STATEMENT OF ADDITIONAL INFORMATION
[american century logo(reg. sm)]
American
Century(reg.tm)
JUNE 1, 1998
BENHAM
GROUP(reg.tm)
Prime Money Market
STATEMENT OF ADDITIONAL INFORMATION
JUNE 1, 1998
AMERICAN CENTURY INVESTMENT TRUST
This Statement is not a prospectus but should be read in conjunction with the
fund's current Prospectus, dated June 1, 1998. The fund's annual report for the
fiscal year ended February 28, 1998, is incorporated herein by reference. Please
retain this document for future reference. To obtain the Prospectus, call
American Century Investments toll-free at 1-800-345-2021 (international calls:
816-531-5575), or write P.O. Box 419200, Kansas City, Missouri 64141-6200.
TABLE OF CONTENTS
Investment Policies and Techniques ........................................ 2
Investment Restrictions ................................................... 6
Portfolio Transactions .................................................... 7
Valuation of Portfolio Securities ......................................... 7
Performance Advertising ................................................... 8
Taxes ..................................................................... 9
About the Trust ........................................................... 9
Custodians ................................................................ 10
Independent Accountants ................................................... 10
Multiple Class Structure .................................................. 10
Trustees and Officers ..................................................... 12
Management ................................................................ 14
Distribution of Fund Shares ............................................... 16
Additional Purchase and Redemption Information ............................ 17
Other Information ......................................................... 17
Financial Statements ...................................................... 19
STATEMENT OF ADDITIONAL INFORMATION 1
INVESTMENT POLICIES AND TECHNIQUES
The following paragraphs provide a more detailed description of the
securities and investment practices identified in the Prospectus. Unless
otherwise noted, the policies described in this Statement of Additional
Information are not fundamental and may be changed by the Board of Trustees.
COMMERCIAL PAPER
Commercial paper (CP) is issued by utility, financial, and industrial
companies and supranational organizations. Nationally recognized statistical
rating organizations (rating agencies) assign ratings to CP issuers indicating
the agencies' assessment of credit risk. Investment grade CP ratings assigned by
four rating agencies are provided in the following table.
Moody's Standard Fitch
Investors & Poor's Duff & Investors
Service, Inc. Corporation Phelps, Inc. Service, Inc.
- --------------------------------------------------------------------------------
Highest Ratings Prime-1 A-1/A-1+ D-1/D-1+ F-1/F-1+
Prime-2 A-2 D-2 F-2
Prime-3 A-3 D-3 F-3
- --------------------------------------------------------------------------------
If an obligation has been assigned different ratings by multiple rating
agencies, at least two rating agencies must have assigned their highest rating
as indicated above in order for the manager to determine that the obligation is
eligible for purchase by the fund or, if unrated, the obligation must be
determined to be of comparable quality by the manager.
Some examples of CP and CP issuers are provided in the following paragraphs.
Domestic CP is issued by U.S. industrial and finance companies, utility
companies, thrifts, and bank holding companies. Foreign CP is issued by non-U.S.
industrial and finance companies and financial institutions. Domestic and
foreign corporate issuers occasionally have the underlying support of a
well-known, highly rated commercial bank or insurance company. Bank support is
provided in the form of a letter of credit (a LOC) or irrevocable revolving
credit commitment (an IRC). Insurance support is provided in the form of a
surety bond.
Bank holding company CP is issued by the holding companies of many
well-known domestic banks, including Citicorp, J.P. Morgan & Company
Incorporated, and First Union National Bank. Bank holding company CP may be
issued by the parent of a money center or regional bank.
Thrift CP is issued by major federal or state-chartered savings and loan
associations and savings banks.
Schedule B Bank CP is short-term, U.S. dollar-denominated CP issued by
Canadian subsidiaries of non-Canadian banks (Schedule B banks). Whether issued
as commercial paper, a certificate of deposit, or a promissory note, each
instrument issued by a Schedule B bank ranks equally with any other deposit
obligation. Paper issued by Schedule B banks provides an investor with the
comfort and reduced risk of a direct and unconditional parental guarantee.
Schedule B instruments generally offer higher rates than the short-term
instruments of the parent bank or holding company.
REPURCHASE AGREEMENTS
In a repurchase agreement (a repo), the fund buys a security at one price
and simultaneously agrees to sell it back to the seller at an agreed upon price
on a specified date (usually within seven days from the date of purchase) or on
demand. The repurchase price exceeds the purchase price by an amount that
reflects an agreed-upon rate of return and that is unrelated to the interest
rate on the underlying security. Delays or losses could result if the other
party to the agreement defaults or becomes bankrupt.
American Century Investment Management, Inc. (the manager) attempts to
minimize the risks associated with repurchase agreements by adhering to written
guidelines that govern repurchase agreements. These guidelines strictly govern
(i) the type of securities that may be acquired and held under repurchase
agreements; (ii) collateral requirements for sellers under repurchase
agreements; (iii) the amount of the fund's net assets that may be committed to
repurchase agreements that mature in more than seven days; and (iv) the manner
in which the fund must take delivery of securities subject to repurchase
agreements. Moreover, the Board of Trustees reviews and approves, on a quarterly
basis, the creditworthiness of brokers, dealers and banks with whom the fund may
enter into repurchase agreements. The fund may enter into a repurchase agreement
only with an entity that appears on a list
2 AMERICAN CENTURY INVESTMENTS
of those that have been approved by the Board as sufficiently creditworthy.
The fund has received permission from the Securities and Exchange Commission
(SEC) to participate in joint repurchase agreements collateralized by U.S.
government securities with other mutual funds advised by the manager or its
affiliates. Joint repos are expected to increase the income the fund can earn
from repo transactions without increasing the risks associated with these
transactions.
Under the Investment Company Act of 1940 (the Investment Company Act),
repurchase agreements are considered to be loans.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the fund transfers possession of (or
sells) securities to another party, such as a bank or broker-dealer, for cash
and agrees to later repay cash plus interest for the return (or repurchase) of
the same securities. To collateralize the transaction, the value of the
securities transferred is slightly greater than the amount of cash the fund
receives in exchange for the securities.
If the purchaser reneged on the agreement and failed to return the
securities, the fund might suffer a loss. The fund's loss could be even greater
if the market value of the securities transferred increased in the meantime. To
protect against these risks, the fund will enter into reverse repurchase
agreements only with parties whose creditworthiness is determined to be
satisfactory by the manager. While a reverse repurchase agreement is
outstanding, the fund will segregate appropriate securities to cover its
obligation under the agreement.
TAXABLE MUNICIPAL OBLIGATIONS
Taxable municipal obligations are state and local obligations whose interest
payments are subject to federal income tax because of the degree of
non-government involvement in the transaction or because federal tax code
limitations on the issuance of tax-exempt bonds that benefit private entities
have been exceeded. Some typical examples of taxable municipal obligations
include industrial revenue bonds and economic development bonds issued by state
or local governments to aid private enterprise. The interest on a taxable
municipal bond is often exempt from state taxation in the issuing state. The
fund may purchase taxable municipal obligations although it does not currently
intend to do so.
TIME DEPOSITS
Time deposits are non-negotiable bank deposits maintained for up to seven
days at a stated interest rate. These instruments may be withdrawn on demand,
although early withdrawals may be subject to penalties.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENT AGREEMENTS AND ROLL TRANSACTIONS
The fund may engage in securities transactions on a when-issued or forward
commitment basis, in which the transaction price and yield are each fixed at the
time the commitment is made, but payment and delivery occur at a future date
(typically 1 to 7 days later).
When purchasing securities on a when-issued or forward commitment basis, the
fund assumes the rights and risks of ownership, including the risk of price and
yield fluctuations. Although the fund will make commitments to purchase or sell
securities with the intention of actually receiving or delivering them, it may
sell the securities before the settlement date if doing so is deemed advisable
as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, the
fund will segregate until the settlement date appropriate securities consistent
with SEC regulations. When the time comes to pay for the when-issued securities,
the fund will meet its obligations with available cash, through the sale of
securities, or, although it would not normally expect to do so, by selling the
when-issued securities themselves (which may have a market value greater or less
than the fund's payment obligation). Selling securities to meet when-issued or
forward commitment obligations may generate taxable capital gains or losses.
The fund may sell a security and at the same time make a commitment to
purchase the same or a comparable security at a future date and specified price.
Conversely, the fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as "dollar-rolls", "cash and carry" or financing transactions. For
example, a
STATEMENT OF ADDITIONAL INFORMATION 3
broker-dealer may seek to purchase a particular security that the fund owns. The
fund will sell that security to the broker-dealer and simultaneously enter into
a forward commitment agreement to buy it back at a future date. This type of
transaction generates income for the fund if the dealer is willing to execute
the transaction at a favorable price in order to acquire a specific security.
There is a risk that the party with whom the fund enters into a forward
commitment agreement will not uphold its commitment, which could cause the fund
to miss a favorable price or yield opportunity or to suffer a loss.
INTEREST RATE RESETS ON VARIABLE- AND FLOATING-RATE INSTRUMENTS
The interest rate on variable- and floating-rate instruments is ordinarily
determined by reference to (or is a percentage of) an objective standard. There
are two types of indices that provide the basis for interest rate
adjustments--those based on market rates and those based on a calculated measure
such as a cost-of-funds index. Commonly used indices include the three-month
Treasury bill rate, the Federal Funds effective rate (the Fed Funds rate), or
the one-month or three-month London Interbank Offered Rate (LIBOR), each of
which is highly correlated with changes in market interest rates.
Three-month Treasury bill rates are calculated by the Federal Reserve Bank
of New York based on weekly auction averages.
LIBOR is the rate at which banks in London offer Eurodollars in trades
between banks. LIBOR has become a key rate in the U.S. domestic money market
because it is perceived to reflect the true global cost of money.
The Fed Funds rate is the overnight rate at which banks lend funds to each
other, usually as unsecured loans from regional banks to money center banks. The
Fed Funds rate is the average dollar-weighted rate of overnight funds. It is
reported with a one-day lag (Monday's rate is reported Tuesday morning) and may
be found in reports issued by various financial information services.
The manager may invest in instruments whose interest rate adjustments are
based on new indices as these indices become available.
Variable-rate demand instruments include master demand notes. These
obligations permit the fund to invest amounts that may change daily without
penalty under direct arrangements between the fund and the issuer.
The issuer normally has a corresponding right, after a given period and on a
specified number of days notice, to prepay the outstanding principal amount of
the obligation plus accrued interest. Although there is no secondary market for
master demand notes, these instruments are repayable by the borrower at par plus
accrued interest on seven days' notice.
Variable- and floating-rate demand instruments frequently are not rated. The
fund may invest in these unrated instruments if the manager determines, at the
time of investment, that they are of a quality comparable to other obligations
the fund buys.
LOAN PARTICIPATIONS
Although the fund does not currently intend to do so, it may buy loan
participations, which represent interests in the cash flow generated by
commercial loans. Each loan participation requires three parties: a participant
(or investor), a lending bank, and a borrower. The investor purchases a share in
a loan originated by a lending bank, and this participation entitles the
investor to a percentage of the principal and interest payments made by the
borrower.
Loan participations are attractive because they typically offer higher
yields than other money market instruments. However, along with these higher
yields come certain risks, not least of which is the risk that the borrower will
be unable to repay the loan. Generally, since the lending bank does not
guarantee payment, the investor is directly exposed to risk of default by the
borrower. Secondly, the investor is not a direct creditor of the borrower. The
participation represents an interest in assets owned by the lending bank. If the
lending bank becomes insolvent, the investor could be considered an unsecured
creditor of the bank instead of the holder of a participating interest in a
loan. Because of these risks, the manager must carefully consider the
creditworthiness of both the borrower and the lender.
Another concern is liquidity. Because there is no established secondary
market for loan participations, the fund's ability to sell them for cash is
limited. Some participation agreements place limitations on the
4 AMERICAN CENTURY INVESTMENTS
investor's right to resell the loan participation, even when a buyer can be
found. To alleviate these liquidity concerns, the fund generally limits its
investments in loan participations to those with terms of 7 days or less,
although it may invest in loan participations with terms of up to 30 days.
SECURITIES LENDING
The fund may lend its portfolio securities to earn additional income. If a
borrower defaulted on a securities loan, the fund could experience delays in
recovering securities it loaned; or if the value of the loaned securities
increased over the value of the collateral, the fund could suffer a loss.
To minimize the risk of default on securities loans, the manager adheres to
guidelines prescribed by the Board of Trustees governing lending of securities.
These guidelines strictly govern (i) the type and amount of collateral that must
be received by the fund; (ii) the circumstances under which additions to that
collateral must be made by borrowers; (iii) the return received by the fund on
the loaned securities; (iv) the limitations on the percentage of fund assets on
loan; and (v) the credit standards applied in evaluating potential borrowers of
portfolio securities. In addition, the guidelines require that the fund have the
option to terminate any loan of a portfolio security at any time and set
requirements for recovery of securities from borrowers.
ILLIQUID SECURITIES
Illiquid securities are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they are
valued. Pursuant to guidelines established by the Board of Trustees, the manager
determines the liquidity of the fund's investments, and through reports from the
manager, the Board of Trustees monitors trading activity in illiquid securities.
In determining the liquidity of the fund's investments, the manager may
consider various factors including (i) the frequency of trades and quotations,
(ii) the number of dealers and prospective purchasers in the marketplace, (iii)
dealer undertakings to make a market, (iv) the nature of the security (including
any demand or tender features), and (v) the marketplace for trades.
In the absence of market quotations, illiquid securities are valued for
purposes of monitoring amortized cost valuation at fair market value as
determined in good faith by a committee appointed by the Board of Trustees.
RESTRICTED SECURITIES
Restricted securities generally can be sold (i) in privately negotiated
transactions, (ii) pursuant to an exemption from registration under the
Securities Act of 1933, or (iii) in a registered public offering. Where
registration is required, the fund may be obligated to pay all or part of the
registration expense, and a considerable period may elapse between the time it
decides to seek registration and the time it is permitted to sell a security
under an effective registration statement. If during such a period adverse
market conditions were to develop, the fund might obtain a less favorable price
than prevailed when it decided to seek registration of the security.
Rule 144A under the Securities Act permits a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. Investing in Rule 144A securities could increase the level
of fund illiquidity to the extent that qualified institutional buyers become,
for a time, uninterested in purchasing these securities.
The fund also may invest in CP issued in reliance on the "private placement"
exemption from registration under Section 4(2) of the Securities Act of 1933
(Section 4(2) paper). Section 4(2) paper is restricted as to disposition under
the federal securities laws and generally is sold to institutional investors
such as the fund who agree that they are purchasing the paper for investment and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) paper normally is resold to other
institutional investors like the fund through or with the assistance of the
issuer or investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. The manager may consider Section 4(2) paper that meets
certain conditions to be liquid, pursuant to procedures approved by the Board of
Trustees. Section 4(2) paper that is not determined to be liquid pursuant to
these procedures will be included within the 10% limitation on
STATEMENT OF ADDITIONAL INFORMATION 5
illiquid securities. The manager monitors the liquidity of the fund's
investments in Section 4(2) paper on a continuing basis.
INVESTMENT RESTRICTIONS
The fund's investment restrictions are set forth below. These investment
restrictions are fundamental and may not be changed without approval of "a
majority of the outstanding votes of shareholders" of the fund, as determined in
accordance with the Investment Company Act.
AS A FUNDAMENTAL POLICY, THE FUND SHALL NOT:
1) issue senior securities, except as permitted under the Investment
Company Act of 1940.
2) borrow money, except that the fund may
borrow money for temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 33 (1)/(3)% of the fund's total
assets (including the amount borrowed) less liabilities (other than
borrowings).
3) 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) 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) 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 that
the fund will invest more than 25% of its total assets in the financial
services industry.
6) 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.
7) 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.
8) invest for purposes of exercising control over management.
In addition, the fund is subject to the following additional investment
restrictions which are not fundamental and may be changed by the Board of
Trustees.
AS AN OPERATING POLICY, THE FUND:
a) shall not purchase additional investment securities at any time during
which outstanding borrowings exceed 5% of the total assets of the fund.
b) shall not purchase or sell futures contracts or call options. This
limitation does not apply to options attached to, or acquired or traded
together with, their underlying securities, and does not apply to
securities that incorporate features similar to options or futures
contracts.
c) shall not purchase any security or enter into a repurchase agreement
if, as a result, more than 10% of its net assets would be invested in
repurchase agreements not entitling the holder to payment of principal
and interest within seven days and in securities that are illiquid by
virtue of legal or contractual restrictions on resale or the absence of
a readily available market.
d) 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 transactions in futures contracts and options
are not deemed to constitute selling securities short.
e) 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.
6 AMERICAN CENTURY INVESTMENTS
For purposes of the investment restriction (5), relating to concentration,
the fund shall not purchase any securities which would cause 25% or more of the
value of the fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (i) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions and
repurchase agreements secured by such instruments, (ii) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents,
(iii) utilities will be divided according to their services, for example, gas,
gas transmission, electric and gas, electric and telephone will each be
considered a separate industry, and (iv) personal credit and business credit
businesses will be considered separate industries.
Unless otherwise indicated, percentage limitations included in the
restrictions apply at the time the fund enters into a transaction. Accordingly,
any later increase or decrease beyond the specified limitation resulting from a
change in the fund's new assets will not be considered in determining whether it
has complied with its investment restrictions.
PORTFOLIO TRANSACTIONS
The fund's assets are invested by the manager in a manner consistent with
the fund's investment objective, policies, and restrictions and with any
instructions the Board of Trustees may issue from time to time. Within this
framework, the manager is responsible for making all determinations as to the
purchase and sale of portfolio securities and for taking all steps necessary to
implement securities transactions on behalf of the fund.
In placing orders for the purchase and sale of portfolio securities, the
manager will use its best efforts to obtain the best possible price and
execution and will otherwise place orders with broker-dealers subject to and in
accordance with any instructions the Board of Trustees may issue from time to
time. The manager will select broker-dealers to execute portfolio transactions
on behalf of the fund solely on the basis of best price and execution.
Securities in which the fund invests generally are traded in the
over-the-counter market through broker-dealers. A broker-dealer is a securities
firm or bank that makes a market for securities by offering to buy at one price
and sell at a slightly higher price.
The difference between the prices is known as a spread. The manager
transacts in round lots ($1 million to $10 million or more) on behalf of the
fund whenever possible. Since commissions are not charged for money market
transactions, the fund's transaction costs consist solely of custodian charges
and dealer mark-ups. The fund may hold its portfolio securities to maturity or
may sell or swap them for other securities, depending upon the level and slope
of, and anticipated changes in, the yield curve.
The fund acquired, during the fiscal year ended February 28, 1998,
securities issued by its regular brokers or dealers (as defined in Rule 10b-1
under the 1940 Act) and/or their parent corporations. As of February 28, 1998,
the fund held securities issued by the following brokers or dealers in the
following aggregate amounts: Merrill Lynch, $44,436,373, Morgan Stanley Dean
Witter, $50,332,075, Goldman Sachs Group, $36,604,707, Bear Stearns Co.,
$9,889,283 and Credit Suisse First Boston, $39,623,977.
VALUATION OF PORTFOLIO SECURITIES
The fund's net asset value per share (NAV) is calculated as of the close of
business of the New York Stock Exchange (the Exchange) usually at 3 p.m. Central
time each day the Exchange is open for business. The Exchange has designated the
following holiday closings for 1998: New Year's Day (observed), Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day (observed). Although the fund
expects the same holiday schedule to be observed in the future, the Exchange may
modify its holiday schedule at any time.
Securities held by the fund are valued at amortized cost. This method
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium paid at the time of
purchase. Although this method provides certainty in valuation, it generally
disregards the effect of
STATEMENT OF ADDITIONAL INFORMATION 7
fluctuating interest rates on an instrument's market value. Consequently, the
instrument's amortized cost value may be higher or lower than its market value,
and this discrepancy may be reflected in the fund's yield. During periods of
declining interest rates, for example, the daily yield on fund shares computed
as described above may be higher than that of a fund with identical investments
priced at market value. The converse would apply in a period of rising interest
rates.
The fund operates pursuant to Investment Company Act Rule 2a-7, which
permits valuation of portfolio securities on the basis of amortized cost. As
required by the Rule, the Board of Trustees has adopted procedures designed to
stabilize, to the extent reasonably possible, the fund's price per share as
computed for the purposes of sales and redemptions at $1.00. While the
day-to-day operation of the fund has been delegated to the manager, the quality
requirements established by the procedures limit investments to certain
instruments that the Board of Trustees has determined present minimal credit
risks and that have been rated in one of the two highest rating categories as
determined by a rating agency or, in the case of unrated securities, of
comparable quality. The procedures require review of the fund's portfolio
holdings at such intervals as are reasonable in light of current market
conditions to determine whether the fund's net asset value calculated by using
available market quotations deviates from the per-share value based on amortized
cost. The procedures also prescribe the action to be taken if such deviations
should occur.
PERFORMANCE ADVERTISING
The fund's yield and total return may be quoted in advertising and sales
literature. Yield and total return will vary. Past performance should not be
considered an indication of future results.
Yield quotations are based on the change in the value of a hypothetical
investment (excluding realized gains and losses from the sale of securities and
unrealized appreciation and depreciation of securities) over a seven-day period
(base period) and stated as a percentage of the investment at the start of the
base period (base-period return). The base-period return is then annualized by
multiplying it by 365/7 with the resulting yield figure carried to at least the
nearest hundredth of one percent.
Calculations of effective yield begin with the same base-period return used
to calculate yield, but the return is then annualized to reflect weekly
compounding according to the following formula:
Effective Yield = [(Base-Period Return + 1)365/7] - 1
For the seven-day period ended February 28, 1998, the fund's yield and
effective yield are indicated in the following table.
7-Day
7-Day Effective
Yield Yield
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Prime Money Market 5.17% 5.30%
- --------------------------------------------------------------------------------
Total returns quoted in advertising and sales literature reflect all aspects
of the fund's return, including the effect of reinvesting dividends and capital
gain distributions (if any) and any change in the fund's NAV during the period.
Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in the fund during a
stated period and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant throughout the period. For example, a cumulative total return
of 100% over 10 years would produce an average annual return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
Average annual total returns for periods of less than one year are
calculated by determining the fund's total return for the period, extending that
return for a full year (assuming that performance remains constant throughout
the year), and quoting the result as an annual return. Because the fund's return
may not remain constant over the course of a year, these performance figures
should be viewed as strictly hypothetical.
8 AMERICAN CENTURY INVESTMENTS
In addition to average annual total returns, the fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments, or a series of redemptions over any
time period.
The fund's performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indices of market
performance. This may include comparisons with funds that, unlike American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons may include, but are not
limited to, U.S. Treasury bill, note, and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper Analytical Services, Inc. or Morningstar,
Inc.; mutual fund rankings published in major nationally distributed
periodicals; data provided by the Investment Company Institute; Ibbotson
Associates, Stocks, Bonds, Bills, and Inflation; major indices of stock market
performance; and indices and historical data supplied by major securities
brokerage or investment advisory firms. The fund also may utilize reprints from
newspapers and magazines furnished by third parties to illustrate historical
performance.
The fund's shares are sold without a sales charge (or load). No-load funds
offer an advantage to investors when compared to load funds with comparable
investment objectives and strategies.
The manager may obtain fund ratings from one or more rating agencies and may
publish these ratings in advertisements and sales literature.
TAXES
FEDERAL INCOME TAX
The fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended, (the Code).
To qualify as a regulated investment company and avoid being subject to federal
and state income taxes at the fund level, the fund must distribute within each
calendar year as well as each fiscal year substantially all of its net
investment income and net realized capital gains (if any) to shareholders. In
addition to federal income taxes, shareholders may be subject to state and local
taxes on their distributions from the fund.
The information above is only a summary of some of the tax considerations
generally affecting the fund and its shareholders. No attempt has been made to
discuss individual tax consequences.
An investor considering an investment in the fund should consult with his or
her tax advisors to determine whether the fund is a suitable investment.
ABOUT THE TRUST
American Century Investment Trust (the Trust) is a registered open-end
management investment company that was organized as a Massachusetts business
trust on June 16, 1993. The Trust was formerly known as Benham Investment Trust.
Currently American Century-Benham Prime Money Market Fund (formerly known as
Benham Prime Money Market Fund) is the only series of the Trust, although the
Trustees are authorized to create additional series at their discretion.
The Declaration of Trust permits the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest without par value,
which may be issued in series (or funds). Shares issued are fully paid and
nonassessable and have no preemptive, conversion, or similar rights.
STATEMENT OF ADDITIONAL INFORMATION 9
If additional series were created by the Board of Trustees, each series
would vote separately on matters affecting that series exclusively. Voting
rights are not cumulative, so that investors holding more than 50% of the
Trust's (i.e., all series') outstanding shares may be able to elect a Board of
Trustees. The Trust instituted dollar-based voting, meaning that the number of
votes you are entitled to is based upon the dollar amount of your investment.
The election of Trustees is determined by the votes received from all Trust
shareholders without regard to whether a majority of shares of any one series
voted in favor of a particular nominee or all nominees as a group.
Each shareholder has rights to dividends and distributions declared by the
fund and to the net assets of the fund upon its liquidation or dissolution
proportionate to his or her share ownership interest in the fund.
Shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the Trust. The Declaration of Trust also provides for
indemnification and reimbursement of expenses of any shareholder held personally
liable for obligations of the Trust. The Declaration of Trust provides that the
Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. The Declaration of Trust further provides that the Trust may maintain
appropriate insurance (for example, fidelity, bonding, and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees, and agents to cover possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss as a result of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Trust is unable to meet its obligations.
CUSTODIANS
Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, New York 11245 and
Commerce Bank N.A., 1000 Walnut, Kansas City, Missouri 64106 serve as custodians
of the fund's assets. Services provided by the custodian banks include (i)
settling portfolio purchases and sales, (ii) reporting failed trades, (iii)
identifying and collecting portfolio income, and (iv) providing safekeeping of
securities. The custodians take no part in determining the fund's investment
policies or in determining which securities are sold or purchased by the fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., City Center Square, 1100 Main Street, Suite 900,
Kansas City, Missouri 64105-2140, serves as the Trust's independent accountants
and provides services including the audit of the annual financial statements.
MULTIPLE CLASS STRUCTURE
The fund's Board of Trustees has adopted a multiple class plan (the Multiple
Class Plan) pursuant to Rule 18f-3 adopted by the SEC. Pursuant to such plan,
the fund may issue up to two classes of shares: an Investor Class and an Advisor
Class.
The Investor Class is made available to investors directly without any load
or commission, for a single unified management fee. The Advisor Class is 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 unified management fee. In addition to the unified
management fee, however, the Advisor Class shares are subject to a Master
Distribution and Shareholder Services Plan (described on page 11). Both plans
have been adopted by the fund's Board of Trustees and initial shareholder in
accordance with Rule 12b-1 adopted by the SEC under the Investment Company Act.
RULE 12B-1
Rule 12b-1 permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a plan adopted by the investment
company's Board of Trustees and approved by its shareholders. Pursuant to such
rule, the Board of Trustees and initial shareholder of the fund's Advisor Class
have approved and entered into a Master Distribution and Shareholder Services
Plan, with respect to the Advisor Class (the Plan). The Plan is described below.
In adopting the Plan, the Board of Trustees
10 AMERICAN CENTURY INVESTMENTS
(including a majority of Trustees who are not "interested persons" of the fund
[as defined in the Investment Company Act], hereafter referred to as the
"independent Trustees") determined that there was a reasonable likelihood that
the Plans would benefit the fund and the shareholders of the affected class.
Pursuant to Rule 12b-1, information with respect to revenues and expenses under
the Plan is presented to the Board of Trustees quarterly for its consideration
in connection with its deliberations as to the continuance of the Plan.
Continuance of the Plan must be approved by the Board of Trustees (including a
majority of the independent Trustees) annually. The Plan may be amended by a
vote of the Board of Trustees (including a majority of the independent Trustees)
, except that the Plan may not be amended to materially increase the amount to
be spent for distribution without majority approval of the shareholders of the
affected class. The Plan terminates automatically in the event of an assignment
and may be terminated upon a vote of a majority of the independent Trustees or
by vote of a majority of the outstanding voting securities of the affected
class.
All fees paid under the Plan will be made in accordance with Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers.
MASTER DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
As described in the Prospectuses, the fund's Advisor Class of shares is also
made available to participants in employer-sponsored retirement or savings plans
and to persons purchasing through financial intermediaries, such as banks,
broker-dealers and insurance companies. The distributor enters into contracts
with various banks, broker-dealers, insurance companies and other financial
intermediaries with respect to the sale of the fund's shares and/or the use of
the fund's shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
fund's transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for shareholders in
the Advisor Class. In addition to such services, the financial intermediaries
provide various distribution services.
To enable the fund's shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the fund's
manager has reduced its unified management fee by 0.25% per annum with respect
to the Advisor Class shares and the fund's Board of Trustees has adopted a
Master Distribution and Shareholder Services Plan (the Distribution Plan).
Pursuant to such Plan, the Advisor Class shares pay a fee of 0.50% annually of
the aggregate average daily assets of the fund's Advisor Class shares, 0.25% of
which is paid for Shareholder Services (as described below) and 0.25% of which
is paid for distribution services.
The manager and the fund's distributor, Funds Distributor, Inc. (the
distributor) enter into contracts with each financial intermediary for the
provision of certain shareholder services and utilizes the shareholder services
fees received under the Plan to pay for such services. Payments may be made for
a variety of shareholder services, including, but are not limited to, (a)
receiving, aggregating and processing purchase, exchange and redemption requests
from beneficial owners (including contract owners of insurance products that
utilize the fund as underlying investment media) of shares and placing purchase,
exchange and redemption orders with the distributor; (b) providing shareholders
with a service that invests the assets of their accounts in shares pursuant to
specific or pre-authorized instructions; (c) processing dividend payments from a
fund on behalf of shareholders and assisting shareholders in changing dividend
options, account designations and addresses; (d) providing and maintaining
elective services such as check writing and wire transfer services; (e) acting
as shareholder of record and nominee for beneficial owners; (f) maintaining
account records for shareholders and/or other beneficial owners; (g) issuing
confirmations of transactions; (h) providing subaccounting with respect to
shares beneficially owned by customers of third parties or providing the
information to a fund as necessary for such subaccounting; (i) preparing and
forwarding shareholder communications from the fund (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to shareholders and/or other beneficial owners;
(j) providing other similar administrative and sub-transfer agency
STATEMENT OF ADDITIONAL INFORMATION 11
services; and (k) paying "service fees" for the provision of personal,
continuing services to investors, as contemplated by the Rules of Fair Practice
of the NASD (collectively referred to as "shareholder services"). Shareholder
services do not include those activities and expenses that are primarily
intended to result in the sale of additional shares of the fund.
Distribution services include any activity undertaken or expense incurred
that is primarily intended to result in the sale of Advisor Class shares, which
services may include but are not limited to, (a) the payment of sales
commissions, ongoing commissions and other payments to brokers, dealers,
financial institutions or others who sell Advisor Class shares pursuant to
selling agreements; (b) compensation to registered representatives or other
employees of distributor who engage in or support distribution of the fund's
Advisor Class shares; (c) compensation to, and expenses (including overhead and
telephone expenses) of, distributor; (d) the printing of prospectuses,
statements of additional information and reports for other than existing
shareholders; (e) the preparation, printing and distribution of sales literature
and advertising materials provided to the fund's shareholders and prospective
shareholders; (f) receiving and answering correspondence from prospective
shareholders, including distributing prospectuses, statements of additional
information, and shareholder reports; (g) the providing of facilities to answer
questions from prospective investors about fund shares; (h) complying with
federal and state securities laws pertaining to the sale of fund shares; (i)
assisting investors in completing application forms and selecting dividend and
other account options; (j) the providing of other reasonable assistance in
connection with the distribution of fund shares; (k) the organizing and
conducting of sales seminars and payments in the form of transactional
compensation or promotional incentives; (l) profit on the foregoing; (m) the
payment of "service fees" for the provision of personal, continuing services to
investors, as contemplated by the Rules of Fair Practice of the NASD and (n)
such other distribution and services activities as the manager determines may be
paid for by the fund pursuant to the terms of this Agreement and in accordance
with Rule 12b-1 of the Investment Company Act.
TRUSTEES AND OFFICERS
The Trust's activities are overseen by a Board of Trustees, including six
independent trustees. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Trust (as defined in the Investment
Company Act) by virtue of, among other considerations, their affiliation with
either the Trust; the Trust's manager; the Trust's agent for transfer and
administrative services, American Century Services Corporation (ACS); the
Trust's distribution agent, Funds Distributor, Inc. (FDI); their parent
corporation, American Century Companies, Inc. (ACC) or ACC's subsidiaries; or
other funds advised by the manager. Each trustee listed below serves as a
trustee or director of other funds advised by the manager. Unless otherwise
noted, dates in parentheses indicate the dates the trustee or officer began his
or her service in a particular capacity. The trustees' and officers' address
with the exception of Messrs. Lyons, Looby, Zindel and Stowers III, and Ms.
Roepke and Ms. Wade, is 1665 Charleston Road, Mountain View, California 94043.
The address of Messrs. Lyons, Looby, Zindel and Stowers III, and Ms. Roepke and
Ms. Wade, is American Century Tower, 4500 Main Street, Kansas City, Missouri
64111.
TRUSTEES
ALBERT A. EISENSTAT (67), independent Trustee (1995). Mr. Eisenstat is
currently the general partner of Discovery Ventures (1996), a venture capital
firm. He also is an independent Director of each of Commercial Metals Co. (1982)
, Sungard Data Systems (1991) and Business Objects S/A (1994). Previously, he
served as Vice President of Corporate Development and Corporate Secretary of
Apple Computer and served on its Board of Directors (1985 to 1993).
RONALD J. GILSON (51), independent Trustee (1995). Mr. Gilson is the Charles
J. Meyers Professor of Law and Business at Stanford Law School (1979) and the
Mark and Eva Stern Professor of Law and Business at Columbia University School
of Law (1992). He is counsel to Marron, Reid & Sheehy (a San Francisco law firm,
1984).
*WILLIAM M. LYONS (42), Trustee (1998). Mr. Lyons is President, Chief
Operating Officer and General Counsel of ACC; Executive Vice President and
12 AMERICAN CENTURY INVESTMENTS
General Counsel of ACS and ACIS; Assistant Secretary of ACC; and Secretary of
ACS and ACIS.
MYRON S. SCHOLES (56), independent Trustee (1993). Mr. Scholes was awarded
the 1997 Nobel Memorial Prize in Economic Sciences for his role in the
development of the Black-Scholes option pricing model. Mr. Scholes is a
principal of Long-Term Capital Management (1993). He is also the Frank E. Buck
Professor of Finance at the Stanford Graduate School of Business (1983) and a
Director of Dimensional Fund Advisors (1982) and the Smith Breeden Family of
Funds (1992). From August 1991 to June 1993, Mr. Scholes was a Managing Director
of Salomon Brothers Inc. (securities brokerage).
KENNETH E. SCOTT (69), independent Trustee (1993). Mr. Scott is the Ralph M.
Parsons Professor of Law and Business at Stanford Law School (1972) and a
Director of RCM Capital Funds, Inc. (1994).
ISAAC STEIN (51), independent Trustee (1993). Mr. Stein is former Chairman
of the Board (1990 to 1992) and Chief Executive Officer (1991 to 1992) of Esprit
de Corp. (clothing manufacturer). He is a member of the Board of Raychem
Corporation (electrical equipment, 1993), President of Waverley Associates, Inc.
(private investment firm, 1983), and a Director of ALZA Corporation
(pharmaceuticals, 1987). He is also a Trustee of Stanford University (1994) and
Chairman of Stanford Health Services (hospital, 1994).
*JAMES E. STOWERS III (39), Trustee (1995). Mr. Stowers III is Chief
Executive Officer and Director of ACC; President, Chief Executive Officer and
Director of ACS and ACIS.
JEANNE D. WOHLERS (53), independent Trustee (1993). Ms. Wohlers is a private
investor and an independent Director and Partner of Windy Hill Productions, LP.
Previously, she served as Vice President and Chief Financial Officer of Sybase,
Inc. (software company, 1988 to 1992).
OFFICERS
*RICHARD W. INGRAM (42), President (1998); Executive Vice President and
Director of Client Services and Treasury Administration of FDI. Mr. Ingram
joined FDI in 1995. Prior to joining FDI, Mr. Ingram served as Vice President
and Division Manager of First Data Investor Services Group, Inc. (from March
1994 to November 1995), and before that as Vice President, Assistant Treasurer
and Tax Director - Mutual Funds of The Boston Company, Inc. (from 1989 to 1994).
*DOUGLAS A. PAUL (51), Secretary (1993), Vice President (1993), and General
Counsel (1993); Secretary and Vice President of the funds advised by the
Manager.
*MARYANNE ROEPKE (42), CPA, Chief Financial Officer and Treasurer (1995);
Senior Vice President and Assistant Treasurer of ACS.
*CHRISTOPHER J. KELLEY (33), Vice President (1998); Vice President and
Associate General Counsel of FDI. Mr. Kelley joined FDI in 1996. 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 (1998); Vice President and Manager of
Treasury Services and Administration of FDI. Ms. Nelson joined FDI in 1995.
Prior to joining FDI, Ms. Nelson served as Assistant Vice President and Client
Manager for The Boston Company, Inc. (from 1989 to 1994).
*PATRICK A. LOOBY (39), Vice President and Assistant Secretary (1998); Vice
President of ACS.
*JON ZINDEL (30), Tax Officer (1997); Director of Taxation (1996); Vice
President of ACS (1998); Tax Manager, Price Waterhouse LLP (1989).
*C. JEAN WADE (34), Controller (1996).
The table on the next page summarizes the compensation that the trustees
received for the fund's fiscal year ended February 28, 1998, as well as the
compensation received for serving as a director or trustee of all other funds
advised by the manager.
As of May 31, 1998, the fund's trustees and officers, as a group, owned less
than 1% of the fund's total shares outstanding.
STATEMENT OF ADDITIONAL INFORMATION 13
TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998
Total Compensation
Aggregate From the
Name of Compensation American Century
Trustee(1) From The Fund Family of Funds(2)
- ----------------------------------------------------------------------------
Albert A. Eisenstat $1,357 $60,000
Ronald J. Gilson $9,095 $68,000
Myron S. Scholes $1,242 $58,750
Kenneth E. Scott $8,916 $66,000
Isaac Stein $8,569 $62,500
Jeanne D. Wohlers $1,562 $62,500
- ----------------------------------------------------------------------------
(1) Interested Trustees receive no compensation for their services as such.
(2) Includes compensation paid by the 15 investment company members of the
American Century family of funds.
The trust has adopted the American Century Mutual Funds Deferred
Compensation Plan for Non-Interested Directors or Trustees. Under the Plan, the
non-interested person trustees may defer receipt of all or part of the fees to
be paid to them for serving as trustees of the corporation.
Under the Plan, all deferred fees are credited to an account established in
the name of the trustees. The amounts credited to the account then increase or
decrease, as the case may be, in accordance with the performance of one or more
of the American Century funds that are selected by the director. The account
balance continues to fluctuate in accordance with the performance of the
selected fund or funds until final payment of all amounts credited to the
account. Trustees are allowed to change their designation of mutual funds from
time to time.
No deferred fees are payable until such time as a trustee resigns, retires
or otherwise ceases to be a member of the Board of Trustees. Trustees may
receive deferred fee account balances either in a lump sum payment or in
substantially equal installment payments to be made over a period not to exceed
10 years. Upon the death of a trustee, all remaining deferred fee account
balances are paid to the trustee's beneficiary or, if none, to the trustee's
estate.
The Plan is an unfunded plan and, accordingly, American Century has no
obligation to segregate assets to secure or fund the deferred fees. The rights
of the trustees to receive their deferred fee account balances are the same as
the rights of a general unsecured creditor of the corporation. The Plan may be
terminated at any time by the administrative committee of the Plan. If
terminated, all deferred fee account balances will be paid in a lump sum.
No deferred fees were paid to any trustee under the Plan during the fiscal
year ended February 28, 1998.
Those trustees who are "interested persons," as defined in the Investment
Company Act, receive no fee as such for serving as a trustee. The salaries of
such individuals, who also are officers of the fund, are paid by the manager.
MANAGEMENT
The fund has an investment management agreement with the manager dated
August 1, 1997. This agreement was approved by the shareholders of the fund on
July 30, 1997.
For the services provided to the fund, the manager receives a monthly fee
based on a percentage of the average net assets of the fund. The annual rate at
which this fee is assessed is determined monthly in a two-step process: First, a
fee rate schedule is applied to the assets of all of the money market funds
managed by the manager (the Investment Category Fee). The three investment
categories are: Money Market Funds, Bond Funds and Equity Funds. Second, a
separate fee rate schedule is applied to the assets of all of the funds managed
by the manager (the Complex Fee). The Investment Category Fee and the Complex
Fee are then added to determine the unified management fee payable by the fund
to the manager.
The schedule by which the Investment Category Fee is determined is as
follows:
Category Assets Fee Rate
- --------------------------------------------------------------------------------
First $1 billion 0.3700%
Next $1 billion 0.3270%
Next $3 billion 0.2860%
Next $5 billion 0.2690%
Next $15 billion 0.2580%
Next $25 billion 0.2575%
Thereafter 0.2570%
- --------------------------------------------------------------------------------
14 AMERICAN CENTURY INVESTMENTS
The Complex Fee Schedule is as follows:
Complex Assets Fee Rate
- --------------------------------------------------------------------------------
First $2.5 billion 0.3100%
Next $7.5 billion 0.3000%
Next $15.0 billion 0.2985%
Next $25.0 billion 0.2970%
Next $50.0 billion 0.2960%
Next $100.0 billion 0.2950%
Next $100.0 billion 0.2940%
Next $200.0 billion 0.2930%
Next $250.0 billion 0.2920%
Next $500.0 billion 0.2910%
Thereafter 0.2900%
- --------------------------------------------------------------------------------
The Advisor Class Complex Fee Schedule is as follows:
Complex Assets Fee Rate
- --------------------------------------------------------------------------------
First $2.5 billion 0.0600%
Next $7.5 billion 0.0500%
Next $15.0 billion 0.0485%
Next $25.0 billion 0.0470%
Next $50.0 billion 0.0460%
Next $100.0 billion 0.0450%
Next $100.0 billion 0.0440%
Next $200.0 billion 0.0430%
Next $250.0 billion 0.0420%
Next $500.0 billion 0.0410%
Thereafter 0.0400%
- --------------------------------------------------------------------------------
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 by a fraction, the numerator of which is the number of days in
the previous month and the denominator of which is 365 (366 in leap years).
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually by (i) the fund's
Board of Trustees, 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
Trustees of the fund 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 Trustees, or by a vote of
a majority 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,
trustees and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
Certain investments may be appropriate for the 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 series, or in different
amounts and at different times for more than one but less than all clients or
series. In addition, purchases or sales of the same security may be made for two
or more clients or series on the same date. Such transactions will be allocated
among clients in a manner believed by the manager to be equitable to each. In
some cases this procedure could have an adverse effect on the price or amount of
the securities purchased or sold by 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
Trustees 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
STATEMENT OF ADDITIONAL INFORMATION 15
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 also acts as an investment
advisor to 12 institutional accounts and to the following registered investment
companies: American Century Mutual Funds, Inc., American Century World Mutual
Funds, Inc., American Century Premium Reserves, Inc., American Century Variable
Portfolios, Inc. and American Century Capital Portfolios, Inc., American Century
Strategic Asset Allocations, Inc., American Century Municipal Trust, American
Century Government Income Trust, American Century Target Maturities Trust,
American Century California Tax-Free and Municipal Funds, American Century
Quantitative Equity Funds and American Century International Bond Funds.
Prior to August 1, 1997, Benham Management Corporation, a wholly-owned
subsidiary of ACC, served as the investment advisor to the fund. In late 1997,
Benham Management Corporation was merged into the manager.
The investment advisory fees paid by the fund to the manager (and its
affiliate Benham Management Corporation) for the fiscal years ended February 28,
1998, February 28, 1997, and February 29, 1996, are indicated on the following
table.
INVESTMENT ADVISORY FEES
Fiscal Investment
Year Ended Advisory Fees Paid Reimbursed
- --------------------------------------------------------------------------------
1998(1) $1,551,500(2) $785,248
1997 $2,265,360(3) $1,584,981
1996 $2,316,045(3) $1,839,833
- --------------------------------------------------------------------------------
(1) From March 1, 1997 through July 31, 1997.
(2) Gross of reimbursements.
(3) Net of reimbursements.
UNIFIED MANAGEMENT FEES*
Fiscal Unified Management Amount
Year Ended Fees Paid Waived
- --------------------------------------------------------------------------------
1998(1) $4,730,735(2) $805,481
- --------------------------------------------------------------------------------
(1) From August 1, 1997 through February 28, 1998.
(2) Gross of reimbursements.
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City,
Missouri 64111, acts as transfer agent and dividend paying agent for the fund.
It provides physical facilities, including computer hardware and software and
personnel, for the day-to-day administration of the fund and of the manager. The
manager pays American Century Services Corporation for such services.
Prior to August 1, 1997, the fund paid American Century Services Corporation
directly for its services as transfer agent and administrative services agent.
Transfer agent and administrative agent fees paid by the fund for the fiscal
years ended February 28, 1998, February 28, 1997, and February 29, 1996, are
indicated in the following table.
Fiscal Transfer Administrative
Year Ended Agent Fees Agent Fees
- --------------------------------------------------------------------------------
1998 $765,989 $476,721
1997 $1,844,608 $1,188,257
1996 $1,975,550 $1,319,915
- --------------------------------------------------------------------------------
Due to the expense limitation agreements made under its prior investment
advisory agreement with Benham Management Corporation, the fund paid no transfer
agent or administrative fees for the fiscal year ended February 28, 1995, or for
the period from November 17, 1993 (commencement of operations), through February
28, 1994.
DISTRIBUTION OF FUND SHARES
The fund's shares are distributed by Funds Distributor, Inc. The manager
pays all expenses for promoting and distributing the fund's shares. The fund
does not pay any commissions or other fees to the distributor or to any other
broker-dealers or financial intermediaries in connection with the distribution
of fund shares.
16 AMERICAN CENTURY INVESTMENTS
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund's shares are continuously offered at net asset value. Share
certificates are issued (without charge) only when requested in writing.
Certificates are not issued for fractional shares. Dividend and voting rights
are not affected by the issuance of certificates.
As of March 31, 1998, to the fund's knowledge, no shareholder was the record
holder or beneficial owner of 5% or more of the fund's total shares outstanding.
American Century may reject or limit the amount of an investment to prevent
any one shareholder or affiliated group from controlling the Trust or its
series; to avoid jeopardizing a series' tax status; or whenever, in management's
opinion, such rejection or limitation is in the Trust's or a series' best
interest.
ACS charges neither fees nor commissions on the purchase and sale of fund
shares. However, ACS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
ACS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Investor Services Guide for more information.
When it is in the best interest of the fund and its shareholders (for
example, to deter abusive market timing transactions), the fund may honor
redemption requests in kind, normally by delivering portfolio securities in lieu
of cash. Securities delivered as redemptions in kind will be valued by the same
method used to value securities in determining the fund's NAV. Shareholders who
receive securities may realize a capital gain or loss for tax purposes, incur
costs in handling or disposing of the securities, or encounter other
inconveniences.
OTHER INFORMATION
For further information, please refer to the registration statement and
exhibits on file with the SEC in Washington, DC. These documents are available
upon payment of a reproduction fee. Statements in the Prospectus and in this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
SECURITIES RATINGS
Securities rating descriptions provided under this heading are excerpted
from publications of Moody's Investors Service, Inc. and Standard & Poor's
Corporation.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S BOND RATINGS:
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 constitute 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 long-term risks appear somewhat larger than in 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 sometime in the future.
Baa: Bonds that are rated "Baa" are considered 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.
STATEMENT OF ADDITIONAL INFORMATION 17
B: Bonds that are rated "B" generally lack characteristics of a 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 limited.
Caa: Bonds that are rated "Caa" are of poor standing. Such issues may be in
default, or there may be elements of danger present with respect to principal or
interest.
Ca: Bonds that are rated "Ca" represent obligations that are speculative to
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.
Note: Moody's may apply the numerical modifier "1" for municipally backed
bonds and modifiers "1," "2," and "3" for corporate-backed municipal bonds. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking, and the
modifier "3" indicates that the issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF NOTES AND
VARIABLE-RATE DEMAND OBLIGATIONS:
Moody's ratings for state and municipal short-term obligations are
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable-rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than on fixed maturity dates and payments
relying on external liquidity.
MIG 1/VMIG 1: This designation denotes best quality. There is strong
protection present through established cash flows, superior liquidity support,
or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample,
although not as large as in the preceding group.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of issuers to
punctually repay those promissory obligations that have an original maturity not
exceeding nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. The following designations, all judged to be
investment grade, indicate the relative repayment ability of rated issuers of
securities in which the funds may invest.
PRIME 1: Issuers rated "Prime 1" (or supporting institutions) have a
superior ability for repayment of senior short-term promissory obligations.
PRIME 2: Issuers rated "Prime 2" (or supporting institutions) have a strong
ability for repayment of senior short-term promissory obligations.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS FOR BONDS:
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in 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.
SPECULATIVE
BB, B, CCC, CC: Debt rated in these categories is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and
18 AMERICAN CENTURY INVESTMENTS
repay principal. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category 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" debt rating.
C: The "C" rating is typically 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 "CI" rating is reserved for income bonds on which no interest is
being paid.
D: Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS FOR INVESTMENT GRADE
NOTES AND SHORT-TERM DEMAND OBLIGATIONS:
SP-1: Issues carrying this designation have a very strong or strong capacity
to pay principal and interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS FOR DEMAND OBLIGATIONS
AND COMMERCIAL PAPER:
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The two rating categories for securities in which the funds may invest
are as follows:
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
FINANCIAL STATEMENTS
The financial statements of the funds, including the Statements of Assets
and Liabilities and the Statements of Operations for the fiscal year ended
February 28, 1998, and the Statements of Changes in Net Assets for the fiscal
years ended February 28, 1997, and 1998, are included in the Annual Report to
shareholders for the fiscal year ended February 28, 1998. The report on the
financial highlights for the fiscal years 1994, 1995, 1996 and 1997 are included
in the Annual Report to shareholders for the fiscal year ended February 28,
1997. Each such Annual Report is incorporated herein by reference. You may
receive copies of the reports without charge upon request to American Century at
the address and phone number shown on the cover of this Statement of Additional
Information.
STATEMENT OF ADDITIONAL INFORMATION 19
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
INVESTOR SERVICES:
1-800-345-2021 or 816-531-5575
AUTOMATED INFORMATION LINE:
1-800-345-8765
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
FAX: 816-340-7962
www.americancentury.com
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