PROSPECTUS
DECEMBER 30, 1998
[american century logo(reg.sm)]
American
Century
Equity Index Fund
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
The Securities and Exchange Commission has not approved or diaspproved these
securities or determined if this Prospectus is accurate or complete. Anyone who
tells you otherwise is committing a crime.
Distributed by Funds Ditributor, Inc.
[front cover]
PROSPECTUS
DECEMBER 30, 1998
Equity Index
INSTITUTIONAL CLASS
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
American Century Capital Portfolios, Inc. is a part of American Century
Investments, a family of funds that includes nearly 70 no-load mutual funds
covering a variety of investment opportunities. One fund from American Century
that invests primarily in equity securities is described in this Prospectus. Its
investment objective is listed on page 2 of this Prospectus. The other funds are
described in separate prospectuses.
The fund's shares offered in this Prospectus (the Institutional Class
shares) are sold at their net asset value with no sales charges or commissions.
The Institutional Class shares are made available for purchase by large
institutional shareholders, such as bank trust departments, corporations,
endowments, foundations and financial advisors that meet the fund's minimum
investment requirements. Institutional Class shares are not available for
purchase by insurance companies or participant-directed employer-sponsored
retirement plans.
This Prospectus gives you information about the fund that you should know
before investing. Please read this Prospectus carefully and retain it for future
reference. Additional information is included in the Statement of Additional
Information dated December 30, 1998, and filed with the Securities and Exchange
Commission. It is incorporated into this Prospectus by reference. To obtain a
copy without charge, call or write:
AMERICAN CENTURY INVESTMENTS
4500 Main Street * P.O. Box 419385
Kansas City, Missouri 64141-6385 * 1-800-345-3533
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-345-1833 * In Missouri: 816-444-3038
www.americancentury.com
Additional information, including this Prospectus and the Statement of
Additional Information, may be obtained by accessing the Web site maintained by
the SEC (www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS 1
INVESTMENT OBJECTIVE OF THE FUND
AMERICAN CENTURY EQUITY INDEX FUND
The investment objective of Equity Index is long-term capital growth. The
fund seeks to achieve this objective by matching, as closely as possible, the
investment results of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index").
There is no assurance that the fund will achieve its investment objective.
NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY
ON ANY OTHER INFORMATION OR REPRESENTATION.
2 INVESTMENT OBJECTIVE AMERICAN CENTURY INVESTMENTS
TABLE OF CONTENTS
Investment Objective of the Fund .......................................... 2
Transaction and Operating Expense Table ................................... 4
INFORMATION REGARDING THE FUNDS
Investment Policies of the Fund ........................................... 5
Other Investment Practices, Their Characteristics
and Risks ............................................................... 6
Non-Diversified Company ............................................... 6
Futures Contracts ..................................................... 6
Portfolio Turnover .................................................... 6
Repurchase Agreements ................................................. 7
Derivative Securities ................................................. 7
Cash Management ....................................................... 8
Performance Advertising ................................................... 8
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
American Century Investments .............................................. 9
Investing in American Century ............................................. 9
How to Open an Account .................................................... 9
By Mail ....................................................... 9
By Wire ....................................................... 9
By Exchange ................................................... 10
In Person ..................................................... 10
Subsequent Investments ................................................ 10
By Mail ....................................................... 10
By Telephone .................................................. 10
By Wire ....................................................... 10
In Person ..................................................... 10
Automatic Investment Plan ............................................. 10
Minimum Investment ........................................................ 10
How to Exchange from One Account to Another ............................... 10
By Mail ....................................................... 11
By Telephone .................................................. 11
How to Redeem Shares ...................................................... 11
By Mail ....................................................... 11
By Telephone .................................................. 11
By Check-A-Month .............................................. 11
Other Automatic Redemptions ................................... 11
Redemption Proceeds ................................................... 11
By Check ...................................................... 11
By Wire and ACH ............................................... 11
Special Requirements for Large Redemptions ............................ 12
Signature Guarantee ....................................................... 12
Special Shareholder Services .............................................. 12
Open Order Service ............................................ 12
Tax-Qualified Retirement Plans ................................ 13
Important Policies Regarding Your Investments ............................. 13
Reports to Shareholders ................................................... 14
Customers of Banks, Broker-Dealers and
Other Financial Intermediaries .......................................... 14
ADDITIONAL INFORMATION YOU SHOULD KNOW
Share Price ............................................................... 15
When Share Price Is Determined ........................................ 15
How Share Price Is Determined ......................................... 15
Where to Find Information about Share Price ........................... 16
Distributions ............................................................. 16
Taxes ..................................................................... 16
Tax-Deferred Accounts ................................................. 16
Taxable Accounts ...................................................... 17
Management ................................................................ 18
Investment Management ................................................. 18
Code of Ethics ........................................................ 18
Transfer and Administrative Services .................................. 18
Year 2000 Issues ...................................................... 19
Distribution of Fund Shares ............................................... 19
Further Information about American Century ................................ 19
PROSPECTUS TABLE OF CONTENTS 3
TRANSACTION AND OPERATING EXPENSE TABLE
Equity Index
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases ............................. none
Maximum Sales Load Imposed on Reinvested Dividends .................. none
Deferred Sales Load ................................................. none
Redemption Fee ...................................................... none
Exchange Fee ........................................................ none
ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets):
Management Fees ..................................................... 0.29%
12b-1 Fees .......................................................... none
Other Expenses(1) ................................................... 0.00%
Total Fund Operating Expenses ....................................... 0.29%
EXAMPLE:
You would pay the following expenses on a 1 year $ 3
$1,000 investment, assuming a 5% annual return and 3 years 9
redemption at the end of each time period: 5 years 16
10 years 37
(1) Other expenses, which include the fees and expenses (including legal counsel
fees) of those directors who are not "interested persons" as defined in the
Investment Company Act, are expected to be less than 0.01 of 1% of average
net assets for the current fiscal year.
The purpose of this table is to help you understand the various costs and
expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the class of shares of the fund offered by this
Prospectus. The example set forth above assumes reinvestment of all dividends
and distributions and uses a 5% annual rate of return as required by SEC
regulations.
NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE
CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS
AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The shares offered by this Prospectus are Institutional Class shares and
have no up-front or deferred sales charges, commissions or 12b-1 fees. The fund
offers one other class of shares which is primarily made available to retail
investors. The other class has a different fee structure than the Institutional
Class. The difference in the fee structures between the classes is the result of
their separate arrangements for shareholder and distribution services and not
the result of any difference in amounts charged by the manager for core
investment advisory services. Accordingly, the core investment advisory expenses
do not vary by class. A difference in fees will result in different performance
for the other class. For additional information about the various classes, see
"Further Information about American Century," page 19.
4 TRANSACTION AND OPERATING EXPENSE TABLE AMERICAN CENTURY INVESTMENTS
INFORMATION REGARDING THE FUND
INVESTMENT POLICIES OF THE FUND
The fund has adopted certain investment restrictions that are set forth in
the Statement of Additional Information. Those restrictions, as well as the
investment objective of the fund identified on page 2 of this Prospectus, and
any other investment policies designated as "fundamental" in this Prospectus or
in the Statement of Additional Information, cannot be changed without
shareholder approval. The fund has implemented additional investment policies
and practices to guide its activities in the pursuit of its investment
objective. These policies and practices, which are described throughout this
Prospectus, are not designated as fundamental policies and may be changed
without shareholder approval.
Equity Index seeks to match, as closely as possible, the investment results
of the S&P 500 Index. The S&P 500 Index is composed of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The fund is
managed by buying and selling stocks and other securities in order to build an
investment portfolio that will match, as closely as possible, the investment
characteristics of the S&P 500 Index.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., chooses
the stocks included in the S&P 500 Index on a market capitalization weighted
statistical basis. The weightings of stocks in the S&P 500 Index are further
based on each stock's total market capitalization relative to the other stocks
contained in the index. Because of this weighting, the fund expects that the 50
largest companies will comprise a large proportion of the S&P 500 Index.
The advisor generally will select stocks for the fund's portfolio in order
of their weightings in the S&P 500 Index, beginning with the heaviest weighted
stocks. The fund attempts to be fully invested at all times in the stocks that
comprise the S&P 500 Index and, in any event, at least 80% of the fund's total
assets will be so invested.
When the fund advisor believes that it is prudent, the fund may also invest
in S&P 500 Index futures and options. The fund will purchase futures and options
on a non-leveraged basis. "Non-leveraged" means that the fund may not invest in
futures and options where it would be possible to lose more than the fund
invested. S&P 500 Index futures and options can help the fund's assets remain
liquid while performing more like the S&P 500 Index.
As with all funds, at any given time, the value of your shares of the fund
may be worth more or less than the price you paid. If you sell your shares when
the value is less than the price you paid, you will lose money. The value of the
fund's shares depends on the value of the stocks and other securities it owns.
The value of the individual securities Equity Index owns will go up and down
depending on the performance of the companies that issued them, general market
and economic conditions, and investor confidence.
The fund's ability to correlate its performance with that of the S&P 500
Index may be affected by, among other things, changes in securities markets, the
manner in which the total return of the S&P 500 Index is calculated, the size of
the fund's portfolio, the amount of cash or cash equivalents held in the fund's
portfolio, and the timing, frequency and size of shareholder purchases and
redemptions. The fund will use cash flows from shareholder purchase and
redemption activity to maintain, to the extent feasible, the similarity of its
portfolio to the securities comprising the S&P 500 Index.
Inclusion of a security in the S&P 500 Index in no way implies an opinion by
Standard & Poor's as to its attractiveness as an investment. In the future, the
fund may select a different index if such a standard of comparison is deemed to
be more representative of the performance of securities the fund seeks to match.
"Standard & Poor's(reg.tm)," "Standard & Poor's 500," "S&P 500(reg.tm)" and
"S&P(reg.tm)" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by American Century. The fund is not sponsored, endorsed, sold
or promoted by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the fund. Please see the Statement of
Additional Information which sets forth certain additional disclaimers and
limitations of liabilities on behalf of S&P.
PROSPECTUS INFORMATION REGARDING THE FUND 5
OTHER INVESTMENT PRACTICES, THEIR
CHARACTERISTICS AND RISKS
For additional information, see "Investment Restrictions" in the Statement
of Additional Information.
NON-DIVERSIFIED COMPANY
The fund is a "non-diversified" investment company. This means that the
proportion of the fund's assets that may be invested in the securities of a
single issuer is not limited by the Investment Company Act of 1940 (the
"Investment Company Act"). A "diversified" investment company is required by the
Investment Company Act generally, with respect to 75% of its total assets, to
invest not more than 5% of such assets in the securities of a single issuer.
Depending upon the composition of the S&P 500 Index, a relatively high
percentage of the fund's assets may be invested in the securities of a limited
number of issuers, some of which may be within the same economic sector.
Consequently, the fund's portfolio may be more sensitive to changes in the
market value of a single issuer or industry.
However, to meet federal tax requirements, at the close of each quarter the
fund may not have more than 25% of its total assets invested in any one issuer
and, with respect to 50% of total assets, not more than 5% of its total assets
invested in any one issuer.
FUTURES CONTRACTS
The fund may invest in stock index futures in anticipation of taking a
market position when available cash balances do not permit an economically
efficient trade in the cash market. A futures contract is an agreement to take
or make delivery of an amount of cash based on the difference between the value
of the index at the beginning and at the end of the contract period.
Rather than actually purchasing the specific financial assets, or the
securities of a market index, the manager may purchase a futures contract, which
reflects the value of such underlying securities. For example, S&P 500 futures
reflect the value of the underlying companies that comprise the S&P 500 Index.
If the aggregate market value of the underlying index securities increases or
decreases during the contract period, the value of the S&P 500 futures can be
expected to reflect such increase or decrease. As a result, the manager is able
to expose to the equity markets cash that is maintained by the fund to meet
anticipated redemptions or held for future investment opportunities. Because
futures generally settle within a day from the date they are closed out
(compared with three days for the types of equity securities primarily invested
in by the fund), the manager believes that this use of futures allows the fund
to effectively be fully invested in equity securities while maintaining the
liquidity needed by the fund.
When the fund enters into a futures contract, it must make deposit of
securities, known as "initial margin," as partial security for its performance
under the contract. As the value of the underlying financial assets fluctuates,
the parties to the contract are required to make additional margin payments,
known as "variation margin," to cover any additional obligation it may have
under the contract. Assets set aside by the fund as initial or variation margin
may not be disposed of so long as the fund maintains the contract.
The fund may not purchase leveraged futures. The fund will deposit in a
segregated account with its custodian bank appropriate securities in an amount
equal to the fluctuating market value of the index futures contracts it has
purchased, less any margin deposited on its position. The fund will invest only
in exchange-traded futures.
PORTFOLIO TURNOVER
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to the fund's investment
objectives. Because the fund is managed to match the performance of an index, it
is not expected that the fund will have a high portfolio turnover rate. The
manager believes, however, that the rate of portfolio turnover is irrelevant
when it determines a change is in order to achieve those objectives and,
accordingly, the annual portfolio turnover rate cannot be anticipated.
Higher turnover would generate correspondingly greater brokerage commissions
that the fund pays directly. Higher portfolio turnover also may increase the
likelihood of realized capital gains, if any, distributed by the fund. See
"Taxes," page 16.
6 INFORMATION REGARDING THE FUND AMERICAN CENTURY INVESTMENTS
REPURCHASE AGREEMENTS
The fund may invest in repurchase agreements when such transactions present
an attractive short-term return on cash that is not otherwise committed to the
purchase of securities pursuant to the fund's investment policies.
A repurchase agreement occurs when, at the time the fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to repurchase it on a
specified date in the future at an agreed-upon price. The repurchase price
reflects an agreed-upon interest rate during the time the fund's money is
invested in the security.
Since the 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 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 fund will limit repurchase agreement transactions to securities issued
by the U.S. government, its agencies and instrumentalities, and will enter into
such transactions only with those banks and securities dealers who are deemed
creditworthy pursuant to criteria adopted by the fund's Board of Directors.
DERIVATIVE SECURITIES
To the extent permitted by its investment objective and policies, the fund
may invest in securities that are commonly referred to as "derivative"
securities. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset or market
index. Certain derivative securities are more accurately described as
"index/structured" securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts), currencies, interest rates, indices or other financial
indicators (reference indices).
Some "derivatives," such as mortgage-related and other asset-backed
securities, are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect the fund from exposure to changing interest rates, securities
prices, or currency exchange rates and for cash management purposes as a
low-cost method of gaining exposure to a particular securities market without
investing directly in those securities.
The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates.
There is a range of risks associated with derivative investments, including
but not limited to:
* the risk that the underlying security, interest rate, market index or
other financial asset will not move in the direction the portfolio
manager anticipates;
* the possibility that there will be no liquid secondary market, or the
possibility that price fluctuation limits will be imposed by the
relevant 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 will result in a
loss substantially greater than the fund's initial investment; and
* the risk that the counterparty will fail to perform its obligations.
The Board of Directors has approved the manager's policy regarding
investments in derivative securities. That policy specifies factors that must be
considered in connection with a purchase of derivative securities. The policy
also establishes a committee that must review certain proposed purchases before
the purchases can be made. The manager will report on fund activity in
derivative securities to the Board of Directors as necessary. In addition, the
Board will review the manager's policy for investments in derivative securities
annually.
PROSPECTUS INFORMATION REGARDING THE FUND 7
CASH MANAGEMENT
When the fund has cash reserves, the fund may invest in money market
instruments consisting of U.S. Government securities, time deposits,
certificates of deposit, bankers' acceptances, high-grade commercial paper and
repurchase agreements. In addition, the fund may invest up to 5% of its total
assets in any money market fund, including those advised by the advisor or
subadvisor.
PERFORMANCE ADVERTISING
From time to time, the fund may advertise performance data. Fund performance
may be shown by presenting one or more performance measurements, including
cumulative total return or average annual total return. Performance data may be
quoted separately for the Institutional Class and for the other class.
Cumulative total return data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a stated period of time. Average annual total return is determined by
computing the annual compound return over a stated period of time that would
have produced the fund's cumulative total return over the same period if the
fund's performance had remained constant throughout.
The fund also may include in advertisements data comparing performance with
the performance of non-related investment media, published editorial comments
and performance rankings compiled by independent organizations such as Lipper
Analytical Services and publications that monitor the performance of mutual
funds. Performance information may be quoted numerically or may be presented in
a table, graph or other illustration. In addition, fund performance may be
compared to well-known indices of market performance, including the S&P 500
Index. Fund performance also may be compared, on a relative basis, to other
funds in our fund family. This relative comparison, which may be based upon
historical fund performance, historical, expected volatility, or other fund
characteristics, may be presented numerically, graphically or in text. Fund
performance also may be combined or blended with other funds in our fund family,
and that combined or blended performance may be compared to the same indices to
which individual funds may be compared.
All performance information advertised by the fund is historical in nature
and is not intended to represent or guarantee future results. The value of fund
shares when redeemed may be more or less than their original cost.
8 INFORMATION REGARDING THE FUND AMERICAN CENTURY INVESTMENTS
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
AMERICAN CENTURY INVESTMENTS
The fund offered by this Prospectus is a part of the American Century
Investments family of mutual funds. Our family provides a full range of
investment opportunities. Please call 1-800-345-3533 for a brochure or
prospectuses for the other funds in the American Century Investments family.
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If you would like additional copies of financial reports and
prospectuses or separate mailing of account statements, please call us.
INVESTING IN AMERICAN CENTURY
The following sections explain how to invest in American Century funds,
including purchases, redemptions, exchanges and special services. You will find
more detail about doing business with us by referring to the Investor Services
Guide that you will receive when you open an account.
If you own or are considering purchasing fund shares through an
employer-sponsored retirement plan or through a bank, broker-dealer or other
financial intermediary, the following sections, as well as the information
contained in our Investor Services Guide, may not apply to you. Please read
"Minimum Investment," page 10, and "Customers of Banks, Broker-Dealers and Other
Financial Intermediaries," page 14.
HOW TO OPEN AN ACCOUNT
To open an account, you must complete and sign an application, furnishing
your taxpayer identification number. (You also must certify whether you are
subject to withholding for failing to report income to the IRS.) Investments
received without a certified taxpayer identification number will be returned.
You may invest in the following ways:
BY MAIL
Send a completed application and check or money order payable in U.S.
dollars to American Century Investments.
BY WIRE
You may make your initial investment by wiring funds. To do so, call us or
mail a completed application and provide your bank with the following
information:
* RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
* BENEFICIARY (BNF):
American Century Services Corporation
4500 Main St., Kansas City, Missouri 64111
* BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
* REFERENCE FOR BENEFICIARY (RFB):
American Century account number into which you are investing. If more than
one, leave blank and see Bank to Bank Information below.
* ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
* BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
* Taxpayer identification or Social Security
number.
* If more than one account, account numbers and amount to be invested in
each account.
* Current tax year, previous tax year or rollover designation if an IRA.
Specify whether traditional IRA, Roth IRA, Education IRA, SEP-IRA,
SARSEP-IRA, SIMPLE Employer or SIMPLE Employee.
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 9
BY EXCHANGE
Call 1-800-345-3533 from 7 a.m. to 7 p.m. Central time to get information on
opening an account by exchanging from another American Century account. See this
page for more information on exchanges.
IN PERSON
If you prefer to work with a representative in person, please visit one of
our Investor Centers, located at:
4500 Main Street
Kansas City, Missouri 64111
4917 Town Center Drive
Leawood, Kansas 66211
1665 Charleston Road
Mountain View, California 94043
9445 East County Line Road, Suite A
Englewood, Colorado 80222
SUBSEQUENT INVESTMENTS
Subsequent investments may be made by an automatic bank, payroll or
government direct deposit (see "Automatic Investment Plan," this page) or by any
of the methods below. The minimum investment requirement for subsequent
investments is $250 for checks submitted without the investment slip portion of
a previous statement or confirmation and $50 for all other types of subsequent
investments.
BY MAIL
When making subsequent investments, enclose your check with the investment
slip portion of a previous statement or confirmation. If the investment slip is
not available, indicate your name, address and account number on your check or a
separate piece of paper. (Please be aware that the investment minimum for
subsequent investments is higher without an investment slip.)
BY TELEPHONE
Upon completion of your application and once your account is open, you may
make investments by telephone. You may call an Institutional Service
Representative or use our Automated Information Line.
BY WIRE
You may make subsequent investments by wire. Follow the wire transfer
instructions on page 9 and indicate your account number.
IN PERSON
You may make subsequent investments in person at one of our Investor
Centers. The locations of our Investor Centers are listed on this page.
AUTOMATIC INVESTMENT PLAN
By completing the application and electing to make investments
automatically, we will draw on your bank account regularly. Such investments
must be at least the equivalent of $50 per month. You also may choose an
automatic payroll or government direct deposit. If you are establishing a new
account, check the appropriate box under "Automatic Investments" on your
application to receive more information. If you would like to add a direct
deposit to an existing account, please call an Institutional Service
Representative.
MINIMUM INVESTMENT
The minimum investment is $5 million ($3 million for endowments and
foundations). If you invest with us through a bank, broker-dealer or other
financial intermediary, the minimum investment requirement may be met by
aggregating the investments of various clients of your financial intermediary.
The minimum investment requirement may be waived if you or your financial
intermediary, if applicable, has an aggregate investment in our family of funds
of $10 million or more ($5 million for endowments and foundations). If your
balance or the balance of your financial intermediary, if applicable, falls
below the minimum investment requirements due to redemptions or exchanges, we
reserve the right to convert your shares to Investor Class shares of the same
fund. The Investor Class shares have a unified management fee that is 0.20%
higher than the Institutional Class shares.
HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER
As long as you meet any minimum investment requirements, you may exchange
your fund shares to our other funds up to six times per year per account. An
exchange request will be processed as of the same day it is received, if it is
received before
10 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS
the fund's net asset values are calculated, which is one hour prior to the close
of the New York Stock Exchange for funds issued by American Century Target
Maturities Trust and at the close of the Exchange for all of our other funds.
See "When Share Price Is Determined," page 15.
For any single exchange, the shares of each fund being acquired must have a
value of at least $100. However, we will allow investors to set up an Automatic
Exchange Plan between any two funds in the amount of at least $50 per month. See
our Investor Services Guide for further information about exchanges.
If, in any 90-day period, the total of your exchanges and your redemptions
from any one account exceeds the lesser of $250,000 or 1% of the fund's assets,
further exchanges will be subject to special requirements to comply with our
policy on large redemptions. See "Special Requirements for Large Redemptions,"
page 12.
BY MAIL
You may direct us in writing to exchange your shares from one American
Century account to another. For additional information, please see our Investor
Services Guide.
BY TELEPHONE
You can make exchanges over the telephone upon completion and receipt of
your application or by calling us at 1-800-345-3533 to get the appropriate form.
HOW TO REDEEM SHARES
We will redeem or "buy back" your shares at any time. Redemptions will be
made at the next net asset value determined after a complete redemption request
is received.
Please note that a request to redeem shares in an IRA or 403(b) plan must be
accompanied by an executed IRS Form W4-P and a reason for withdrawal as
specified by the IRS.
BY MAIL
Your written instructions to redeem shares may be made either by a
redemption form, which we will send you upon request, or by a letter to us.
Certain redemptions may require a signature guarantee. Please see "Signature
Guarantee," page 12.
BY TELEPHONE
Upon completion of your application and once your account is open, you may
redeem your shares by calling an Institutional Service Representative.
BY CHECK-A-MONTH
You may redeem shares by Check-A-Month. A Check-A-Month plan automatically
redeems enough shares each month to provide you with a check in an amount you
choose (minimum $50). To set up a Check-A-Month plan, please call and request
our Check-A-Month brochure.
OTHER AUTOMATIC REDEMPTIONS
You may elect to make redemptions automatically by authorizing us to send
funds to you or to your account at a bank or other financial institution. To set
up automatic redemptions, call an Institutional Service Representative.
REDEMPTION PROCEEDS
Please note that shortly after a purchase of shares is made by check or
electronic draft (also known as an ACH draft) from your bank, we may wait up to
15 days or longer to send redemption proceeds (to allow your purchase funds to
clear). No interest is paid on the redemption proceeds after the redemption is
processed but before your redemption proceeds are sent.
Redemption proceeds may be sent to you in one of the following ways:
BY CHECK
Ordinarily, all redemption checks will be made payable to the registered
owner of the shares and will be mailed only to the address of record. For more
information, please refer to our Investor Services Guide.
BY WIRE AND ACH
You may authorize us to transmit redemption proceeds by wire or ACH. These
services will be effective 15 days after we receive the authorization.
Your bank usually will receive wired funds within 48 hours of transmission.
Funds transferred by ACH may be received up to seven days after transmission.
Once the funds are transmitted, the time of receipt and the funds' availability
are not under our control.
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 11
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
We have elected to be governed by Rule 18f-1 under the Investment Company
Act, which obligates the fund to make certain redemptions in cash. This
requirement to pay redemptions in cash applies to situations where one
shareholder redeems, during any 90-day period, up to the lesser of $250,000 or
1% of the assets of the fund. Although redemptions in excess of this limitation
will also normally be paid in cash, we reserve the right under unusual
circumstances to honor these redemptions by making payment in whole or in part
in readily marketable securities (a "redemption-in-kind").
If payment is made in securities, the securities, selected by the fund, will
be valued in the same manner as they are in computing the fund's net asset value
and will be provided without prior notice.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on the fund and its remaining shareholders.
Despite the fund's right to redeem fund shares through a redemption-in-kind,
we do not expect to exercise this option unless the fund has an unusually low
level of cash to meet redemptions and/or is experiencing unusually strong
demands for its cash. Such a demand might be caused, for example, by extreme
market conditions that result in an abnormally high level of redemption requests
concentrated in a short period of time. Absent these or similar circumstances,
we expect redemptions in excess of $250,000 to be paid in cash in any fund with
assets of more than $50 million if total redemptions from any one account in any
90-day period do not exceed one-half of 1% of the total assets of the fund.
SIGNATURE GUARANTEE
To protect your accounts from fraud, some transactions will require a
signature guarantee. You can obtain a signature guarantee from a bank or trust
company, credit union, broker-dealer, securities exchange or association,
clearing agency or savings association, as defined by federal law.
For a more in-depth explanation of our signature guarantee policy, or if you
live outside the United States and would like to know how to obtain a signature
guarantee, please consult our Investor Services Guide.
We reserve the right to require a signature guarantee on any transaction, or
to change this policy at any time.
SPECIAL SHAREHOLDER SERVICES
We offer several services to make your account easier to manage. These are
listed on the account application. You will find more information about each of
these services in our Investor Services Guide.
Our special shareholder services include:
OPEN ORDER SERVICE
Through our open order service, you may designate a price at which to buy
shares of a variable-priced fund by exchange from one of our money market funds,
or a price at which to sell shares of a variable-priced fund by exchange to one
of our money market funds. The designated purchase price must be equal to or
lower, or the designated sale price equal to or higher, than the variable-priced
fund's net asset value at the time the order is placed. If the designated price
is met within 90 calendar days, we will execute your exchange order
automatically at that price (or better). Open orders not executed within 90 days
will be canceled.
If the fund you have selected deducts a distribution from its share price,
your order price will be adjusted accordingly so the distribution does not
inadvertently trigger an open order transaction on your behalf. If you close or
re-register the account from which the shares are to be redeemed, your open
order will be canceled.
Because of their time-sensitive nature, open order transactions are accepted
only by telephone or in
12 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS
person. These transactions are subject to exchange limitations described in each
fund's prospectus, except that orders and cancellations received before 2 p.m.
Central time are effective the same day, and orders or cancellations received
after 2 p.m. Central time are effective the next business day.
TAX-QUALIFIED RETIREMENT PLANS
The fund is available for your tax-deferred retirement plan. Call or write
us and request the appropriate forms for:
* Individual Retirement Accounts (IRAs);
* 403(b) plans for employees of public school
systems and non-profit organizations; or
* Profit sharing plans and pension plans for
corporations and other employers.
You can also transfer your tax-deferred plan to us from another company or
custodian. Call or write us for a Request to Transfer form.
IMPORTANT POLICIES REGARDING YOUR INVESTMENTS
Every account is subject to policies that could affect your investment.
Please refer to the Investor Services Guide for further information about the
policies discussed below, as well as further detail about the services we offer.
(1) We reserve the right for any reason to suspend the offering of shares
for a period of time, or to reject any specific purchase order
(including purchases by exchange). Additionally, purchases may be
refused if, in the opinion of the manager, they are of a size that
would disrupt the management of the fund.
(2) We reserve the right to make changes to any stated investment
requirements, including those that relate to purchases, transfers and
redemptions. In addition, we also may alter, add to or terminate any
investor services and privileges. Any changes may affect all
shareholders or only certain series or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of
residence.
(4) Transactions requesting a specific price and date, other than open
orders, will be refused. Once you have mailed or otherwise transmitted
your transaction instructions to us, they may not be modified or
canceled.
(5) If a transaction request is made by a corporation, partnership, trust,
fiduciary, agent or unincorporated association, we will require
evidence satisfactory to us of the authority of the individual making
the request.
(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include requesting
personal identification from callers, recording telephone calls, and
providing written confirmations of telephone transactions. These
procedures are designed to protect shareholders from unauthorized or
fraudulent instructions. If we do not employ reasonable procedures to
confirm the genuineness of instructions, then we may be liable for
losses due to unauthorized or fraudulent instructions. The company, its
transfer agent and manager will not be responsible for any loss due to
instructions they reasonably believe are genuine.
(7) All signatures should be exactly as the name appears in the
registration. If the owner's name appears in the registration as Mary
Elizabeth Jones, she should sign that way and not as Mary E. Jones.
(8) In the past, unusual stock market conditions have in the past resulted
in an increase in the number of shareholder telephone calls. If you
experience difficulty in reaching us during such periods, you may send
your transaction instructions by mail, express mail or courier service,
or you may visit one of our Investor Centers. You also may use our
Automated Information Line if you have requested and received an access
code and are not attempting to redeem shares.
(9) If you fail to provide us with the correct certified taxpayer
identification number, we may reduce any redemption proceeds by $50 to
cover the penalty the IRS will impose on us for failure to report your
correct taxpayer identification number on information reports.
(10) We will perform special inquiries on shareholder accounts. A research
fee of $15 per hour may be applied.
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 13
REPORTS TO SHAREHOLDERS
At the end of each calendar quarter, we will send you a consolidated
statement that summarizes all of your American Century holdings, as well as an
individual statement for each fund you own that reflects all year-to-date
activity in your account. You may request a statement of your account activity
at any time.
With the exception of most automatic transactions, each time you invest,
redeem, transfer or exchange shares, we will send you a confirmation of the
transaction. See the Investor Services Guide for more detail.
Carefully review all the information relating to transactions on your
statements and confirmations to ensure that your instructions were acted on
properly. Please notify us immediately in writing if there is an error. If you
fail to provide notification of an error with reasonable promptness, i.e.,
within 30 days of non-automatic transactions or within 30 days of the date of
your consolidated quarterly statement, in the case of automatic transactions, we
will deem you to have ratified the transaction.
No later than January 31 of each year, we will send you reports that you may
use in completing your U.S. income tax return. See the Investor Services Guide
for more information.
Each year, we will send you an annual and a semiannual report relating to
your fund, each of which is incorporated herein by reference. The annual report
includes audited financial statements and a list of portfolio securities as of
the fiscal year end. The semiannual report includes unaudited financial
statements for the first six months of the fiscal year, as well as a list of
portfolio securities at the end of the period. You also will receive an updated
prospectus at least once each year. Please read these materials carefully, as
they will help you understand your fund.
CUSTOMERS OF BANKS, BROKER-DEALERS AND
OTHER FINANCIAL INTERMEDIARIES
Information contained in our Investor Services Guide pertains to
shareholders who invest directly with American Century rather than through a
bank, broker-dealer or other financial intermediary.
If you own or are considering purchasing fund shares through a bank,
broker-dealer or other financial intermediary, your ability to purchase,
exchange and redeem shares will depend on your agreement with, and the policies
of, such financial intermediary.
You may reach one of our Institutional Service Representatives by calling
1-800-345-3533 to request information about our funds and services, to obtain a
current prospectus or to get answers to any questions about our funds that you
are unable to obtain through your plan administrator or financial intermediary.
14 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS
ADDITIONAL INFORMATION YOU SHOULD KNOW
SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value. Net
asset value is determined by calculating the total value of the fund's assets,
deducting total liabilities and dividing the result by the number of shares
outstanding. For all American Century funds, except funds issued by American
Century Target Maturities Trust, net asset value is determined as of the close
of regular trading on the New York Stock Exchange on each day that the Exchange
is open, usually 4 p.m. Eastern time. The net asset values for Target Maturities
funds are determined one hour prior to the close of the Exchange.
Investments and requests to redeem or exchange shares will receive the share
price next determined after receipt by us of the investment, redemption or
exchange request. For example, investments and requests to redeem or exchange
shares received by us or one of our agents or designees before the time as of
which the net asset value of the fund is determined, are effective on, and will
receive the price determined, that day. Investment, redemption and exchange
requests received thereafter are effective on, and receive the price determined
as of the close of the Exchange on the next day the Exchange is open.
Investments are considered received only when payment is received by us.
Wired funds are considered received on the day they are deposited in our bank
account if they are deposited before the time as of which the net asset value of
the fund is determined.
Investments by telephone pursuant to your prior authorization to us to draw
on your bank account are considered received at the time of your telephone call.
Investment and transaction instructions received by us on any business day
by mail prior to the time as of which the net asset value of the fund is
determined, will receive that day's price. Investments and instructions received
after that time will receive the price determined on the next business day.
If you invest in fund shares through a bank, financial advisor or other
financial intermediary, it is the responsibility of your financial intermediary
to transmit your purchase, exchange and redemption requests to the fund's
transfer agent prior to the applicable cut-off time for receiving orders and to
make payment for any purchase transactions in accordance with the fund's
procedures or any contractual arrangements with the fund or the fund's
distributor in order for you to receive that day's price.
We have contractual relationships with certain financial intermediaries in
which such intermediaries represent that they have systems to track the time at
which investment orders are received and to segregate orders received at
different times. Based on these representations, the fund has authorized such
intermediaries and their designees to accept purchase and redemption orders on
the fund's behalf up to the applicable cut-off time. The fund will be deemed to
have received such orders upon acceptance by the duly authorized intermediary,
and such orders will be priced at the fund's net asset values next determined
after acceptance on the fund's behalf by such intermediary.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be summarized as
follows:
The portfolio securities of the fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges generally are 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
PROSPECTUS ADDITIONAL INFORMATION YOU SHOULD KNOW 15
value as determined in accordance with procedures adopted by the Board of
Directors.
Debt securities not traded on a principal securities exchange are valued
through valuations obtained from a commercial pricing service or at the most
recent mean of the bid and asked prices provided by investment dealers in
accordance with procedures established by the Board of Directors.
The value of an exchange-traded foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which it
is traded or as of the close of business on the New York Stock Exchange, if that
is earlier. That value is then exchanged to dollars at the prevailing foreign
exchange rate.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day that the New York Stock Exchange is open. If an event
were to occur after the value of a security was established but before the net
asset value per share was determined that was likely to materially change the
net asset value, then that security would be valued at fair value as determined
in accordance with procedures adopted by the Board of Directors.
Trading of these securities in foreign markets may not take place on every
New York Stock Exchange business day. In addition, trading may take place in
various foreign markets on Saturdays or on other days when the New York Stock
Exchange is not open and on which the fund's net asset value is not calculated.
Therefore, such calculation does not take place contemporaneously with the
determination of the prices of many of the portfolio securities used in such
calculation and the value of the fund's portfolio may be affected on days when
shares of the fund may not be purchased or redeemed.
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The net asset values of the Investor Class of the fund offered by this
Prospectus is published in leading newspapers daily. The net asset value of the
Institutional Class may be obtained by calling us.
DISTRIBUTIONS
Distributions from net investment income are declared and paid quarterly.
Distributions from net realized securities gains, if any, generally are declared
and paid annually, usually in December, but the fund may make distributions on a
more frequent basis to comply with the distribution requirements of the Internal
Revenue Code, in all events in a manner consistent with the provisions of the
Investment Company Act.
Participants in employer-sponsored retirement or savings plans must reinvest
all distributions. For shareholders investing through taxable accounts,
distributions will be reinvested unless you elect to receive them in cash.
Distributions of less than $10 generally will be reinvested. Distributions made
shortly after a purchase by check or ACH may be held up to 15 days. You may
elect to have distributions on shares held in certain IRAs and 403(b) plans paid
in cash only if you are at least 59 (1)/(2) years old or permanently and totally
disabled. Distribution checks normally are mailed within seven days after the
record date. Please consult our Investor Services Guide for further information
regarding your distribution options.
A distribution on shares of the fund does not increase the value of your
shares or your total return. At any given time the value of your shares includes
the undistributed net gains, if any, realized by the fund on the sale of
portfolio securities, and undistributed dividends and interest received, less
fund expenses.
Because such gains and dividends are included in the price of your shares,
when they are distributed the price of your shares is reduced by the amount of
the distribution. If you buy your shares through a taxable account just before
the distribution, you will pay the full price for your shares, and then receive
a portion of the purchase price back as a taxable distribution. See "Taxes,"
this page.
TAXES
The fund has elected to be taxed under Subchapter M of the Internal Revenue
Code, which means that to the extent its income is distributed to shareholders,
it pays no income tax.
TAX-DEFERRED ACCOUNTS
If fund shares are purchased through tax-deferred accounts, such as a
qualified employer-sponsored retirement or savings plan (excluding
participant-directed employer-sponsored retirement plans, which are ineligible
to invest in Institutional Class shares),
16 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
income and capital gains distributions paid by the fund generally will not be
subject to current taxation, but will accumulate in your account under the plan
on a tax-deferred basis.
TAXABLE ACCOUNTS
If fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income. The dividends from net income may qualify 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 longer 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 distribution of
long-term capital gain to you with respect to such shares.
Dividends and interest received by the 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 the fund will reduce its dividends.
Distributions are taxable to you regardless of whether they are taken in
cash or reinvested, even if the value of your shares is below your cost. If you
purchase shares shortly before a distribution, you must pay income taxes on the
distribution, even though the value of your investment (plus cash received, if
any) will not have increased. In addition, the share price at the time you
purchase shares may include unrealized gains in the securities held in the
investment portfolio of the fund. If these portfolio securities are subsequently
sold and the gains are realized, they will, to the extent not offset by capital
losses, be paid to you as a distribution of capital gains and will be taxable to
you as short-term or long-term capital gains.
In January of the year following the distribution, if you own shares in a
taxable account, you will receive a Form 1099-DIV notifying you of the status of
your distributions for federal income tax purposes.
Distributions also may 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.
If you have not complied with certain provisions of the Internal Revenue
Code and Regulations, we are required by federal law to withhold and remit to
the IRS 31% of reportable payments (which may include dividends, capital gains
distributions and redemptions). Those regulations require you to certify that
the Social Security number or tax identification number you provide is correct
and that you are not subject to 31% withholding for previous under-reporting to
the IRS. You will be asked to make the appropriate certification on your
application. Payments reported by us that omit your Social Security number or
tax identification number will subject us to a penalty of $50, which will be
charged against your account if you fail to provide the certification by the
time the report is filed. This charge is not refundable.
Redemption of shares of the fund (including redemptions made in an exchange
transaction) will be a taxable transaction for federal income tax purposes, and
shareholders generally will recognize a 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 generally will be considered long-term, if
shareholders have held such shares for a period of more than 12 months. 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 the fund, there may be other federal, state or local tax
considerations that depend upon the circumstances of each
PROSPECTUS ADDITIONAL INFORMATION YOU SHOULD KNOW 17
particular investor. Prospective shareholders are therefore urged to consult
their tax advisors with respect to the effect of this investment on their own
specific situations.
MANAGEMENT
INVESTMENT MANAGEMENT
Under the laws of the State of Maryland, the Board of Directors is
responsible for managing the business and affairs of the fund. Acting pursuant
to an investment management agreement entered into with the fund, American
Century Investment Management, Inc. serves as the manager of the fund. Its
principal place of business is American Century Tower, 4500 Main Street, Kansas
City, Missouri 64111. The manager has been providing investment advisory
services to investment companies and institutional clients since 1958.
Barclays Global Fund Advisors, acting pursuant to a subadvisory agreement
among it, American Century Investment Management, Inc. and the fund, makes the
day-to-day investment decisions for the fund in accordance with the fund's
investment objective, policies and restrictions under the supervision of the
manager and the Board of Directors.
The activities of the manager are subject only to directions of the fund's
Board of Directors. The manager pays all the expenses of the fund except
brokerage, taxes, interest, fees and expenses of the non-interested person
directors (including legal counsel fees) and extraordinary expenses.
For the services provided to the Institutional Class of the fund, the
manager receives an annual fee of 0.29% of the average net assets of the fund.
For subadvisory services, the manager pays the subadvisor an annual fee of
0.05% of the average net assets of the fund.
On the first business day of each month, the fund pays a management fee to
the manager for the previous month at the specified rate. The fee for the
previous month is calculated by multiplying the applicable fee for the fund by
the aggregate average daily closing value of the fund's net assets during the
previous month, and further multiplying that product by a fraction, the
numerator of which is the number of days in the previous month and the
denominator of which is 365 (366 in leap years).
CODE OF ETHICS
The fund and the manager have adopted a Code of Ethics that restricts
personal investing practices by employees of the manager and its affiliates.
Among other provisions, the Code of Ethics requires that employees with access
to information about the purchase or sale of securities in the fund's portfolios
obtain preclearance before executing personal trades. With respect to Portfolio
Managers and other investment personnel, the Code of Ethics prohibits
acquisition of securities in an initial public offering, as well as profits
derived from the purchase and sale of the same security within 60 calendar days.
These provisions are designed to ensure that the interests of fund shareholders
come before the interests of the people who manage those funds.
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, American Century Tower, 4500 Main
Street, Kansas City, Missouri 64111 acts as transfer agent and dividend-paying
agent for the fund. It provides facilities, equipment and personnel to the fund,
and is paid for such services by the manager.
Certain recordkeeping and administrative services that would otherwise be
performed by the transfer agent may be performed by an insurance company or
other entity providing similar services for various retirement plans using
shares of the fund as a funding medium, by broker-dealers and financial advisors
for their customers investing in shares of American Century, or by sponsors of
multi mutual fund no- or low-transaction fee programs. The manager or an
affiliate may enter into contracts to pay them for such recordkeeping and
administrative services out of its unified management fee.
Although there is no sales charge levied by the fund, transactions in shares
of the fund may be executed by brokers or investment advisors who charge a
transaction-based fee or other fee for their services. Such charges may vary
among broker-dealers and financial advisors, but in all cases will be retained
by the broker-dealer or financial advisor and not remitted to the fund or the
manager. You should be aware of the fact that these transactions may be made
directly with American Century without incurring such fees.
18 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
From time to time, special services may be offered to shareholders who
maintain higher share balances in our family of funds. These services may
include the waiver of minimum investment requirements, expedited confirmation of
shareholder transactions, newsletters and a team of personal representatives.
Any expenses associated with these special services will be paid by the manager.
The manager and transfer agent are both wholly owned by American Century
Companies, Inc., which is controlled by James E. Stowers Jr., Chairman of the
fund's Board of Directors.
Pursuant to a Sub-Administration Agreement with the manager, Funds
Distributor, Inc. (FDI) serves as the co-administrator for the fund. FDI is
responsible for (i) providing certain officers of the fund and (ii) reviewing
and filing marketing and sales literature on behalf of the fund. The fees and
expenses of FDI are paid by the manager out of its unified fee.
YEAR 2000 ISSUES
Many of the world's computer systems currently cannot properly recognize or
process date-sensitive information relating to the Year 2000 and beyond. Because
this may impact the computer systems of various American Century-affiliated and
external service providers for the fund, American Century formally initiated a
Year 2000 readiness project in July 1997. It involves a team of information
technology professionals assisted by outside consultants and guided by a
senior-level steering committee. The team's goal is to assess the impact of the
Year 2000 on American Century's systems, renovate or replace noncompliant
critical systems, and test those systems. In addition, the team has been working
to gather information about the Year 2000 efforts of the fund's other major
service providers.
Although American Century believes its critical systems will function
properly in the Year 2000, this is not guaranteed. If the efforts of American
Century or its external service providers are not successful, the fund's
business, particularly the provision of shareholder services, may be hampered.
In addition, the issuers of securities the fund owns could have Year 2000
computer problems. These problems could negatively affect the value of their
securities, which, in turn, could impact the fund's performance. The advisor has
established a process to gather publicly available information about the Year
2000 readiness of these issuers. However, this process may not uncover all
relevant information, and the information gathered may not be complete and
accurate. Moreover, an issuer's Year 2000 readiness is only one of many factors
the fund manager may consider when making investment decisions, and other
factors may receive greater weight.
DISTRIBUTION OF FUND SHARES
The fund's shares are distributed by FDI, a registered broker-dealer. FDI is
a wholly-owned indirect subsidiary of Boston Institutional Group, Inc. FDI's
principal business address is 60 State Street, Suite 1300, Boston, Massachusetts
02109. The Institutional Class of shares does not pay any commissions or sales
loads to the distributor or to any other broker-dealers or financial
intermediaries in connection with the distribution of fund shares.
Investors may open accounts with American Century only through the
distributor. All purchase transactions in the fund offered by this Prospectus
are processed by the transfer agent, which is authorized to accept any
instructions relating to fund accounts. All purchase orders must be accepted by
the distributor. All fees and expenses of FDI in acting as distributor for the
fund are paid by the manager.
FURTHER INFORMATION ABOUT AMERICAN CENTURY
American Century Capital Portfolios, Inc., (the "Corporation"), the issuer
of the fund, was organized as a Maryland corporation on June 14, 1993.
The corporation is an open-end management investment company whose shares
were first offered for sale September 1, 1993. Its business and affairs are
managed by its officers under the direction of its Board of Directors.
The principal office of the fund is American Century Tower, 4500 Main
Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be
made by mail to that address, or by telephone to 1-800-345-3533 (international
calls: 816-531-5575).
PROSPECTUS ADDITIONAL INFORMATION YOU SHOULD KNOW 19
American Century Capital Portfolios, Inc. currently issues five series of
$0.01 par value shares. Each series is commonly referred to as a fund. The
assets belonging to each series of shares are held separately by the custodian.
American Century offers two classes of shares of the fund: an Investor Class
and an Institutional Class, and multiple classes of shares of the other four
series of the Corporation. The shares offered by this Prospectus are
Institutional Class shares and have no up-front charges, commissions or 12b-1
fees.
The Investor Class is primarily made available to retail investors. The
other class has different fees, expenses and/or minimum investment requirements
than the Institutional Class. The difference in the fee structures between the
classes is the result of their separate arrangements for shareholder and
distribution services and not the result of any difference in amounts charged by
the manager for core investment advisory services. Accordingly, the core
investment advisory expenses do not vary by class. Different fees and expenses
will affect performance. For additional information concerning the Investor
Class of shares, call one of our Investor Services Representatives at
1-800-345-2021.
Except as described below, all classes of shares of the fund will have
identical voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences among the Corporation's various classes are (a)
each class may be subject to different expenses specific to that class, (b) each
class has a different identifying designation or name, (c) each class has
exclusive voting rights with respect to matters solely affecting such class, (d)
each class may have different exchange privileges, and (e) the Institutional
Class may provide for automatic conversion from that class into shares of the
Investor Class of the same fund.
Each share, irrespective of series or class, is entitled to one vote for
each dollar of net asset value applicable to such share on all questions, except
for those matters that must be voted on separately by the series or class of
shares affected. Matters affecting only one series or class are voted upon only
by that series or class.
Shares have non-cumulative voting rights, which means that the holders of
more than 50% of the votes cast in an election of directors can elect all of the
directors if they choose to do so, and in such event the holders of the
remaining votes will not be able to elect any person or persons to the Board of
Directors.
Unless required by the Investment Company Act, it will not be necessary for
the fund to hold annual meetings of shareholders. As a result, shareholders may
not vote each year on the election of directors or the appointment of auditors.
However, pursuant to the fund's by-laws, the holders of shares representing at
least 10% of the votes entitled to be cast may request the fund to hold a
special meeting of shareholders. We will assist in the communication with other
shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES
DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION,
WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER
APPROVAL IS EXPRESSLY REQUIRED.
20 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
NOTES
PROSPECTUS NOTES 21
P.O. Box 419385
Kansas City, Missouri
64141-6385
Institutional Services:
1-800-345-3533 or 816-531-5575
Telecommunications Device for the Deaf:
1-800-345-1833 or 816-444-3038
Fax: 816-340-4655
www.americancentury.com
[american century logo(reg.tm)]
American
Century(reg.tm)
[recycled logo]
Recycled
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SH-PRS-14712
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 30, 1998
[american century logo(reg.sm)]
American
Century
Equity Index Fund
- --------------------------------------------------------------------------------
AMERICAN CENTURY EQUITY INDEX FUND
A SERIES OF
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
This Statement of Additional Information adds to the discussion in the funds'
Prospectus, dated December 30, 1998, but is not a prospectus. If you would like
a copy of the Prospectus, please contact us at one of the addresses or phone
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 fund's annual and semiannual reports, which are
delivered to all shareholders. You may obtain a free copy of the fund's annual
or semiannual report by calling 1-800-345-2021.
Distributed by Funds Distributor, Inc.
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 30, 1998
TABLE OF CONTENTS
Investment Objectives of the Fund ......................................... 2
Investment Restrictions ................................................... 2
S&P 500 Index ............................................................. 3
Foreign Securities ........................................................ 3
Futures Contracts ......................................................... 3
Cash Management ........................................................... 5
An Explanation of Fixed Income Securities Ratings ......................... 5
Portfolio Lending ......................................................... 7
Portfolio Turnover ........................................................ 7
Officers and Directors .................................................... 8
Management ................................................................ 10
Custodians ................................................................ 11
Independent Auditors ...................................................... 11
Capital Stock ............................................................. 11
Multiple Class Structure .................................................. 11
Taxes ..................................................................... 11
Brokerage ................................................................. 12
Performance Advertising ................................................... 13
Redemptions in Kind ....................................................... 14
Holidays .................................................................. 14
STATEMENT OF ADDITIONAL INFORMATION 1
INVESTMENT OBJECTIVE OF THE FUND
The investment objective of the fund is described on page 2 of its
Prospectus. In seeking to achieve its objective, the 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.
INVESTMENT RESTRICTIONS
Additional fundamental policies that may be changed only with shareholder
approval provide as follows:
(1) The fund shall not issue senior securities, except as permitted under
the Investment Company Act of 1940.
(2) The fund shall not borrow money, except that the fund may borrow money
for temporary or emergency purposes (not for leveraging or investment)
in an amount not exceeding 33 (1)/(3)% of the fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings).
(3) The fund shall 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.
(4) The fund shall not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments. This policy
shall not prevent the fund from investment in securities or other
instruments backed by real estate or securities of companies that deal
in real estate or are engaged in the real estate business.
(5) The fund shall 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.
(6) The fund shall not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments;
provided that this limitation shall not prohibit the fund from
purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities.
(7) The fund shall not invest for purposes of exercising control over
management.
(8) The fund shall not concentrate its investments in securities of issuers
in a particular industry (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities),
except to the extent that the S&P 500 index is also concentrated in
securities of issuers in a particular industry.
In addition, the fund has adopted the following non-fundamental investment
restrictions:
(1) As an operating policy, the fund shall not purchase additional
investment securities at any time during which outstanding borrowings
exceed 5% of the total assets of the fund.
(2) As an operating policy, the fund may not purchase any security or enter
into a repurchase agreement if, as a result, more than 15% of its net
assets (10% for money market funds) would be invested in repurchase
agreements not entitling the holder to payment of principal and
interest within seven days and in securities that are illiquid by
virtue of legal or contractual restrictions on resale or the absence of
a readily available market.
(3) As an operating policy, the fund shall not sell securities short,
unless it owns or has the right to obtain securities equivalent in kind
and amount to the securities sold short, and provided that transaction
in futures contracts and options are not deemed to constitute selling
securities short.
(4) As an operating policy, the fund shall not purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
2 AMERICAN CENTURY INVESTMENTS
The Investment Company Act imposes certain additional restrictions upon
acquisition by the fund of securities issued by insurance companies, brokers,
dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership. Neither the Securities and Exchange Commission
nor any other agency of the federal government or state agency participates in
or supervises the management of the fund or its investment practices or
policies.
S&P 500 INDEX
The fund seeks to achieve a 95% or better correlation between its total
return and the total return of the S&P 500 Index. Correlation is measured by
comparing the fund's monthly total returns to those of the S&P 500 over the most
recent 36-month period.
The fund is not sponsored, endorsed, sold or promoted by Standard & Poor's,
a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to the owners of the fund or any
member of the public regarding the advisability of investing in securities
generally or in the fund particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to American
Century is the licensing of certain trademarks and trade names of S&P and of the
S&P 500 Index which is determined, composed and calculated by S&P without regard
to the fund. S&P has no obligation to take the needs of American Century or the
owners of the fund into consideration in determining, composing or calculating
the S&P 500 the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of the fund or the
timing of the issuance or sale of the fund or in the determination or
calculation of the equation by which the fund is to be converted into cash. S&P
has no obligation or liability in connection with the administration, marketing
or trading of the fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express or
implied, as to the results to be obtained by the fund, owners of the fund, or
any other person or entity from the use of the S&P 500 Index or any data
included therein. S&P makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the S&P 500 Index or any data included therein. Without
limiting any of the foregoing, in no event shall S&P have any liability for any
special, punitive, indirect, or consequential damages (including lost profits),
even if notified of the possibility of such damages.
FOREIGN SECURITIES
The fund may invest a small percentage of its assets in the securities of
foreign issuers. The manager defines "foreign issuer" as an issuer of securities
that is domiciled outside the United States, derives at least 50% of its total
revenue from production or sales outside of the United States, and/or whose
principal trading market is outside the United States. The principal business
activities of such issuers will be located in developed countries.
The fund may make such investments either directly in foreign securities or
indirectly by purchasing depositary receipts for foreign securities. Depositary
receipts or depositary shares or similar instruments (collectively "depositary
receipts") are securities that are listed on exchanges or quoted in the domestic
over-the-counter markets in one country but represent shares of issuers
domiciled in another country. Direct investments in foreign securities may be
made either on foreign securities exchanges or in the over-the-counter markets.
Subject to its individual investment objectives and policies, the fund may
invest in common stocks, convertible securities, preferred stocks, bonds, notes
and other debt securities of foreign issuers, and debt securities of foreign
governments and their agencies. The fund will limit its purchase of debt
securities to investment-grade obligations.
Investments in foreign securities may present certain risks, future
political and economic developments, clearance and settlement risk, reduced
availability of public information concerning issuers, and the lack of uniform
accounting, auditing, financial reporting standards and practices and
requirements comparable to those applicable to domestic issuers.
FUTURES CONTRACTS
As described in the applicable Prospectus, the fund may enter into futures
contracts. Unlike when the 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 futures contract is adjusted daily to reflect the
fluctuation of the value of the underlying securities that comprise the index.
This is a process known as marking the contract to market. If the value of a
party's position declines, that party is required to make additional "variation
margin" payments to the FCM to settle the change in value. The party that has a
gain may be entitled to receive all or a portion of this amount. The FCM may
have access to the fund's margin account only under specified conditions of
default.
From time to time the fund maintains a percentage of its assets in cash or
high-grade liquid securities to provide for redemptions or to hold for future
investment in securities consistent with the fund's investment objectives. The
fund may enter into index futures contracts as an efficient means to expose the
fund's cash position to the domestic equity market. The manager believes that
the purchase of futures contracts is an efficient means to effectively be fully
STATEMENT OF ADDITIONAL INFORMATION 3
invested in equity securities.
The fund intends 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 the
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,
but are not limited to:
* the possible absence of a liquid secondary market for any particular
instrument will make it difficult or impossible to close out a position
when desired (liquidity risk);
* the risk that the counter party to the contract will fail to perform
its obligations or the risk of bankruptcy of the FCM holding margin
deposits (counter party risk);
* the risk that the index of securities to which the futures contract
relates will go down in value (market risk); and
* adverse price movements in the underlying index can result in losses
substantially greater than the value of the fund's investment in that
instrument because only a fraction of a contract's value is required to
be deposited as initial margin (leverage risk); provided, however, that
the fund may not purchase leveraged futures, so there is no leverage
risk involved in the fund's use of futures.
A liquid secondary market is necessary to close out a contract. The fund may
seek to manage liquidity risk by investing only in exchange-traded futures.
Exchange-traded index futures pose less risk that there will not be a liquid
secondary market than privately negotiated instruments. Through their clearing
corporations, the futures exchanges guarantee the performance of the contracts.
Futures contracts are generally settled within a day from the date they are
closed out, as compared to three days for most types of equity securities. As a
result, futures contracts can provide more liquidity than an investment in the
actual underlying securities. Nevertheless, there is no assurance that a liquid
secondary market will exist for any particular futures contract at any
particular time. Liquidity may also be influenced by an exchange-imposed daily
price fluctuation limit, which halts trading if a contract's price moves up or
down more than the established limit on any given day. On volatile trading days
when the price fluctuation limit is reached, it may be impossible for the 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, the 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 fund manages counter-party risk by investing in exchange-traded index
futures. In the event of the bankruptcy of the FCM that holds margin on behalf
of the 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 fund does 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. The fund's investment in
futures contracts may not correlate precisely with the performance of the fund's
other equity investments. However, the manager believes that an investment in
index futures will more closely reflect the investment performance of the fund
than an investment in U.S. government or other highly liquid, short-term debt
securities, which is where the cash position of the fund would otherwise be
invested.
The policy of the fund is to invest in equity securities. There may be times
when the manager deems it advantageous to the fund 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.
4 AMERICAN CENTURY INVESTMENTS
CASH MANAGEMENT
CORPORATE OBLIGATIONS
Commercial paper is issued by large corporations to raise cash. The maximum
maturity for commercial paper is 270 days, although most commercial paper is
issued with maturities of 60 days or less. Commercial paper is offered at a
discount with its full face value paid at maturity.
Although commercial paper rates generally fluctuate with the value of the
London Interbank Offered Rate (LIBOR), Treasury bills, bankers' acceptances, and
certificates of deposit, they are also influenced by (1) the issuer's size and
credit rating and (2) the commercial paper maturity date.
Smaller or lower-rated corporations may tap the commercial paper market
through asset-backed commercial paper programs. In a typical program, a special
purpose corporation (a SPC), created and/or serviced by a bank, uses the
proceeds from an issuance of commercial paper to purchase receivables from one
or more corporations (sellers). The sellers transfer their interest in the cash
flow from the receivables to the SPC, and this cash is used to pay interest and
repay principal on the commercial paper. Letters of credit may be available to
cover the risk that the cash flow from the receivables will not be sufficient to
cover the maturing commercial paper.
BANK OBLIGATIONS
Negotiable certificates of deposit (CDs) evidence a bank's obligation to
repay money deposited with it for a specified period of time.
Bankers' acceptances are used to finance foreign commercial trade. Issued by
a bank with an importer's name on them, these instruments allow the importer to
back up its own pledge to pay for imported goods with a bank's obligation to
cover the transaction if the importer fails to do so.
Bank notes are senior unsecured promissory notes issued in the United States
by domestic commercial banks.
The bank obligations the fund may buy generally are not insured by the FDIC
or any other insurer.
GOVERNMENT OBLIGATIONS
U.S. Treasury securities differ from one another in their interest rates,
maturities, and issuance and interest payment schedules. Treasury bills have
initial maturities of one year or less; Treasury notes, two to ten years; and
Treasury bonds, more than ten years.
A number of U.S. government agencies and government-sponsored organizations
issue debt securities. These agencies generally are created by Congress to
fulfill a specific need, such as providing credit for home buyers or farmers.
Among these agencies are the Federal Home Loan Banks, the Federal Farm Credit
System, the Student Loan Marketing Association, and the Resolution Funding
Corporation.
Some obligations issued or guaranteed by U.S. government agencies or
instrumentalities are supported by the full faith and credit of the U.S.
government; others are supported by the right of the issuer to borrow from the
Treasury; others are supported by the U.S. government's discretionary authority
to purchase certain obligations of the agency or instrumentality; and others are
supported only by the credit of the issuing agency or instrumentality.
Supranational organizations (generally, multilateral lending institutions,
or MLIs) are created by governments to promote economic reconstruction and
development. An MLI's creditworthiness is based not only on its own financial
performance, but on the willingness and ability of member governments to support
its lending activities.
While maintaining strict financial controls to ensure liquidity and strong
creditworthiness, MLIs finance their operations in the same manner as any other
financial institution, with a combination of short- and long-term debt
obligations. Short-term debt is usually issued in the form of short-term
discount notes and commercial paper.
AN EXPLANATION OF FIXED INCOME SECURITIES RATINGS
As described in the Prospectus, the fund may invest in fixed income
securities. The fund may invest only in investment-grade obligations. Fixed
income securities ratings provide the manager with a current assessment of the
credit rating of an issuer with respect to a specific fixed income security.
The following 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.
STATEMENT OF ADDITIONAL INFORMATION 5
AA - Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only to a small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions, which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied B or B- rating.
CC - The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C - The rating C typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
To provide more detailed indications of credit quality, the ratings from AA
to CCC may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the ratings used by Moody's Investors Service, Inc.
for bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may 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.
6 AMERICAN CENTURY INVESTMENTS
Baa - Bonds that are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds that are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
category from Aa through B. The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
PORTFOLIO LENDING
In order to realize additional income, the fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
PORTFOLIO TURNOVER
The fund will not generally trade in securities for short-term profits, but,
when circumstances warrant, securities may be purchased and sold without regard
to the length of time the security has been held. Accordingly, the fund's rate
of portfolio turnover at times may be substantial.
The fund intends to purchase a given security whenever the manager believes
it will contribute to the stated objective of the fund, even if the same
security has only recently been sold. In selling a given security, the manager
keeps in mind that profits from sales of securities are taxed to shareholders.
Subject to this consideration, the fund will sell a given security regardless of
how long it has been held in the portfolio and whether the sale is at a gain or
at a loss, if the manager believes that the security is not fulfilling its
purpose. The manager may reach this conclusion because, among other things, it
did not live up to the manager's expectation; because it may be replaced with
another security holding greater promise; because it has reached its optimum
potential; because of a change in the circumstances of a particular company,
industry or in general economic conditions; or because of some combination of
such reasons.
When a general decline in security prices is anticipated, the fund may
decrease or eliminate entirely its equity position and increase its cash
position, and when a rise in price levels is anticipated, the fund may increase
its equity position and decrease its cash position. However, the fund 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 the fund's objectives, the manager believes that the
rate of portfolio turnover is irrelevant when it believes a change is in order
to achieve those objectives. As a result, the fund's annual portfolio turnover
rate cannot be anticipated and may be comparatively high. This disclosure
regarding portfolio turnover is a statement of fundamental policy and may be
changed only by a vote of the shareholders.
STATEMENT OF ADDITIONAL INFORMATION 7
Since the manager does not take portfolio turnover rate into account in
making investment decisions, (1) the manager has no intention of accomplishing
any particular rate of portfolio turnover, whether high or low, and (2) the
portfolio turnover rates in the past should not be considered as a
representation of the rates that will be attained in the future.
OFFICERS AND DIRECTORS
The principal officers and directors of American Century Capital Portfolios,
Inc. (the "Corporation"), their ages (listed in parentheses), their principal
business experience during the past five years, and their affiliations with the
fund's manager, American Century Investment Management, Inc. and its transfer
agent, American Century Services Corporation, are listed below. The address at
which each director and officer below may be contacted is American Century
Tower, 4500 Main Street, Kansas City, Missouri 64111. All persons named as
officers of the Corporation also serve in similar capacities for other funds
advised by the manager. Those directors that are "interested persons" as defined
in the Investment Company Act of 1940 are indicated by an asterisk(*).
JAMES E. STOWERS JR.* (74), 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* (39), Director; Chief Executive Officer and Director,
American Century Companies, Inc., American Century Investment Management, Inc.
and American Century Services Corporation.
THOMAS A. BROWN (58), Director; Director of Plains States Development,
Applied Industrial Technologies, Inc., a corporation engaged in the sale of
bearings and power transmission products.
ROBERT W. DOERING, M.D. (64), Director; retired, formerly general surgeon.
ANDREA C. HALL, PH.D. (53), Director; Senior Vice President and Associate
Director, Midwest Research Institute.
D.D. (DEL) HOCK (63), Director; retired, formerly Chairman, Public Service
Company of Colorado; Director, Service Tech, Inc., Hathaway Corporation, and J.
D. Edwards & Company.
DONALD H. PRATT (61), Vice Chairman of the Board and Director; President and
Director, Butler Manufacturing Company.
LLOYD T. SILVER JR. (70), Director; Consultant and retired Chairman of LSC,
Inc.
M. JEANNINE STRANDJORD (53), Director; Senior Vice President, Finance,
Sprint Corporation; Director, DST Systems, Inc.
GEORGE A. RIO (43), President; Executive Vice President and Director of
Client Services, Funds Distributor, Inc. (FDI). Prior to joining FDI, Mr. Ingram
served as Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds (from June 1995 to March 1998). Before that he served as Director Business
Development for First Data Corporation (May 1994 to June 1995), Senior Vice
President and Manager of Client Services, and Director of Internal Audit at The
Boston Company, Inc. (September 1983 to May 1994).
MARYANNE ROEPKE, CPA (42), Vice President, Treasurer and Principal
Accounting Officer; Senior Vice President, American Century Services
Corporation.
DAVID C. TUCKER (40), Vice President; Senior Vice President and General
Counsel, American Century Services Corporation and American Century Investment
Management, Inc.; General Counsel, American Century Companies, Inc. (June,
1998); Consultant to the Mutual Funds Industry (May 1997 to April 1998); Vice
President and General Counsel, Janus Companies (1990 to May 1997).
CHRISTOPHER J. KELLEY (34), Vice President; Vice President and Associate
General Counsel of FDI. Prior to joining FDI, Mr. Kelley served as Assistant
Counsel at Forum Financial Group (from April 1994 to July 1996) and before that
as a compliance officer for Putnam Investments (from 1992 to 1994).
MARY A. NELSON (34), Vice President; Vice President and Manager of Treasury
Services and Administration of FDI. Prior to joining FDI, Ms. Nelson was
Assistant Vice President and Client Manager for The Boston Company, Inc. (from
1989 to 1994).
8 AMERICAN CENTURY INVESTMENTS
MERELE A. MAY (36), Controller; Vice President, American Century Services
Corporation.
JOHN ZINDEL, CPA (31), Tax Officer; Vice President and Director of Taxation,
American Century Services Corporation (1996); Tax Manager, Price Waterhouse LLP
(from 1989 to 1996).
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. (chair), Stowers III and Pratt constitute the Executive
Committee of the Board of Directors. The committee performs the functions of the
Board of Directors between meetings of the Board, subject to the limitations on
its power set out in the Maryland General Corporation Law, and except for
matters required by the Investment Company Act to be acted upon by the full
Board.
Ms. Strandjord (chair), Dr. Doering and Mr. Hock constitute the Audit
Committee. The functions of the Audit Committee include recommending the
engagement of the fund's independent auditors, reviewing the arrangements for
and scope of the annual audit, reviewing comments made by the independent
auditors with respect to the internal controls and the considerations given or
the connective action taken by management, and reviewing nonaudit services
provided by the independent auditors.
Messrs. Brown (chair), Pratt, Silver and Dr. Hall constitute the Compliance
Committee. The functions of the Compliance Committee include reviewing the
results of the fund's compliance testing program, reviewing quarterly reports
from the manager to the Board regarding various compliance matters, and
monitoring the implementation of the fund's Code of Ethics, including violations
thereof.
The Nominating Committee has as its principal role 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 (chair),
Hock 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 $48,000, 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 chair 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 fund is responsible for
paying such fees and expenses.
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 who is not an "interested person" as defined in the Investment
Company Act.
Aggregate Total Compensation
Compensation from the
from the American Century
Director Corporation(1) Family of Funds(2)
- --------------------------------------------------------------------------------
Thomas A. Brown $3,144 $60,000
Robert W. Doering, M.D. 3,022 49,500
Andrea C. Hall, Ph.D.(3) 1,302 8,833
D.D. (Del) Hock 3,021 49,500
Linsley L. Lungaard 1,791 42,333
Donald H. Pratt 3,144 60,000
Lloyd T. Silver Jr. 3,021 49,000
M. Jeannine Strandjord 3,072 43,833
- --------------------------------------------------------------------------------
(1) Includes compensation actually paid by the corporation during the fiscal
year ended March 31, 1998.
(2) Includes compensation paid by the thirteen investment company members of the
American Century family of funds for the calendar year ended December 31,
1997.
(3) Dr. Hall replaced Mr. Lundgaard as a director effective November 1, 1997.
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 fund, are paid by the manager.
STATEMENT OF ADDITIONAL INFORMATION 9
MANAGEMENT
A description of the responsibilities and method of compensation of the
fund's manager, American Century Investment Management, Inc., appears in each
Prospectus under the caption "Management."
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 fund's
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 fund's Board of Directors, or by a vote of
the fund's 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 fund or its shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties.
The management agreement also provides that the manager and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
The management agreement between the fund and the manager contemplates the
retention of a subadvisor by the manager.
Certain investments may be appropriate for the fund and also for other
clients advised by the manager. Investment decisions for the fund 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 the fund.
The manager may aggregate purchase and sale orders of the fund with purchase
and sale orders of its other clients when the manager believes that such
aggregation provides the best execution for the fund. The fund's 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 fund participates 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 fund unless it believes
such aggregation is consistent with its duty to seek best execution on behalf of
the fund and the terms of the management agreement. The manager receives no
additional compensation or remuneration as a result of such aggregation.
In addition to managing the fund the manager is also acting as an investment
advisor to eleven institutional accounts and to twelve 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.; American Century Variable Portfolios, Inc.;
American Century Municipal Trust; American Century Quantitative Equity Funds;
American Century International Bond Funds; American Century Investment Trust;
American Century Government Income Trust; American Century Target Maturities
Trust; and American Century California Tax-Free and Municipal Funds.
American Century Services Corporation provides physical facilities,
including computer hardware and software and personnel, for the day-to day
administration of the fund, and the manager pays American Century Services
Corporation for such services.
10 AMERICAN CENTURY INVESTMENTS
As stated in each Prospectus, all of the stock of American Century
Investment Management, Inc. and American Century Services Corporation is owned
by American Century Companies, Inc.
CUSTODIANS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York
10003-9598, and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105,
each serves as custodian of the assets of the fund. The custodians take no part
in determining the investment policies of the fund or in deciding which
securities are purchased or sold by the fund. The fund, however, may invest in
certain obligations of the custodians and may purchase or sell certain
securities from or to the custodians.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 1010 Grand Avenue, Suite 400, Kansas City, Missouri
64106 are the independent auditors of the fund. As the independent auditors of
the fund, Deloitte & Touche LLP will provide services including (1) audit of the
annual financial statements, (2) assistance and consultation in connection with
SEC filings and (3) review of the annual federal income tax return filed for
each fund by American Century.
CAPITAL STOCK
The Corporation's capital stock is described in the Prospectus under the
heading "Further Information about American Century."
The Corporation currently has five series of shares outstanding. The fund
currently issues two classes of shares, the Investor Class and Institutional
Class. The other four funds, Value, Small Cap Value, Equity Income and Real
Estate Fund, are further divided into three or more classes. See "Multiple Class
Structure," this page. The Corporation may in the future issue one or more
additional series or classes of shares without a vote of the shareholders. The
assets belonging to each series or class of shares are held separately by the
custodian and the shares of each series or class represent a beneficial interest
in the principal, earnings and profits (or losses) of investment and other
assets held for that series or class. Your rights as a shareholder are the same
for all series or classes of securities unless otherwise stated. Within their
respective series or class, all shares 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 fund,
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.
MULTIPLE CLASS STRUCTURE
The fund'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 fund may issue up to four classes of shares: an Investor Class, an
Institutional Class, a Service Class and an Advisor Class. The fund issues two
classes of shares, Investor Class and Institutional Class.
The Investor Class shares are made available to investors directly, without
any load or commission, for a single management fee. The Institutional Class
shares 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 this class a lower management fee.
TAXES
TAXATION OF DEBT INSTRUMENTS
For federal income tax purposes, debt securities purchased by the fund may
be treated as having original issue discount. Original issue discount can
generally be defined as the excess of the stated redemption price at maturity of
a debt obligation over the issue price. Original issue discount is treated as
interest earned by the fund for federal income tax purposes, whether or not any
income is actually received, and therefore is subject to the distribution
requirements of the Code. However, original issue discount with respect to
tax-exempt obligations generally will be excluded from the fund's taxable
income. Original issue discount with respect to tax-exempt securities is accrued
and added to the adjusted tax basis of such securities for purposes of
determining gain or loss upon sale or at maturity. Generally, the amount of
STATEMENT OF ADDITIONAL INFORMATION 11
original issue discount for any period is determined on the basis of a constant
yield to maturity which takes into account the compounding of accrued interest.
Under section 1286 of the Code, an investment in a stripped bond or stripped
coupon will result in original issue discount.
The fund may purchase debt securities at a discount which exceeds the
original issue price plus previously accrued original issue discount remaining
on the securities, at the time of purchase. This additional discount represents
market discount for income tax purposes. Generally, market discount is accrued
on a daily basis.
The fund may purchase debt securities at a premium, i.e., at a purchase
price in excess of face amount. With respect to tax-exempt securities, the
premium must be amortized to the maturity date but no deduction is allowed for
the premium amortization. Instead, the amortized bond premium will reduce the
fund's adjusted tax basis in the securities. For taxable securities, the premium
may be amortized if the fund so elects. The amortized premium on taxable
securities is allowed as a deduction, and, generally for securities issued after
September 27, 1985, must be amortized under an economic accrual method.
FOREIGN HOLDERS
A foreign holder is a person or entity that, for U.S. federal income tax
purposes, is a nonresident alien individual, a foreign corporation, a foreign
partnership or a non-resident fiduciary of a foreign estate or trust. If a
distribution of the fund's taxable income (without regard to its net capital
gain) to a foreign holder is not effectively connected with a U.S. trade of
business carried on by the investor, such distribution will be subject to
withholding tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. In addition, distributions from the fund will
generally be subject to information reporting.
The tax consequences to a foreign holder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
Holders should consult their own tax advisers to determine whether investment in
the fund is appropriate.
BROKERAGE
Under the management agreement between the fund and the manager, the manager
has the responsibility of selecting brokers to execute portfolio transactions.
The fund's 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 has delegated responsibility for selecting brokers to execute portfolio
transactions to the subadvisor under the terms of the Investment Subadvisory
Agreement.
The manager or the subadvisor, as the case may be, receives statistical and
other information and services without cost from brokers and dealers. The
manager or the subadvisor evaluates such information and services, together with
all other information that it may have, in supervising and managing the
investments of the fund. Because such information and services may vary in
amount, quality and reliability, their influence in selecting brokers varies
from none to very substantial. The manager and the subadvisor propose to
continue to place some of the fund's brokerage business with one or more brokers
who provide information and services. Such information and services provided to
the manager and the subadvisor will be in addition to and not in lieu of the
services required to be performed for the fund by the manager and subadvisor.
Neither the manager nor the subadvisor utilizes brokers who provide such
information and services for the purpose of reducing the expense of providing
required services to the fund.
The brokerage commissions paid by the fund 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 fund effects securities
transactions may be used by the manager in servicing all of its accounts, and
not all such services may be used by the manager in managing the portfolios of
the fund.
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
12 AMERICAN CENTURY INVESTMENTS
dealing directly with principal market makers, thereby avoiding the payment of
compensation to another broker. In certain situations, the officers of the fund,
the manager and the subadvisor believe that the facilities, expert personnel and
technological systems of a broker enable the fund 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 fund normally places its over-the-counter
transactions with principal market makers but also may deal on a brokerage basis
when utilizing electronic trading networks or as circumstances warrant.
On occasions when the manager deems the purchase or sale of a security to be
in the best interests of the fund as well as other fiduciary accounts, the
manager or the subadvisor may aggregate the security to be sold or purchased for
the fund with those to be sold or purchased for other accounts in order to
obtain the best net price and most favorable execution. In such event, the
allocation will be made by the manager or the subadvisor in the manner
considered to be most equitable and consistent with its fiduciary obligations to
all such fiduciary accounts, including the fund.
PERFORMANCE ADVERTISING
FUND PERFORMANCE
Individual fund performance may be compared to various indices, including
the Standard & Poor's 500 Index. Fund performance also may be compared to the
rankings prepared by Lipper Analytical Services, Inc.
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 the 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.
The fund 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.
ADDITIONAL PERFORMANCE COMPARISONS
Investors may judge the performance of the fund by comparing their
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices, such as those prepared by Dow Jones & Co., Inc.; Standard &
Poor's Corporation; Shearson Lehman Brothers, Inc.; and to data prepared by
Lipper Analytical Services, Inc.; Morningstar, Inc.; and the Consumer Price
Index. Comparisons may also be made to indices or data published in Money,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
Pensions and Investments, USA Today, Realty Stock Review, Changing Times,
Institutional Investor and other similar publications or services. In addition
to performance information, general information about the fund that appears in a
publication such as those mentioned above or in the applicable prospectus under
the heading "Performance Advertising" may be included in advertisements and in
reports to shareholders.
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the fund 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 the fund; (5)
descriptions of investment strategies for the fund; (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 fund;
STATEMENT OF ADDITIONAL INFORMATION 13
(7) comparisons of investment products (including the fund) 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 the fund. The fund
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 the fund.
MULTIPLE CLASS PERFORMANCE ADVERTISING
Pursuant to the Multiple Class Plan, the fund 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 the 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' performance will be restated to reflect the expenses of the new class.
For periods after the first full quarter after inception, actual performance of
the new class will be used.
REDEMPTIONS IN KIND
The fund's policy with regard to large redemptions is described in detail in
the Prospectus under the heading "Special Requirements for Large Redemptions."
The fund has elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which the fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the fund
during any 90-day period for any one shareholder. Should redemptions by any
shareholder exceed such limitation, the fund will have the option of redeeming
the excess in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage costs in converting the assets to cash. The
securities delivered will be selected at the sole discretion of the manager.
Such securities will not necessarily be representative of the entire portfolio
and may be securities that the manager regards as least desirable. The method of
valuing securities used to make redemptions in kind will be the same as the
method of valuing portfolio securities described in each prospectus under the
heading "How Share Price Is Determined," and such valuation will be made as of
the same time the redemption price is determined.
HOLIDAYS
The fund does not determine the net asset value of its shares on days when
the New York Stock Exchange is closed. Currently, the Exchange is closed on
Saturdays, and Sundays and on holidays, namely New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas.
14 AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-444-3485
Fax: 816-340-7962
www.americancentury.com
[american century logo(reg.tm)]
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