is known as "initial margin" and is held by the fund's
custodian for the benefit of the FCM in the event of any default by the fund in
the payment of any future obligations.
The value of the index futures is adjusted daily to reflect the fluctuation
of the value of the underlying securities that comprise the index. This is a
process known as marking the contract to market. If the value of a party's
position declines, that party is required to make additional "variation margin"
payments to the FCM to settle the change in value. The party that has a gain may
be entitled to receive all or a portion of this amount. The FCM may have access
to the funds' margin account only under specified conditions of default.
The funds maintain from time to time a percentage of their assets in cash
or high-grade liquid securities to provide for redemptions or to hold for future
investment in securities consistent with the funds' investment objectives. The
funds may enter into index futures contracts as an efficient means to expose the
funds' cash position to the domestic equity market. The manager believes that
the purchase of futures contracts is an efficient means to effectively be fully
invested in equity securities.
The funds intend to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the
Commodity Futures Trading Commission and the National Futures Association, which
regulate trading in the futures markets. To do so, the aggregate initial margin
required to establish such positions may not exceed 5% of the fair market value
of a fund's net assets, after taking into account unrealized profits and
unrealized losses on any contracts it has entered into.
The principal risks generally associated with the use of futures include:
o the possible absence of a liquid secondary market for any particular
instrument may make it difficult or impossible to close out a position when
desired (liquidity risk);
o the risk that the counter party to the contract may fail to perform its
obligations or the risk of bankruptcy of the FCM holding margin deposits
(counter party risk);
o the risk that the index of securities to which the futures contract relates
may go down in value (market risk); and
o adverse price movements in the underlying index can result in losses
substantially greater than the value of a fund's investment in that
4 American Century Investments
instrument because only a fraction of a contract's value is required to be
deposited as initial margin (leverage risk); provided, however, that the
funds may not purchase leveraged futures, so there is no leverage risk
involved in the funds' use of futures.
A liquid secondary market is necessary to close out a contract. The funds
seek to manage liquidity risk by investing only in exchange-traded futures.
Exchange-traded index futures pose less risk that there will not be a liquid
secondary market than privately negotiated instruments. Through their clearing
corporations, the futures exchanges guarantee the performance of the contracts.
Futures contracts are generally settled within a day from the date they are
closed out, as compared to three days for most types of equity securities. As a
result, futures contracts can provide more liquidity than an investment in the
actual underlying securities. Nevertheless, there is no assurance that a liquid
secondary market will exist for any particular futures contract at any
particular time. Liquidity may also be influenced by an exchange-imposed daily
price fluctuation limit, which halts trading if a contract's price moves up or
down more than the established limit on any given day. On volatile trading days
when the price fluctuation limit is reached, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a futures contract is not liquid because of price fluctuation limits
or otherwise, a fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until liquidity in the market is re-established. As a result, such
fund's access to other assets held to cover its futures positions also could be
impaired until liquidity in the market is re-established.
The funds manage counter-party risk by investing in exchange-traded index
futures. In the event of the bankruptcy of the FCM that holds margin on behalf
of a fund, that fund may be entitled to the return of margin owed to such fund
only in proportion to the amount received by the FCM's other customers. The
manager will attempt to minimize the risk by monitoring the creditworthiness of
the FCMs with which the funds do business.
The prices of futures contracts depend primarily on the value of their
underlying instruments. As a result, the movement in market price of index
futures contracts will reflect the movement in the aggregate market price of the
entire portfolio of securities comprising the index. Since the funds are not
index funds, a fund's investment in futures contracts will not correlate
precisely with the performance of such fund's other equity investments. However,
the manager believes that an investment in index futures will more closely
reflect the investment performance of the funds than an investment in U.S.
government or other highly liquid, short-term debt securities, which is where
the cash position of the funds would otherwise be invested.
The policy of the manager is to remain fully invested in equity securities.
There may be times when the manager deems it advantageous to the funds not to
invest excess cash in index futures, but such decision will generally not be the
result of an active effort to use futures to time or anticipate market movements
in general.
AN EXPLANATION OF FIXED INCOME SECURITIES RATINGS
As described in the Prospectus, the funds may invest in fixed income
securities. With the exception of convertible securities, the funds may invest
only in investment grade obligations.
Fixed income securities ratings provide the investment manager with current
assessment of the credit rating of an issuer with respect to a specific fixed
income security. The following is a description of the rating categories
utilized by the rating services referenced in the Prospectus disclosure:
The following summarizes the ratings used by Standard & Poor's Corporation
for bonds:
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA--Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only to a small
degree.
A--Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal.
Statement of Additional Information 5
Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied B or B- rating.
CC--The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C--The rating C typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is
being paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
To provide more detailed indications of credit quality, the ratings from AA
to CCC may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the ratings used by Moody's Investors Service,
Inc.for bonds:
Aaa--Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, or
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present that make the long-term risk appear somewhat
larger than the Aaa securities.
A--Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment some time in the
future.
Baa--Bonds that are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Ba--Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of inter-
6 American Century Investments
est and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times in the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa--Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca--Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds that are rated C are the lowest-rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
category from Aa through B. The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
SHORT SALES
A fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire an equal amount of the security being sold
short at no additional cost.
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. To make delivery to the purchaser, the executing broker borrows the
securities being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If a fund engages in a short sale, the collateral account will be
maintained by the fund's custodian. There will be certain additional transaction
costs associated with short sales, but the fund will endeavor to offset these
costs with income from the investment of the cash proceeds of short sales.
A fund may make a short sale, as described above, when it wants to sell the
security it owns at a current attractive price but also wishes to defer
recognition of gain or loss for federal income tax purposes and for purposes of
satisfying certain tests applicable to regulated investment companies under the
Internal Revenue Code. In such a case, all or some part of any future losses in
the fund's long position in substantially identical securities may not become
deductible for tax purposes until all or some part of the short position has
been closed.
PORTFOLIO TURNOVER
In order to achieve each funds investment objective, the manager will
purchase and sell securities without regard to the length of time the security
has been held. Accordingly, the funds' rate of portfolio turnover may be
substantial.
The funds intend to purchase a given security whenever the manager believes
it will contribute to the stated objective of a fund, even if the same security
has only recently been sold. In selling a given security, the manager keeps in
mind that (1) profits from sales of securities held less than three months must
be limited in order to meet the requirements of Subchapter M of the Internal
Revenue Code, and (2) profits from sales of securities are taxed to
shareholders. Subject to those considerations, the corporation will sell a given
security, no matter for how long or how short a period it has been held in the
portfolio and no matter whether the sale is at a gain or at a loss, if
management believes that the security is not fulfilling its purpose, either
because, among other things, it did not live up to the manager's expectations,
or because it may be replaced with another security holding greater promise, or
because it has reached its optimum potential, or because of a change in the
circumstances of a particular company or industry or in general economic
conditions, or because of some combination of such reasons.
When a general decline in security prices is anticipated, a fund may
decrease or eliminate entirely its equity position and increase its cash
position, and when a rise in price levels is anticipated, a fund may increase
its equity position and decrease its cash posi
Statement of Additional Information 7
tion. It should be expected, however, that the funds will, under most
circumstances, be essentially fully invested in equity securities and equity
equivalents.
Since investment decisions are based on the anticipated contribution of the
security in question to a fund's objectives, management believes that the rate
of portfolio turnover is irrelevant when management believes a change is in
order to achieve those objectives.
OFFICERS AND DIRECTORS
The principal officers and directors of the corporation, their principal
business experience during the past five years, and their affiliations with the
fund's investment manager, American Century Investment Management, Inc. and its
transfer agent, American Century Services Corporation, are listed below. Unless
otherwise noted, the business address of each director and officer is American
Century Tower, 4500 Main Street, Kansas City, Missouri 64111. All persons named
as officers of the Corporation also serve in similar capacities for other funds
advised by the manager. Those directors that are "interested persons" as defined
in the Investment Company Act of 1940 are indicated by an asterisk(*).
JAMES E. STOWERS JR.,* Chairman of the Board and Director; Chairman of
the Board, Director and controlling shareholder of American Century Companies,
Inc., parent corporation of American Century Investment Management, Inc. and
American Century Services Corporation; Chairman of the Board and Director of
American Century Investment Management, Inc. and American Century Services
Corporation; father of James E. Stowers III.
JAMES E. STOWERS III,* President, Chief Executive Officer and Director;
President, Chief Executive Officer and Director, American Century Companies,
Inc. American Century Investment Management, Inc. and American Century
Services Corporation.
THOMAS A. BROWN, Director; 2029 Wyandotte, Kansas City, Missouri; Chief
Executive Officer, Associated Bearing Company, a corporation engaged in the
sale of bearings and power transmission products.
ROBERT W. DOERING, M.D., Director; 6420 Prospect, Kansas City, Missouri;
general surgeon.
D. D. (DEL) HOCK, Director; 1225 Seventeenth Street #900, Denver,
Colorado; Chairman, President and Chief Executive Officer, Public Service
Company of Colorado.
LINSLEY L. LUNDGAARD, Vice Chairman of the Board and Director; 18648 White
Wing Drive, Rio Verde, Arizona; retired; formerly Vice President and National
Sales Manager, Flour Milling Division, Cargill, Inc.
DONALD H. PRATT, Director; P.O. Box 419917, Kansas City, Missouri;
President, Butler Manufacturing Company.
LLOYD T. SILVER JR., Director; 2300 West 70th Terrace, Mission Hills,
Kansas; President, LSC, Inc., manufacturer's representative.
M. JEANNINE STRANDJORD, Director; 908 West 121st Street, Kansas City,
Missouri; Senior Vice President and Treasurer, Sprint Corporation.
WILLIAM M. LYONS, Executive Vice President, Chief Operating Officer,
Secretary and General Counsel; Executive Vice President, Chief Operating
Officer and General Counsel, American Century Companies, Inc., American
Century Investment Management, Inc. and American Century Services Corporation.
ROBERT T. JACKSON, Executive Vice President and Principal Financial
Officer; Executive Vice President and Treasurer, American Century Companies,
Inc., American Century Investment Management, Inc. and American Century
Services Corporation; formerly Executive Vice President, Kemper Corporation.
MARYANNE ROEPKE, CPA, Vice President, Treasurer and Principal Accounting
Officer; Vice President, American Century Services Corporation.
PATRICK A. LOOBY, Vice President; Vice President, American Century
Services Corporation.
MERELE A. MAY, Controller.
C. JEAN WADE, CPA, Controller; formerly, accountant, Baird, Kurtz &
Dobson.
The Board of Directors has established four standing committees, the
Executive Committee, the Audit Committee, the Compliance Committee and the
Nominating Committee.
Messrs. Stowers Jr., Stowers III, and Lundgaard constitute the Executive
Committee of the Board of Directors. The committee performs the functions of
the Board of Directors between meetings of the Board, subject to the
limitations on its power set out in the Maryland General Corporation Law, and
except
8 American Century Investments
for matters required by the Investment Company Act to be acted upon by the whole
Board.
Messrs. Lundgaard (chairman), Doering and Hock and Ms. Strandjord
constitute the Audit Committee. The functions of the Audit Committee include
recommending the engagement of the funds' independent accountants, reviewing the
arrangements for and scope of the annual audit, reviewing comments made by the
independent accountants with respect to internal controls and the considerations
given or the corrective action taken by management, and reviewing nonaudit
services provided by the independent accountants.
Messrs. Brown (chairman), Pratt and Silver constitute the Compliance
Committee. The functions of the Compliance Committee include reviewing the
results of the funds' compliance testing program, reviewing quarterly reports
from the manager to the Board regarding various compliance matters and
monitoring the implementation of the funds' Code of Ethics, including violations
thereof.
The Nominating Committee has as its principal role the consideration and
recommendation of individuals for nomination as directors. The names of
potential director candidates are drawn from a number of sources, including
recommendations from members of the Board, management and shareholders. This
committee also reviews and makes recommendations to the Board with respect to
the composition of Board committees and other Board-related matters, including
its organization, size, composition, responsibilities, functions and
compensation. The members of the nominating committee are Messrs. Pratt
(Chairman), Lundgaard and Stowers III.
The Directors of the corporation also serve as Directors for other funds
advised by the manager. Each Director who is not an "interested person" as
defined in the Investment Company Act receives for service as a member of the
Board of six of such companies an annual director's fee of $44,000, a fee of
$1,000 per regular Board meeting attended and $500 per special Board meeting and
committee meeting attended. In addition, those Directors who are not "interested
persons" who serve as chairman of a committee of the Board of Directors receive
an additional $2,000 for such services. These fees and expenses are divided
among the six investment companies based upon their relative net assets. Under
the terms of the management agreement with the manager, the funds are
responsible for paying such fees and expenses. For the most recent fiscal year,
Value's share of such fees and expenses was $6,570 and Equity Income's share was
$950.
Set forth below is the aggregate compensation paid for the periods
indicated by the corporation and by the American Century family of funds as a
whole to each director of the corporation who is not an "interested person" as
defined in the Investment Company Act.
Aggregate Total Compensation from
Compensation the American Century
Director from the corporation1 Family of Funds2
- --------------------------------------------------------------------------------
Thomas A. Brown $ 986.73 $44,000
Robert W. Doering, M.D. 975.64 44,000
Linsley L. Lundgaard 1,019.99 46,000
Donald H. Pratt 853.69 28,000
Lloyd T. Silver Jr. 975.64 44,000
M. Jeannine Strandjord 964.56 44,000
John M. Urie 1,019.99 46,000
- --------------------------------------------------------------------------------
1 Includes compensation actually paid by the corporation during the fiscal
year ended March 31, 1996.
2 Includes compensation paid by the fifteen investment company members of the
American Century family of funds for the calendar year ended December 31,
1995.
Those Directors who are "interested persons," as defined in the Investment
Company Act, receive no fee as such for serving as a Director. The salaries of
such individuals, who also are officers of the funds, are paid by the manager.
MANAGEMENT
A description of the responsibilities and method of compensation of fund's
investment manager, American Century Investment Management, Inc. appears in the
Prospectus under the caption "Management."
During the fiscal years ended March 31, 1994, 1995 and 1996, the management
fees paid by the funds to the manager were:
Statement of Additional Information 9
Fund Year Ended March 31
- --------------------------------------------------------------------------------
1996 1995 1994
Value
Management fees $5,747,940 $1,514,154 $309,388*
Average net assets 590,608,755 151,415,400 30,938,800*
Equity Income
Management fees 831,887 145,270**
Average net assets 84,610,230 14,527,000**
- --------------------------------------------------------------------------------
*Since inception (September 1, 1993) through March 31, 1994.
**Since inception (August 1, 1994) through March 31, 1995.
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually by (i) the funds'
Board of Directors or by the vote of a majority of outstanding votes (as defined
in the Investment Company Act) and (ii) by the vote of a majority of the
Directors who are not parties to the agreement or interested persons of the
manager, cast in person at a meeting called for the purpose of voting on such
approval.
The management agreement provides that it may be terminated at any time
without payment of any penalty by the funds' Board of Directors, or by a vote of
the funds' shareholders, on 60 days' written notice to the manager and that it
shall be automatically terminated if it is assigned.
The management agreement provides that the manager shall not be liable to
the funds or 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 manager and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
Certain investments may be appropriate for the funds and also for other
clients advised by the manager. Investment decisions for the funds and other
clients are made with a view to achieving their respective investment objectives
after consideration of such factors as their current holdings, availability of
cash for investment, and the size of their investment generally. A particular
security may be bought or sold for only one client, or in different amounts and
at different times for more than one but less than all clients. In addition,
purchases or sales of the same security may be made for two or more clients on
the same date. Such transactions will be allocated among clients in a manner
believed by the manager to be equitable to each. In some cases this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a fund.
The manager may aggregate purchase and sale orders of the funds with
purchase and sale orders of its other clients when the manager believes that
such aggregation provides the best execution for the funds. The funds' Board of
Directors has approved the policy of the manager with respect to the aggregation
of portfolio transactions. Where portfolio transactions have been aggregated,
the funds participate at the average share price for all transactions in that
security on a given day and share transaction costs on a pro rata basis. The
manager will not aggregate portfolio transactions of the funds unless it
believes such aggregation is consistent with its duty to seek best execution on
behalf of the funds and the terms of the management agreement. The manager
receives to additional compensation or remuneration as a result of such
aggregation.
In addition to managing the funds, on August 1, 1996, the manager was also
acting as an investment adviser to nine institutional accounts and to six
registered investment companies American Century Mutual Funds, Inc., American
Century Premium Reserves, Inc., American Century World Mutual Funds, Inc.,
American Century Strategic Asset Allocations, Inc., and TCI Portfolios, Inc.
American Century Services Corporation provides physical facilities,
including computer hardware and software and personnel, for the day-to-day
administration of the funds and the manager pays American Century Services
Corporation, for such services.
As stated in the Prospectus, all of the stock of American Century
Investment Management, Inc. and American Century Services Corporation is owned
by American Century Companies, Inc.
CUSTODIANS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York
10003-9598, and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105,
10 American Century Investments
each serves as custodian of the assets of the funds. The custodians take no part
in determining the investment policies of the funds or in deciding which
securities are purchased or sold by the funds. The funds, however, may invest in
certain obligations of the custodians and may purchase or sell certain
securities from or to the custodians.
INDEPENDENT AUDITORS
Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas City,
Missouri 64105, serves as of the funds independent auditors, providing services
including (1) audit of the annual financial statements, (2) assistance and
consultation in connection with SEC filings and (3) review of the annual federal
income tax return filed for each fund.
CAPITAL STOCK
The funds' capital stock is described in the Prospectus under the caption
"Further Information About American Century."
The corporation currently has two series of shares outstanding. Each series
of shares is further divided into four classes. The funds may in the future
issue one or more additional series or class of shares without a vote of the
shareholders. The assets belonging to each series or class of shares are held
separately by the custodian and the shares of each series or class represent a
beneficial interest in the principal, earnings and profits (or losses) of
investment and other assets held for that series or class. Your rights as a
shareholder are the same for all series or classes of securities unless
otherwise stated. Within their respective series or class, all shares will have
equal redemption rights. Each share, when issued, is fully paid and
non-assessable. Each share, irrespective of series or class, is entitled to one
vote for each dollar of net asset value represented by such share on all
questions.
In the event of complete liquidation or dissolution of the funds,
shareholders of each series or class of shares will be entitled to receive, pro
rata, all of the assets less the liabilities of that series or class.
As of June 30, 1996, in excess of 5% of the outstanding shares of either
series of the funds were owned of record as follows: Charles Schwab & Co., San
Francisco, California, owned 14.9% of Value and 21.5% of Equity Income.
As of June 30, 1996, the shares of the corporation owned beneficially and
of record by the officers and directors of the corporation in the aggregate were
less than 1% of either series of shares offered by the funds.
MULTIPLE CLASS STRUCTURE
The funds' Board of Directors has adopted a multiple class plan (the
"Multiclass Plan") pursuant to Rule 18f-3 adopted by the SEC. Pursuant to such
plan, the funds may issue up to four classes of shares: an Investor Class, an
Institutional Class, a Service Class and an Advisor Class.
The Investor Class is made available to investors directly by the
investment manager through its affiliated broker-dealer, American Century
Investment Services, Inc., for a single unified management fee, without any load
or commission. The Institutional, Service and Advisor Classes are made available
to institutional shareholders or through financial intermediaries that do not
require the same level of shareholder and administrative services from the
manager as Investor Class shareholders. As a result, the manager is able to
charge these classes a lower management fee. In addition to the management fee,
however, Service Class shares are subject to a Shareholder Services Plan
(described below), and the Advisor Class shares are subject to a Master
Distribution and Shareholder Services Plan (also described below). Both plans
have been adopted by the funds' Board of Directors and initial shareholder in
accordance with Rule 12b-1 adopted by the SEC under the Investment Company Act.
RULE 12B-1
Rule 12b-1 permits an investment company to pay expenses associated with
the distribution of its shares in accordance with a plan adopted by the
investment company's Board of Directors and approved by its shareholders.
Pursuant to such rule, the Board of Directors and initial shareholder of the
funds' Service Class and Advisor Class have approved and entered into a
Shareholder Services Plan, with respect to the Service Class, and a Master
Distribution and
Statement of Additional Information 11
Shareholder Services Plan, with respect to the Advisor Class (collectively, the
"Plans"). Both Plans are described beginning on this page.
In adopting the Plans, the Board of Directors (including a majority of
directors who are not "interested persons" of the funds (as defined in the
Investment Company Act), hereafter referred to as the "independent directors")
determined that there was a reasonable likelihood that the Plans would benefit
the funds and the shareholders of the affected classes. Pursuant to Rule 12b-1,
information with respect to revenues and expenses under the Plans is presented
to the Board of Directors quarterly for its consideration in connection with its
deliberations as to the continuance of the Plans. Continuance of the Plans must
be approved by the Board of Directors (including a majority of the independent
directors) annually. The Plans may be amended by a vote of the Board of
Directors (including a majority of the independent directors), except that the
Plans may not be amended to materially increase the amount to be spent for
distribution without majority approval of the shareholders of the affected
class. The Plans terminate automatically in the event of an assignment and may
be terminated upon a vote of a majority of the independent directors or by vote
of a majority of the outstanding voting securities of the affected class.
All fees paid under the plans will be made in accordance with Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers.
SHAREHOLDER SERVICES PLAN
As described in the Prospectus, the funds' Service Class of shares are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through financial intermediaries, such as banks,
broker-dealers and insurance companies. In such circumstances, certain
recordkeeping and administrative services that are provided by the funds'
transfer agent for the Investor Class shareholders may be performed by a plan
sponsor (or its agents) or by a financial intermediary. To enable the funds'
shares to be made available through such plans and financial intermediaries, and
to compensate them for such services, the funds' investment manager has reduced
its management fee by 0.25% per annum with respect to the Service Class shares
and the funds' Board of Directors has adopted a Shareholder Services Plan.
Pursuant to the Shareholder Services Plan, the Service Class shares pay a
shareholder services fee of 0.25% annually of the aggregate average daily net
assets of the funds' Service Class shares.
American Century Investment Services, Inc. (the "Distributor") enters into
contracts with each financial intermediary for the provision of certain
shareholder services and utilizes the shareholder services fees under the
Shareholder Services Plan to pay for such services. Payments may be made for a
variety of shareholder services, including, but are not limited to, (1)
receiving, aggregating and processing purchase, exchange and redemption request
from beneficial owners (including contract owners of insurance products that
utilize the funds as underlying investment medium) of shares and placing
purchase, exchange and redemption orders with the Distributor; (2) providing
shareholders with a service that invests the assets of their accounts in shares
pursuant to specific or pre-authorized instructions; (3) processing dividend
payments from a fund on behalf of shareholders and assisting shareholders in
changing dividend options, account designations and addresses; (4) providing and
maintaining elective services such as check writing and wire transfer services;
(5) acting as shareholder of record and nominee for beneficial owners; (6)
maintaining account records for shareholders and/or other beneficial owners; (7)
issuing confirmations of transactions; (8) providing subaccounting with respect
to shares beneficially owned by customers of third parties or providing the
information to a fund as necessary for such subaccounting; (9) preparing and
forwarding shareholder communications from the funds (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to shareholders and/or other beneficial owners;
(10) providing other similar administrative and sub-transfer agency services;
and (11) paying "service fees" for the provision of personal, continuing
services to investors, as contemplated by the Rules of Fair Practice of the NASD
(collectively referred to as "Shareholder Services"). Shareholder Services do
not include those activities and expenses that are primarily intended to result
in the sale of additional shares of the funds.
12 American Century Investments
MASTER DISTRIBUTIONS AND SHAREHOLDER SERVICES PLAN
As described in the Prospectus, the funds' Advisor Class of shares are also
made available to participants in employer-sponsored retirement or savings plans
and to persons purchasing through financial intermediaries, such as banks,
broker-dealers and insurance companies. The Distributor enters into contracts
with various banks, broker-dealers, insurance companies and other financial
intermediaries with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
As with the Service Class, certain recordkeeping and administrative
services that are provided by the funds' transfer agent of the Investor Class
shareholders may be performed by a plan sponsor (or its agents) or by a
financial intermediary for shareholders in the Advisor Class. In addition to
such services, the financial intermediaries provide various distribution
services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
investment manager has reduced its management fee by 0.25% per annum with
respect to the Advisor Class shares and the funds' Board of Directors has
adopted a Master Distribution and Shareholder Services Plan (the "Distribution
Plan"). Pursuant to such Plan, the Advisor Class shares pay a fee of 0.50%
annually of the aggregate average daily net assets of the funds' Advisor Class
shares, 0.25% of which is paid for Shareholder Services (as described above) and
0.25% of which is paid for distribution services.
Distribution services include any activity undertaken or expense incurred
that is primarily intended to result in the sale of Advisor Class shares, which
services may include but are not limited to, (1) the payment of sales
commission, ongoing commissions and other payments to brokers, dealers,
financial institutions or others who sell Advisor Class shares pursuant to
Selling Agreements; (2) compensation to registered representatives or other
employees of Distributor who engage in or support distribution of the funds'
Advisor Class shares; (3) compensation to, and expenses (including overhead and
telephone expenses) of, Distributor; (4) the printing of prospectuses,
statements of additional information and reports for other than existing
shareholders; (5) the preparation, printing and distribution of sales literature
and advertising materials provided to the funds' shareholders and prospective
shareholders; (6) receiving and answering correspondence from prospective
shareholders including distributing prospectuses, statements of additional
information, and shareholder reports; (7) the providing of facilities to answer
questions from prospective investors about fund shares; (8) complying with
federal and state securities laws pertaining to the sale of fund shares; (9)
assisting investors in completing application forms and selecting dividend and
other account options: (10) the providing of other reasonable assistance in
connection with the distribution of fund shares; (11) the organizing and
conducting of sales seminars and payments in the form of transactional
compensation or promotional incentives; (12) profit on the foregoing; (13) the
payment of "service fees" for the provision of personal, continuing services to
investors, as contemplated by the Rules of Fair Practice of the NASD and (14)
such other distribution and services activities as the manager determines may be
paid for by the funds pursuant to the terms of this Agreement and in accordance
with Rule 12b-1 of the 1940 Act.
TAXES
Each fund has elected to be taxed under the Internal Revenue Code as a
regulated investment company. If they qualify, they will not be subject to U.S.
federal income tax on net investment income and net capital gains, which are
distributed to its shareholders within certain time periods specified in the
Code. Amounts not distributed on a timely basis would be subject to federal and
state corporate income tax and to a nondeductible 4% excise tax.
Each fund intends to distribute annually all of its net ordinary income and
net capital gains.
Distributions from net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. The dividends received deduction
available to corporate shareholders for dividends received from a fund will
apply to ordinary income distributions only to the extent that they are
attributable to the fund's dividend income from U.S. corporations. In addition,
the dividends received deduction will be lim-
Statement of Additional Information 13
ited if the shares with respect to which the dividends are received are treated
as debt-financed or are deemed to have been held less than 46 days by a fund.
Distributions from net long-term capital gains are taxable to a shareholder
as long-term capital gains regardless of the length of time the shares on which
such distributions are paid have been held by the shareholder. However,
shareholders should note that any loss realized upon the sale or redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any distribution of long-term capital gain to the shareholder
with respect to such shares.
Redemption of shares of a fund will be a taxable transaction for federal
income tax purposes and shareholders will generally recognize gain or loss in an
amount equal to the difference between the basis of the shares and the amount
received. Assuming that shareholders hold such shares as a capital asset, the
gain or loss will be a capital gain or loss and will generally be long term if
shareholders have held such shares for a period of more than one year. If a loss
is realized on the redemption of fund shares, the reinvestment in additional
fund shares within 30 days before or after the redemption may be subject to the
"wash sale" rules of the Internal Revenue Code, resulting in a postponement of
the recognition of such loss for federal income tax purposes.
In addition to the federal income tax consequences described above relating
to an investment in shares of the funds, there may be other federal, state or
local tax considerations that depend upon the circumstances of each particular
investor. Prospective shareholders are therefore urged to consult their tax
advisers with respect to the effect of this investment on their own situations.
BROKERAGE
Under the terms of the Management Agreement between the funds and the
manager, the manager has the responsibility of selecting brokers to execute
portfolio transactions. the funds' policy is to secure the most favorable prices
and execution of orders on its portfolio transactions. So long as that policy is
met, the manager may take into consideration the factors discussed below when
selecting brokers.
The manager receives statistical and other information and services without
cost from brokers and dealers. The manager evaluates such information and
services, together with all other information that it may have, in supervising
and managing the investments of the funds. Because such information and services
may vary in amount, quality and reliability, their influence in selecting
brokers varies from none to very substantial. The manager proposes to continue
to place some of the funds' brokerage business with one or more brokers who
provide information and services. Such information and services provided to the
manager will be in addition to and not in lieu of the services required to be
performed for the funds by the manager. The manager does not utilize brokers who
provide such information and services for the purpose of reducing the expense of
providing required services to the funds.
In the years ended March 31, 1996, 1995 and 1994, the brokerage commissions
of each fund were as follows:
Fund Years Ended March 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Value $2,929,681 $607,139 $175,983(1)
Equity Income $325,185 $51,427(1)
- --------------------------------------------------------------------------------
(1) Since inception.
The brokerage commissions paid by the funds may exceed those that another
broker might have charged for effecting the same transactions because of the
value of the brokerage and/or research services provided by the broker. Research
services furnished by brokers through whom the funds effect securities
transactions may be used by the manager in servicing all of its accounts, and
not all such services may be used by the manager in managing the portfolios of
the funds.
The staff of the SEC has expressed the view that the best price and
execution of over-the-counter transactions in portfolio securities may be
secured by dealing directly with principal market makers, thereby avoiding the
payment of compensation to another broker. In certain situations, the officers
of the funds and the manager believe that the facilities, expert personnel and
technological systems of a broker enable the funds to secure as good a net price
by dealing with a broker instead of a principal market maker, even after payment
of the compensation to the broker. The funds
14 American Century Investments
normally place their over-the-counter transactions with principal market makers
but also may deal on a brokerage basis when utilizing electronic trading
networks or as circumstances warrant.
PERFORMANCE ADVERTISING
FUND PERFORMANCE
Individual fund performance may be compared to various indices, including
the Standard & Poor's 500 Index, the Consumer Price Index, the Dow Jones
Industrial Average and the S&P/Barra Value (with regard to Value) and the Lipper
Equity Income Fund Index (with regard to Equity Income). Fund performance also
may be compared to the rankings prepared by Lipper Analytical Services, Inc.
The following table sets forth the average annual total return of the funds
for the periods indicated. Average annual total return is calculated by
determining each fund's cumulative total return for the stated period and then
computing the annual compound return that would produce the cumulative total
return if the fund's performance had been constant over that period. Cumulative
total return includes all elements of return, including reinvestment of
dividends and capital gains distributions. Annualization of a fund's return
assumes that the partial year performance will be constant throughout the
period. Actual return through the period may be greater or less than the
annualized data.
Average Annual
VALUE Total Return
- --------------------------------------------------------------------------------
Year ended March 31, 1996 28.06%
September 1, 1993 (Inception)
through March 31, 1996 17.94%
- --------------------------------------------------------------------------------
Average Annual
EQUITY INCOME Total Return
- --------------------------------------------------------------------------------
Year Ended March 31, 1996 25.67%
August 1, 1994 (Inception)
through March 31, 1996 21.92%
- --------------------------------------------------------------------------------
The funds also may elect to advertise cumulative total return and average
annual total return, computed as described above, over periods of time other
than one, five and 10 years and cumulative total return over various time
periods. The following table shows the cumulative total returns and the average
annual returns for the funds since their respective dates of inception.
Cumulative Total Average Annual
Fund Return Since Inception Compound Rate
- --------------------------------------------------------------------------------
Value 53.10% 17.94%
Equity Income 39.12% 21.92%
- --------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE COMPARISONS
Investors may judge the performance of the funds by comparing their
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as the EAFE(R) Index and those prepared by Dow Jones &
Co., Inc., Standard & Poor's Corporation, Shearson Lehman Brothers, Inc. and The
Russell 2000 Index, and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. and the Consumer Price Index. Comparisons may also be made to
indices or data published in Money, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, Pensions and Investments, USA Today, and
other similar publications or services. In addition to performance information,
general information about the funds that appears in a publication such as those
mentioned above or in the Prospectus under the heading "Performance Advertising"
may be included in advertisements and in reports to shareholders.
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and invest-
Prospectus Information Regarding the Funds 15
ment products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment products (including the funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
funds. The funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the funds.
REDEMPTIONS IN KIND
In order to protect the investments of the remaining shareholders, the
funds have adopted a policy regarding large redemptions. That policy is
described in detail in the applicable fund prospectuses under the heading
"Special Requirements for Large Redemptions."
The funds have elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which the funds are obligated to redeem shares solely
in cash up to the lesser of $250,000 or 1% of the net asset value of a fund
during any 90-day period for any one shareholder. Should redemptions by any
shareholder exceed such limitation, the funds will have the option of redeeming
the excess in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage costs in converting the assets to cash. The
securities delivered will be selected at the sole discretion of the manager.
Such securities will not necessarily be representative of the entire portfolio
and may be securities that the manager regards as least desirable. The method of
valuing securities used to make redemptions in kind will be the same as the
method of valuing portfolio securities described in the Prospectus under the
heading "How Share Price is Determined," and such valuation will be made as of
the same time the redemption price is determined.
HOLIDAYS
The funds do not determine the net asset value of their shares on days when
the New York Stock Exchange is closed. Currently, the Exchange is closed on
Saturdays and Sundays and on holidays, namely New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
FINANCIAL STATEMENTS
The financial statements of the funds for the fiscal year ended March 31,
1996, are included in the Annual Report to shareholders, which is incorporated
herein by reference. In addition, the funds' unaudited financial statements for
the six months ended September 30, 1996, are included in the Semiannual Report
to shareholders which is incorporated herein by reference. With respect to the
unaudited financial statements incorporated herein, all adjustments, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operation for the periods indicated have been made. The
results of operations of the funds for the respective periods indicated are not
necessarily indicative of the results for the entire year. You may receive
copies of the Annual and Semiannual Reports without charge upon request to the
funds at the address and phone numbers shown on the cover of this Statement.
16 American Century Investments
NOTES
American Century Investments Notes 17
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
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