[front cover]
AMERICAN CENTURY
Statement of Additional Information
Prime Money Market Fund
[american century logo (reg. sm)]
American
Century
[left margin]
JULY 1, 1999
American Century
Investment Trust
THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE FUND'S
PROSPECTUS, DATED JULY 1, 1999, BUT IS NOT A PROSPECTUS. THE STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FUND'S CURRENT
PROSPECTUS. IF YOU WOULD LIKE A COPY OF THE PROSPECTUS, PLEASE CONTACT US AT THE
ADDRESS OR TELEPHONE NUMBERS LISTED ON THE BACK COVER OR VISIT AMERICAN
CENTURY'S WEB SITE AT WWW.AMERICANCENTURY.COM.
THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE CERTAIN
INFORMATION THAT APPEARS IN THE 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
July 1, 1999
TABLE OF CONTENTS
The Fund's History ......................................................... 2
Fund Investment Guidelines ................................................. 2
Portfolio Composition ...................................................... 2
Detailed Information about the Fund ........................................ 3
Investment Strategies and Risks ........................................ 3
Investment Policies .................................................... 7
Temporary Defensive Measures ........................................... 9
Management ................................................................. 9
The Board of Trustees .................................................. 9
Officers ............................................................... 13
The Fund's Principal Shareholders .......................................... 14
Service Providers .......................................................... 14
Investment Advisor ..................................................... 14
Transfer Agent and Administrator ....................................... 16
Distributor ............................................................ 16
Other Service Providers .................................................... 16
Custodian Banks ........................................................ 16
Independent Accountants ................................................ 17
Brokerage Allocation ....................................................... 17
Information about Fund Shares .............................................. 17
Multiple Class Structure ............................................... 18
Buying and Selling Fund Shares ......................................... 19
Valuation of a Fund's Securities ....................................... 19
Taxes ...................................................................... 20
Federal Income Tax ..................................................... 20
How Fund Performance
Information Is Calculated ............................................... 20
Financial Statements ....................................................... 22
Explanation of Fixed-Income
Securities Ratings ...................................................... 22
Bond Ratings ........................................................... 23
Commercial Paper Ratings ............................................... 24
Note Ratings ........................................................... 24
Statement of Additional Information 1
THE FUND'S HISTORY
American Century Investment Trust is a registered open-end management
investment company that was organized as a Massachusetts business trust on June
16, 1993. From then until January 1997, it was known as Benham Investment Trust.
Throughout the Statement of Additional Information, we refer to American Century
Investment Trust as the Trust.
The fund described in this Statement of Additional Information is a separate
series of the Trust. The Trust may issue other series; the fund would operate
for many purposes as if it were an independent company from any such future
series.
Fund-Class (Ticker Symbol) Inception Date
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Prime Money Market Fund--
Investor Class (BPRXX) 11/17/1993
Prime Money Market Fund --
Advisor Class (N/A) 8/28/1998
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FUND INVESTMENT GUIDELINES
This section explains the extent to which the fund's advisor, American
Century Investment Management, Inc., can use various investment vehicles and
strategies in managing a fund's assets. Descriptions of the investment
techniques and risks associated with each appear in the section, "Investment
Strategies and Risks," which begins on page 3. In the case of the fund's
principal investment strategies, these descriptions elaborate upon discussion
contained in the Prospectus.
The fund is a diversified open-end investment company as defined in the
Investment Company Act of 1940 (the Investment Company Act). Diversified means
that, with respect to 75% of its total assets, the fund will not invest more
than 5% of its total assets in the securities of a single issuer.
The fund operates pursuant to Rule 2a-7 under the Investment Company Act.
That rule permits the valuation of portfolio securities on the basis of
amortized cost. To rely on the rule, each fund must be diversified with regard
to 100% of its assets other than U.S. government securities. This operating
policy is more restrictive than the Investment Company Act, which requires a
diversified investment company to be diversified with regard to only 75% of its
assets.
To meet federal tax requirements for qualification as a regulated investment
company, the fund must limit its investments so that at the close of each
quarter of its taxable year (1) no more than 25% of its total assets are
invested in the securities of a single issuer (other than the U.S. government or
a regulated investment company), and (2) with respect to at least 50% of its
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer.
PORTFOLIO COMPOSITION
ELIGIBLE INVESTMENTS
The fund buys high-quality (first-tier), U.S. dollar-denominated money
market instruments and other short-term obligations of banks, governments and
corporations. Some of the fund's possible investments are listed in the
following table. The obligations referenced in the table and the risks
associated with investing in them are described in the section titled
"Investment Strategies and Risks," which begins on page 3.
Issuers Types of Obligations
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Domestic and foreign financial institutions Negotiable certificates of
(e.g., banks, broker-dealers, insurance deposit, bankers' acceptances,
companies, leasing and financing bank notes and commercial paper
corporations) (including floating-rate agency
securities)
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Domestic and foreign nonfinancial Commercial paper and short-term
corporations corporate debt obligations
(including fixed- and variable-rate
notes and bonds)
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U.S. government and its agencies U.S. Treasury bills, notes, bonds
and instrumentalities and U.S. government agency
obligations (including floating-
rate agency securities)
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Foreign governments and their agencies Commercial paper and discount
and instrumentalities notes
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2 American Century Investments
PORTFOLIO INVESTMENT QUALITY AND MATURITY CRITERIA
The fund managers follow regulatory guidelines on quality and maturity for
the fund's investments, which are designed to help maintain a stable $1.00 share
price. In particular, the fund: (1) buys only U.S. dollar-denominated
obligations with remaining maturities of 13 months or less (and variable- and
floating-rate obligations with demand features that effectively shorten their
maturities to 13 months or less); (2) maintains a dollar-weighted average
portfolio maturity of 90 days or less; (3) restricts its investments to
high-quality obligations determined by the advisor to present minimal credit
risks, pursuant to guidelines established by the Board of Trustees.
To be considered high-quality, an obligation must be one of the following:
(1) a U.S. government obligation; (2) rated (or issued by an issuer rated with
respect to a class of short-term debt obligations) within the two highest rating
categories for short-term debt obligations by at least two nationally recognized
statistical rating organizations (rating agencies) (or one if only one has rated
the obligation); (3) an unrated obligation judged by the advisor, pursuant to
guidelines established by the Board of Trustees, to be of comparable quality.
The fund managers intend to buy only obligations that are designated as
first-tier securities as defined by the SEC; that is, securities with the
highest rating.
The acquisition of securities that are unrated or rated by only one rating
agency must be approved or ratified by the Board of Trustees.
INDUSTRY CONCENTRATION
Under normal market conditions, 25% or more of the fund's total assets are
invested in obligations of issuers in the financial services industry. This
industry concentration reflects that of the markets in which the fund invests.
More than half of the markets' commercial paper is issued by companies or
organizations in the financial services industry.
DETAILED INFORMATION ABOUT THE FUND
INVESTMENT STRATEGIES AND RISKS
This section describes each of the investment vehicles and strategies that
the fund managers can use in managing a fund's assets. It also details the risks
associated with each, because each technique contributes to a fund's overall
risk profile.
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.
Date Moody's Investors Standard Duff & Fitch Investors
Service, Inc. & Poor's Phelps, Inc. Service, Inc.
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Highest
Ratings Prime-1 A-1/A-1+ D-1/D-1+ F-1/F-1+
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Prime-2 A-2 D-2 F-2
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Prime-3 A-3 D-3 F-3
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Statement of Additional Information 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 advisor 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 advisor.
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 (an 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 bank guarantee.
Schedule B instruments generally offer higher rates than the short-term
instruments of the parent bank or holding company.
BANK OBLIGATIONS
Negotiable certificates of deposit (CDs) evidence a bank's obligation to
repay money deposited with it for a specified period of time. The following
table identifies the types of CDs the fund may buy.
CD Type Issuer
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Domestic Domestic offices of U.S. banks
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Yankee U.S. branches of foreign banks
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Eurodollar Issued in London by U.S.,
Canadian, European and
Japanese banks
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Schedule B Canadian subsidiaries of
non-Canadian banks
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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.
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.
The bank obligations the fund managers may buy generally are not insured by
the FDIC or any other insurer.
U.S. GOVERNMENT SECURITIES
The fund may invest in U.S. government securities, including bills, notes
and bonds issued by the U.S. Treasury and securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some U.S. government
securities are supported by the direct full faith and credit pledge of the U.S.
government; others are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as securities issued by the Federal National
Mortgage Association (FNMA), are supported by the discretionary authority of the
U.S. government to purchase the agencies' obligations; and others are supported
only by the credit of the issuing or guaranteeing instrumentality. There is no
assurance that the U.S. government will provide financial support to an
instrumentality it sponsors when it is not obligated by law to do so.
4 American Century Investments
U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES
The fund invests exclusively in U.S. dollar-denominated instruments, some of
which may be issued by foreign entities as described in the table on page 4.
Consequently, the fund may be subject to risks different than those incurred by
a fund that invests only in debt obligations of domestic issuers.
Currently, the only securities held outside the United States in which the
fund expects to invest are EuroCDs, which are held in England. As a result, the
fund's exposure to these foreign investment risks is expected to be lower than
funds that invest more broadly in securities held outside the United States.
Regulatory limits specified in the section titled "Portfolio Investment Quality
and Maturity Criteria" on page 3 apply equally to securities of foreign and
domestic issuers.
VARIABLE- AND FLOATING-RATE INSTRUMENTS
Variable- and floating-rate instruments are issued by corporations,
financial institutions, and government agencies and instrumentalities.
Floating-rate instruments have interest rates that change whenever there is
a change in a designated base rate, whereas variable-rate instruments provide
for specified periodic interest rate adjustments. The interest rate on variable-
and floating-rate instruments is ordinarily determined by reference to (or is a
percentage of) an objective standard, such as the Federal Funds effective rate,
the 90-day U.S. Treasury bill rate or LIBOR.
Although the fund typically limits its investments to securities with
remaining maturities of 13 months or less, it may invest in variable- and
floating-rate instruments that have nominal (or stated) maturities in excess of
13 months, provided that such instruments (1) have demand features consistent
with regulatory requirements for money market funds, or (2) are securities
issued by the U.S. government or a U.S. government agency that meet certain
regulatory requirements for money market funds.
LOAN PARTICIPATIONS
The fund 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, because the lending bank does not
guarantee payment, the investor is directly exposed to risk of default by the
borrower. Second, 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 investor's right
to resell the loan participation, even when a buyer can be found.
REPURCHASE AGREEMENTS
Each fund may invest in repurchase agreements when such transactions present
an attractive short-term return on cash that is not otherwise committed to the
purchase of securities pursuant to the investment policies of that fund.
A repurchase agreement occurs when, at the time the fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to purchase it on a specified
date in the future at an agreed-upon price. The repurchase price reflects an
agreed-upon interest rate during the time the fund's money is invested in the
security.
Because the security purchased constitutes security for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The fund's risk is the ability of the seller to pay the
agreed-upon repurchase price on the repurchase date. If the seller defaults, the
fund may
Statement of Additional Information 5
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, and its agencies and instrumentalities, and will enter
into such transactions with those banks and securities dealers who are deemed
creditworthy pursuant to criteria adopted by the fund's Board of Trustees.
No fund will invest more than 15% of its assets in repurchase agreements
maturing in more than seven days.
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 advisor. 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.
PORTFOLIO LENDING
In order to realize additional income, a fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The fund may sometimes purchase new issues of securities on a when-issued or
forward commitment basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date (typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, a
fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. Market rates of interest on debt securities at the time of
delivery may be higher or lower than those contracted for on the when-issued
security. Accordingly, the value of such security may decline prior to delivery,
which could result in a loss to the fund. While the fund will make commitments
to purchase or sell securities with the intention of actually receiving or
delivering them, it may sell the securities before the settlement date if doing
so is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a
fund will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents or other appropriate liquid securities in
an amount sufficient to meet the purchase price. When the time comes to pay for
the when-issued securities, the fund will meet its obligations with available
cash, through the sale of securities, or, although it would not normally expect
to do so, by selling the when-issued securities themselves (which may have a
market value greater or less than the fund's payment obligation). Selling
securities to meet when-issued or forward commitment obligations may generate
taxable capital gains or losses.
6 American Century Investments
RESTRICTED AND ILLIQUID SECURITIES
The fund may, from time to time, purchase restricted or illiquid securities,
including Rule 144A securities, when they present attractive investment
opportunities that otherwise meet the fund's criteria for selection. Rule 144A
securities are securities that are privately placed with and traded among
qualified institutional investors rather than the general public. Although Rule
144A securities are considered "restricted securities," they are not necessarily
illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of
the SEC has taken the position that the liquidity of such securities in the
portfolio of a fund offering redeemable securities is a question of fact for the
Board of Trustees to determine, such determination to be based upon a
consideration of the readily available trading markets and the review of any
contractual restrictions. Accordingly, the Board of Trustees is responsible for
developing and establishing the guidelines and procedures for determining the
liquidity of Rule 144A securities. As allowed by Rule 144A, the Board of
Trustees of the fund has delegated the day-to-day function of determining the
liquidity of Rule 144A securities to the fund managers. The Board retains the
responsibility to monitor the implementation of the guidelines and procedures it
has adopted.
Because the secondary market for such securities is limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and a fund may, from time to time, hold a Rule 144A or other
security that is illiquid. In such an event, the advisor will consider
appropriate remedies to minimize the effect on such fund's liquidity.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations
on borrowing, the restrictions apply at the time transactions are entered into.
Accordingly, any later increase or decrease beyond the specified limitation
resulting from a change in a fund's net assets will not be considered in
determining whether it has complied with its investment restrictions.
For purposes of the fund's investment restrictions, the party identified as
the "issuer" of a municipal security depends on the form and conditions of the
security. When the assets and revenues of a political subdivision are separate
from those of the government that created the subdivision and the security is
backed only by the assets and revenues of the subdivision, the subdivision is
deemed the sole issuer. Similarly, in the case of an Industrial Development
Bond, if the bond were backed only by the assets and revenues of a
non-governmental user, the non-governmental user would be deemed the sole
issuer. If, in either case, the creating government or some other entity were to
guarantee the security, the guarantee would be considered a separate security
and treated as an issue of the guaranteeing entity.
FUNDAMENTAL INVESTMENT POLICIES
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.
For purposes of the investment restriction relating to concentration, the
fund shall not purchase any securities that would cause 25% or more of the value
of the fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry (except financial industries), provided that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
government, any state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions and repurchase agreements secured by such instruments,
(b) wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents, (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, and electric and
telephone will each be considered a separate industry, and (d) personal credit
and business credit businesses will be considered separate industries.
Statement of Additional Information 7
Subject Policy
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Senior Securities The fund may not issue senior securities, except
as Permitted under the Investment Company Act.
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Borrowing The fund may not borrow money, except for temporary or
emergency purposes (not for leveraging or investment) in an
amount not exceeding 33 1/3% of the fund's total assets
(including the amount borrowed) less liabilities (other
than borrowings).
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Lending The fund may not lend any security or make any other loan
if, as a result, more than 331/3% of the fund's total
assets would be lent to other parties, except (i) through
the purchase of debt securities in accordance with its
investment objective, policies and limitations or (ii) by
engaging in repurchase agreements with respect to
portfolio securities.
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Real Estate The fund may not purchase or sell real estate unless
acquired as a result of ownership of securities or other
instruments. This policy shall not prevent 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.
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Concentration The fund may 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 that the fund may
invest more than 25% of its total assets in the financial
services industry.
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Underwriting The fund may not act as an underwriter of securities issued
by others, except to the extent that the fund may be
considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of
restricted securities.
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Commodities The fund may not purchase or sell physical commodities
unless acquired as a result of ownership of securities or
other instruments; provided that this limitation shall not
prohibit the fund from purchasing or selling options and
futures contracts or from investing in securities or other
instruments backed by physical commodities.
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Control The fund may not invest for purposes of exercising control
Over management.
8 American Century Investments
NONFUNDAMENTAL INVESTMENT POLICIES
In addition, the fund is subject to the following additional investment
restrictions that are not fundamental and may be changed by the Board of
Trustees.
Subject Policy
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Diversification The fund may not purchase additional investment securities
at any time during which outstanding borrowings exceed 5% of
the total assets of the fund.
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Futures The fund may not purchase or sell futures contracts or call
and options 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.
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Liquidity The fund may 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.
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Short Sales The fund may not sell securities short, unless it owns
or has the right to obtain securities equivalent in kind and
amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed
to constitute selling securities short.
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Margin The fund may not purchase securities on margin, except to
obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments
in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on
margin.
TEMPORARY DEFENSIVE MEASURES
For temporary defensive purposes, the fund may invest in securities that may
not fit its investment objective or its stated market. During a temporary
defensive period, the fund may direct its assets to the following investment
vehicles:
* interest-bearing bank accounts or certificates of deposit
* U.S. government securities and repurchase agreements collateralized by
U.S. government securities
* other money market funds
MANAGEMENT
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the fund and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the fund, it has hired the advisor to do so. Two-thirds
of the trustees are independent of the fund's advisor; that is, they are not
employed by and have no financial interest in the advisor.
The individuals listed in the following table whose names are marked by an
asterisk (*) are interested persons of the fund (as defined in the Investment
Company Act) by virtue of, among other considerations, their affiliation with
either the fund; the advisor, American Century Investment Management, Inc.
(ACIM); the fund's agent for transfer and administrative services, American
Century Services Corporation (ACSC); the parent corporation, American Century
Companies, Inc. (ACC) or ACC's subsidiaries; the fund's distribution agent and
co-administrator, Funds Distributor, Inc. (FDI); or other funds advised by the
advisor. Each trustee listed below serves as a trustee or director of seven
registered investment companies in the American Century family of funds, which
are also advised by the advisor.
Statement of Additional Information 9
Name (Age) Position(s) Principal Occupation(s)
Address Held During Past Five Years
With Fund
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Albert A. Eisenstat (68) Trustee General Partner, Discovery Ventures
1665 Charleston Road (venture capital firm, 1996 to present)
Mountain View, CA 94043 Independent Director, Sungard Data
Systems (1991 to present)
Independent Director, Business Objects
S/A (software & programming, 1994 to
present)
Independent Director, Commercial
Metals Co. (1982 to present)
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Ronald J. Gilson (52) Trustee Charles J. Meyers Professor of Law
1665 Charleston Road and Business,Stanford Law School
Mountain View, CA 94043 (since 1979)
Marc and Eva Stern Professor of Law
and Business, Columbia University
School of Law (since 1992)
Counsel, Marron, Reid & Sheehy (a San
Francisco law firm, since 1984)
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William M. Lyons* (43) Trustee President, Chief Operating Officer and
4500 Main Street Assistant Secretary, ACC
Kansas City, MO 64111 Executive Vice President, Chief
Operating Officer and Secretary,
ACSC and ACIS
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Myron S. Scholes (58) Trustee Limited Partner, Long-Term Capital
1665 Charleston Road Management (since February 1999)
Mountain View, CA 94043 Principal, Long-Term Capital
Management(investment advisor, 1993 to
January 1999)
Frank E. Buck Professor of Finance,
Stanford Graduate School of Business
(since 1981)
Director, Dimensional Fund Advisors
(investment advisor, since 1982)
Director, Smith Breeden Family of
Funds (since 1992)
Managing Director, Salomon Brothers
Inc. (securities brokerage, 1991 to
1993)
- --------------------------------------------------------------------------------
Kenneth E. Scott (70) Trustee Ralph M. Parsons Professor of Law and
1665 Charleston Road Business, Stanford Law School
Mountain View, CA 94043 (since 1972)
Director, RCM Capital Funds, Inc.
(since 1994)
- --------------------------------------------------------------------------------
Isaac Stein (52) Trustee Director, Raychem Corporation
1665 Charleston Road (electrical equipment, since 1993)
Mountain View, CA 94043 President, Waverley Associates, Inc.
(private investment firm, since 1983)
Director, ALZA Corporation
(pharmaceuticals, since 1987)
Trustee, Stanford University (since
1994)
Chairman, Stanford Health Services
(since 1994)
- --------------------------------------------------------------------------------
James E. Stowers III* (40) Trustee, Chief Executive Officer and
4500 Main Street Chairman of Director, ACC
Kansas City, MO 64111 the Board President, Chief Executive Officer
and Director ACSC and ACIS
Son of James E. Stowers, Jr. (founder)
- --------------------------------------------------------------------------------
Jeanne D. Wohlers (54) Trustee Director, Indus International
1665 Charleston Road (software solutions, January 1999
Mountain View, CA 94043 to present)
Director, Quintus Corporation,
(automation solutions, 1995 to
present)
Director and Partner, Windy Hill
Productions, LP (edutainment software,
1994 to present)
- --------------------------------------------------------------------------------
10 American Century Investments
COMMITTEES
The Board has four committees to oversee specific functions of the Trust's
operations. Information about these committees appears in the table below. The
trustee listed first serves as chairman of the committee.
Committee Members Function of Committee
- --------------------------------------------------------------------------------
Audit Jeanne D. Wohlers The Audit Committee selects and oversees
Albert A. Eisenstat the activities of the Trust's independent
Kenneth E. Scott auditor. The Committee receives reports
from the advisor's Internal Audit
Department, which is accountable solely
to the Committee. The Committee also
receives reporting about compliance
matters affecting the Trust.
- --------------------------------------------------------------------------------
Nominating Kenneth E. Scott The Nominating Committee primarily
Albert A. Eisenstat considers and recommends individuals for
Ronald J. Gilson nomination as trustees. The names of
Myron S. Scholes potential trustee candidates are drawn
Isaac Stein from a number of sources, including
Jeanne D. Wohlers 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.
- --------------------------------------------------------------------------------
Portfolio Myron S. Scholes The Portfolio Committee reviews quarterly
Ronald J. Gilson the investment activities and strategies
Isaac Stein used to manage fund assets. The Committee
regularly receives reports from portfolio
managers, credit analysts and other
investment personnel concerning the fund's
investments.
- --------------------------------------------------------------------------------
Quality of Isaac Stein The Quality of Service Committee reviews
Service Ronald J. Gilson the level and quality of transfer agent
Myron S. Scholes and administrative services provided to
William Lyons the fund and its shareholders. It receives
and reviews reports comparing those
services to fund competitors and seeks to
improve such services where feasible and
appropriate.
- --------------------------------------------------------------------------------
Statement of Additional Information 11
COMPENSATION OF TRUSTEES
The trustees also serve as trustees for six American Century investment
companies other than the Trust. Each trustee who is not an interested person as
defined in the Investment Company Act receives compensation for service as a
member of the Board of all seven such companies based on a schedule that is
based on the number of meetings attended and the assets of the fund for which
the meetings are held. These fees and expenses are divided among the seven
investment companies based, in part, upon their relative net assets. Under the
terms of the management agreement with the advisor, the fund is responsible for
paying such fees and expenses.
The following table shows the aggregate compensation paid for the periods
indicated by the Trust and by the seven investment companies served by this
Board to each trustee who is not an interested person as defined in the
Investment Company Act.
Aggregate Trustee Compensation for Fiscal Year Ended February 28, 1999
- --------------------------------------------------------------------------------
Total Compensation
Total from the
Compensation from American Century
Name of Trustee the Fund(1) Family of Funds(2)
- --------------------------------------------------------------------------------
Albert A. Eisenstat $9,476 $70,000
Ronald J. Gilson $10,405 $78,000
Myron S. Scholes $9,296 $69,250
Kenneth E. Scott $10,381 $78,000
Isaac Stein $9,709 $61,500
Jeanne D. Wohlers $10,161 $76,250
- --------------------------------------------------------------------------------
(1) Includes compensation paid to the trustees during the fiscal year ended
February 28, 1999, and also includes amounts deferred at the election of the
trustees under the American Century Mutual Funds Deferred Compensation Plan for
Non-Interested Directors and Trustees. The total amount of deferred compensation
included in the preceding table is as follows: Mr. Eisenstat, $9,476; Mr.
Gilson, $10,405; Mr. Scholes, $9,296; and Mr. Scott, $5,191.
(2) Includes compensation paid by the seven investment company members of the
American Century family of funds served by this Board.
The Trust has adopted the American Century Deferred Compensation Plan for
Non-Interested Directors and Trustees. Under the plan, the independent trustees
may defer receipt of all or any part of the fees to be paid to them for serving
as trustees of the fund.
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 trustee. 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, the fund has no obligation to
segregate assets to secure or fund the deferred fees. The rights of trustees to
receive their deferred fee account balances are the same as the rights of a
general unsecured creditor of the Trust. 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, 1999.
12 American Century Investments
OFFICERS
Background information for the officers of the Trust is provided below. All
persons named as officers of the Trust also serve in similar capacities for the
12 other investment companies advised by ACIM. Not all officers of the Trust are
listed; only those officers with policy-making functions for the Trust are
listed. No officer is compensated for his or her service as an officer of the
Trust. The individuals listed in the following table are interested persons of
the fund (as defined in the Investment Company Act) by virtue of, among other
considerations, their affiliation with either the fund, ACC, ACC's subsidiaries
(including ACIM and ACSC) or the fund's distributor (FDI), as specified in the
following table.
Position(s)
Name (Age) Held With Principal Occupation(s)
Address Fund During Past Five Years
- --------------------------------------------------------------------------------
George A. Rio (44) President Executive Vice President and Director of
4500 Main Street Client Services, FDI (March 1998
Kansas City, to present).
Missouri 64111 Senior Vice President and Senior Key
Account Manager, Putnam Mutual Funds
(June 1995 to March 1998)
Director Business Development, First Data
Corporation (May 1994 to June 1995)
- --------------------------------------------------------------------------------
Christopher J. Vice Vice President and Associate General
Kelley (34) President Counsel, FDI (since July 1996)
4500 Main Street Assistant Counsel, Forum Financial Group
Kansas City, MO 64111 (April 1994 to July 1996)
- --------------------------------------------------------------------------------
Mary A. Nelson (35) Vice Vice President and Manager of Treasury
4500 Main Street President Services and Administration, FDI (1994
Kansas City, to present)
Missouri 64111 Assistant Vice President and Client
Manager, The Boston Company, Inc.
(1989 to 1994)
- --------------------------------------------------------------------------------
David C. Tucker (41) Vice Senior Vice President and General Counsel,
4500 Main Street President ACSC and ACIM (June 1998 to present)
Kansas City, MO 64111 General Counsel, ACC (June 1998 to present
Consultant to Mutual Fund Industry (May
1997 to April 1998)
Vice President and General Counsel, Janus
Companies (1990 to May 1997)
- --------------------------------------------------------------------------------
Maryanne Roepke, Vice Senior Vice President, Treasurer an
CPA (43) President Principal Accounting Officer, ACSC
4500 Main Street and
Kansas City, Treasurer
Missouri 64111
- --------------------------------------------------------------------------------
Douglas A. Paul (52) Secretary Vice President and Associate General
1665 Charleston Road and Counsel, ACSC
Mountain View, Vice
CA 94043 President
- --------------------------------------------------------------------------------
C. Jean Wade (35) Controller Controller--Fund Accounting, ACSC
4500 Main Street
Kansas City, MO 64111
- --------------------------------------------------------------------------------
Jon Zindel (32) Tax Officer Vice President and Director of Taxation,
4500 Main Street ACSC (since 1996)
Kansas City, MO 64111 Tax Manager, Price Waterhouse LLPC (1989
To 1996)
- --------------------------------------------------------------------------------
Statement of Additional Information 13
THE FUND'S PRINCIPAL SHAREHOLDERS
As of May 28, 1999, the following companies were the record owners of more
than 5% of the fund's outstanding shares.
Percentage
of Shares
Fund Shareholder Outstanding
- -------------------------------------------------------------------------------
Prime American Century Companies 5.6%
Kansas City, Missouri
The fund is unaware of any other shareholders, beneficial or of record, who
own more than 5% of the fund's outstanding shares. As of May 28, 1999, the
officers and trustees of the fund, as a group, owned less than 1% of the fund's
outstanding shares.
SERVICE PROVIDERS
The fund has no employees. To conduct its day-to-day activities, the Trust
has hired a number of service providers. Each service provider has a specific
function to fill on behalf of the Trust and is described below.
ACIM and ACSC are both wholly owned by ACC. James E. Stowers Jr., Chairman
of ACC, controls ACC by virtue of his ownership of a majority of its voting
stock.
INVESTMENT ADVISOR
The Trust has an investment management agreement with the advisor, American
Century Investment Management, Inc., dated August 1, 1997. This agreement was
approved by the shareholders of the fund on July 30, 1997.
A description of the responsibilities of the advisor appears in the
Prospectus under the heading "Management."
For the services provided to the fund, the advisor receives a monthly fee
based on a percentage of the average net assets of the fund. The annual rate at
which this fee is assessed is determined monthly in a two-step process. First, a
fee rate schedule is applied to the assets of all of the funds of its investment
category managed by the advisor (the Investment Category Fee). For example, when
calculating the fee for a money market fund, all of the assets of the money
market funds managed by the advisor are aggregated. The three investment
categories are money market funds, bond funds and equity funds. Second, a
separate fee rate schedule is applied to the assets of all of the funds managed
by the advisor (the Complex Fee). The Investment Category Fee and the Complex
Fee are then added to determine the unified management fee payable by the fund
to the advisor.
The schedules by which the Investment Category Fees are determined are as
follows:
INVESTMENT CATEGORY FEE SCHEDULE FOR Prime Money Market
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%
- -------------------------------------------------------------------------------
The Complex Fee is determined according to the schedules below.
INVESTOR CLASS COMPLEX FEE SCHEDULE
Complex Assets Fee Rate
- -------------------------------------------------------------------------------
First $2.5 billion 0.3100%
Next $7.5 billion 0.3000%
Next $15.0 billion 0.2985%
Next $25.0 billion 0.2970%
Next $50.0 billion 0.2960%
Next $100.0 billion 0.2950%
Next $100.0 billion 0.2940%
Next $200.0 billion 0.2930%
Next $250.0 billion 0.2920%
Next $500.0 billion 0.2910%
Thereafter 0.2900%
- -------------------------------------------------------------------------------
ADVISOR CLASS COMPLEX FEE SCHEDULE
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%
- -------------------------------------------------------------------------------
14 American Century Investments
On the first business day of each month, the fund pays a management fee to
the advisor for the previous month at the specified rate. The fee for the
previous month is calculated by multiplying the applicable fee for the fund by
the aggregate average daily closing value of a fund's net assets during the
previous month by a fraction, the numerator of which is the number of days in
the previous month and the denominator of which is 365 (366 in leap years).
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually by (1) the fund's
Board of Trustees, or by the vote of a majority of outstanding votes (as defined
in the Investment Company Act) and (2) by the vote of a majority of the trustees
of the fund who are not parties to the agreement or interested persons of the
advisor, cast in person at a meeting called for the purpose of voting on such
approval.
The management agreement provides that it may be terminated at any time
without payment of any penalty by the fund's Board of Trustees, or by a vote of
a majority of outstanding votes, on 60 days' written notice to the advisor, and
that it shall be automatically terminated if it is assigned.
The management agreement provides that the advisor shall not be liable to
the 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 advisor 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 advisor. 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 fund, or in different
amounts and at different times for more than one but less than all clients or
funds. In addition, purchases or sales of the same security may be made for two
or more clients or funds on the same date. Such transactions will be allocated
among clients in a manner believed by the advisor to be equitable to each. In
some cases this procedure could have an adverse effect on the price or amount of
the securities purchased or sold by a fund.
The advisor may aggregate purchase and sale orders of the fund with purchase
and sale orders of its other clients when the advisor believes that such
aggregation provides the best execution for the fund. The Board of Trustees has
approved the policy of the advisor 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 advisor 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 advisor receives no
additional compensation or remuneration as a result of such aggregation.
Prior to August 1, 1997, Benham Management Corporation served as the
investment advisor to the fund. Benham Management Corporation was merged into
the advisor in late 1997.
Unified management fees incurred by the fund for the fiscal periods ended
February 28, 1999, 1998 and 1997, are indicated in the following table. Fee
amounts are net of amounts reimbursed or recouped under the fund's previous
investment advisory agreement with Benham Management Corporation.
Statement of Additional Information 15
UNIFIED MANAGEMENT FEES
Fund 1999 1998 1997
- -------------------------------------------------------------------------------
Prime Money Market
Investor Class $12,507,394(1) $3,925,254(2) N/A
Advisor Class 5,038 N/A N/A
(1) $346,955 was waived.
(2) From August 1, 1997 through February 28, 1998. An additional $805,481 was
waived.
INVESTMENT ADVISORY FEES
Fund 1998 1997
- -----------------------------------------------------------------
Prime Money Market N/A 2,265,360(1)
(1) From March 1, 1997 through July 31, 1997.
Other Advisory Relationships
In addition to managing the funds, the advisor also serves as an investment
advisor to seven 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.
American Century Capital Portfolios, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Municipal Trust
American Century Government Income Trust
American Century Investment Trust
American Century Target Maturities Trust
American Century Quantitative Equity Funds
American Century California Tax-Free and Municipal Funds
TRANSFER AGENT AND ADMINISTRATOR
American Century Services Corporation, 4500 Main Street, Kansas City,
Missouri 64111, acts as transfer agent and dividend-paying agent for the fund.
It provides physical facilities, computer hardware and software, and personnel,
for the day-to-day administration of the fund and of the advisor. The advisor
pays ACSC 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.
Administrative service and transfer agent fees paid by the fund for the
fiscal years ended February 28, 1998 and 1997, are indicated in the table below.
Fee amounts are net of expense limitations.
ADMINISTRATIVE FEES
Fund 1998(1) 1997
- --------------------------------------------------------------------------------
Prime Money Market
Investor Class $476,721 $1,188,257
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES
Fund 1998(1) 1997
- --------------------------------------------------------------------------------
Prime Money Market
Investor Class $765,989 $1,844,608
- --------------------------------------------------------------------------------
(1) From March 1, 1997 through July 31, 1997.
DISTRIBUTOR
The fund's shares are distributed by FDI, a registered broker-dealer. The
distributor is a wholly owned, indirect subsidiary of Boston Institutional
Group, Inc. The distributor's principal business address is 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
The distributor is the principal underwriter of the fund's shares. The
distributor makes a continuous, best-efforts underwriting of the fund's shares.
This means that the distributor has no liability for unsold shares.
OTHER SERVICE PROVIDERS
CUSTODIAN BANKS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York
10003-9598, and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105,
each serves as custodian of the assets of the 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.
16 American Century Investments
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP are the independent accountants of the fund. The
address of Pricewater-houseCoopers LLP is 1055 Broadway, 10th Floor, Kansas
City, Missouri 64105. As the independent accountants of the funds,
PricewaterhouseCoopers provides services including (1) audit of the annual
financial statements for the fund, (2) assistance and consultation in connection
with SEC filings, and (3) review of the annual federal income tax return filed
for the fund.
BROKERAGE ALLOCATION
Under the management agreement between the fund and the advisor, the advisor
has the responsibility of selecting brokers and dealers to execute portfolio
transactions. In many transactions, the selection of the broker or dealer is
determined by the availability of the desired security and its offering price.
In other transactions, the selection of broker or dealer is a function of the
selection of market and the negotiation of price, as well as the broker's
general execution and operational and financial capabilities in the type of
transaction involved. The advisor will seek to obtain prompt execution of orders
at the most favorable prices or yields. The advisor may choose to purchase and
sell portfolio securities to and from dealers who provide statistical and other
information and services, including research, to the fund and to the advisor.
Such information or services will be in addition to and not in lieu of the
services required to be performed by the advisor, and the expenses of the
advisor will not necessarily be reduced as a result of the receipt of such
supplemental information.
INFORMATION ABOUT FUND SHARES
The fund named on the front of this Statement of Additional Information is a
series of shares issued by the Trust, and shares of the fund have equal voting
rights. In addition, the series (or fund) may be divided into separate classes.
See "Multiple Class Structure," which follows. Additional funds and classes may
be added without a shareholder vote.
Each fund votes separately on matters affecting that fund exclusively.
Voting rights are not cumulative, so that investors holding more than 50% of the
Trust's outstanding shares may be able to elect a Board of Trustees. The Trust
undertakes dollar-based voting, meaning that the number of votes a shareholder
is entitled to is based upon the dollar amount of the shareholder's investment.
The election of trustees is determined by the votes received from all the
Trust's shareholders without regard to whether a majority of shares of any one
fund voted in favor of a particular nominee or all nominees as a group.
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.
The assets belonging to each fund or class of shares are held separately by
the custodian and the shares of each fund or class represent a beneficial
interest in the principal, earnings and profit (or losses) of investments and
other assets held for each fund or class. Your rights as a shareholder are the
same for all funds or classes of securities unless otherwise stated. Within
their respective fund or class, all shares have equal redemption rights. Each
share, when issued, is fully paid and non-assessable.
In the event of complete liquidation or dissolution of the fund,
shareholders of each series or class of shares shall be entitled to receive, pro
rata, all of the assets less the liabilities of that series or class.
Each shareholder has rights to dividends and distributions declared by the
fund he or she owns and to
Statement of Additional Information 17
the net assets of such fund upon its liquidation or dissolution proportionate to
his or her share ownership interest in the fund.
MULTIPLE CLASS STRUCTURE
The Board of Trustees 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 three classes of shares: an Investor Class, an Institutional
Class and an Advisor Class. Not all American Century funds offer all three
classes.
The Investor Class is made available to investors directly without any load
or commission, for a single unified management fee. The Institutional and
Advisor Classes are made available to institutional shareholders or through
financial intermediaries that do not require the same level of shareholder and
administrative services from the advisor as Investor Class shareholders. As a
result, the advisor is able to charge these classes a lower total management
fee. In addition to the management fee, however, Advisor Class shares are
subject to a Master Distribution and Shareholder Services Plan (described on
this page). The Plan has been adopted by the 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 Advisor Class have
approved and entered into a Master Distribution and Shareholder Services Plan
(the Plan).
In adopting the Plan, the Board of Trustees (including a majority of
trustees who are not interested persons of the funds [as defined in the
Investment Company Act], hereafter referred to as the independent trustees)
determined there was a reasonable likelihood that the Plan 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
(NASD).
MASTER DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
As described in the Prospectus, the fund's Advisor Class of shares also is
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
advisor has reduced its 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. Pursuant to the 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
18 American Century Investments
paid for shareholder services (as described below) and 0.25% of which is paid
for distribution services.
Payments may be made for a variety of shareholder services, including, but
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) serving 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 semiannual financial
statements and dividend, distribution and tax notices) to shareholders and/or
other beneficial owners; (j) providing other similar administrative and
sub-transfer agency 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 and
compensation or promotional incentives; (l) profit on the foregoing; (m) the
payment of "service fees" for the provision of personal, continuing services to
investors, as contemplated by the Rules of Fair Practice of the NASD; and (n)
such other distribution and services activities as the advisor determines may be
paid for by the fund pursuant to the terms of this agreement and in accordance
with Rule 12b-1 of the Investment Company Act.
BUYING AND SELLING FUND SHARES
Information about buying, selling and exchanging fund shares is contained in
Your Guide to American Century Services. The guide is available to investors
without charge and may be obtained by calling us.
VALUATION OF A FUND'S 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 4 p.m.
Eastern time each day the Exchange is open for business. The Exchange typically
observes the following holidays: New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day
Statement of Additional Information 19
and Christmas Day. Although the fund expects the same holidays to be observed in
the future, the Exchange may modify its holiday schedule at any time.
The advisor typically completes its trading on behalf of the fund in various
markets before the Exchange closes for the day. Foreign currency exchange rates
also are determined prior to the close of the Exchange. However, if
extraordinary events occur that are expected to affect the value of a portfolio
security after the close of the primary exchange on which it is traded, the
security will be valued at fair market value as determined in good faith under
the direction of the Board of Trustees. The fund's share price is calculated by
adding the value of all portfolio securities and other assets, deducting
liabilities, and dividing the result by the number of shares outstanding.
Expenses and interest earned on portfolio securities are accrued daily.
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 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
yields. 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, a money market 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 fund managers, 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 money market 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 deviation should occur.
The Board of Trustees monitors the levels of illiquid securities, however if
the levels are exceeded, they will take action to rectify these levels.
Actions the Board of Trustees may consider under these circumstances include
(i) selling portfolio securities prior to maturity, (ii) withholding dividends
or distributions from capital, (iii) authorizing a one-time dividend adjustment,
(iv) discounting share purchases and initiating redemptions in kind, or (v)
valuing portfolio securities at market price for purposes of calculating NAV.
TAXES
FEDERAL INCOME TAX
The fund intends to qualify annually as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By so
qualifying, a fund will be exempt from federal and state income taxes to the
extent that it distributes substantially all of its net investment income and
net realized capital gains (if any) to shareholders. If a fund fails to qualify
as a regulated investment company, it will be liable for taxes, significantly
reducing its distributions to shareholders and eliminating shareholders' ability
to treat distributions of the fund in the manner they were realized by the fund.
HOW FUND PERFORMANCE INFORMATION IS CALCULATED
The fund may quote performance in various ways. Fund performance may be
shown by presenting one or more performance measurements, including cumulative
total return, average annual total return or yield.
All performance information advertised by the 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.
20 American Century Investments
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 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, 1999, the fund's yield and
effective yield were 4.49% and 4.59%, respectively.
Total returns quoted in advertising and sales literature reflect all aspects
of a fund's return, including the effect of reinvesting dividends and capital
gains distributions (if any) and any change in the fund's NAV per share during
the period.
Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in a fund during a
stated period and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant throughout the period. For example, a cumulative total return
of 100% over 10 years would produce an average annual return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
In addition to average annual total returns, the fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as percentages or as dollar amounts and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) to illustrate the
relationship of these factors and their contributions to total return.
ADDITIONAL PERFORMANCE COMPARISONS
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 the American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons may include, but are not
limited to, U.S. Treasury bill, note and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper, Inc. or Morningstar, Inc.; mutual fund
rankings published in major, nationally distributed periodicals; data provided
by the Investment Company Institute; Ibbotson Associates, Stocks, Bonds, Bills
and Inflation; major 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 or to provide
general information about the fund.
Statement of Additional Information 21
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; (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 who have invested in the fund. The fund also may include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of the
fund.
MULTIPLE CLASS PERFORMANCE ADVERTISING
Pursuant to the Multiple Class Plan, the Trust may issue additional classes
of its existing fund or introduce new funds with multiple classes available for
purchase. To the extent a new class is added to an existing fund, the advisor
may, in compliance with SEC and NASD rules, regulations and guidelines, market
the new class of shares using the historical performance information of the
original class of shares. When quoting performance information for the new class
of shares for periods prior to the first full quarter after inception, the
original class's performance will be restated to reflect the expenses of the new
class and for periods after the first full quarter after inception, actual
performance of the new class will be used.
FINANCIAL STATEMENTS
The financial statements of the fund are included in the annual report to
shareholders for the fiscal year ended February 28, 1999. The annual report is
incorporated herein by reference. You may receive copies of the report without
charge upon request to American Century at the address and telephone number
shown on the back cover of this Statement of Additional Information.
EXPLANATION OF FIXED-INCOME SECURITIES RATINGS
As described in the Prospectus, the fund invests in fixed-income securities.
Those investments, however, are subject to certain credit quality restrictions,
as noted in the Prospectus and in this Statement of Additional Information. The
following is a summary of the rating categories referenced in the prospectus
disclosure.
22 American Century Investments
BOND RATINGS
S&P Moody's Description
- --------------------------------------------------------------------------------
AAA Aaa These are the highest ratings assigned by S&P and Moody's to
a debt obligation. These ratings indicate an extremely strong
capacity to pay interest and repay principal.
- --------------------------------------------------------------------------------
AA Aa Debt rated in this category is considered to have a very strong
capacity to pay interest and repay principal. It differs from
AAA/Aaa issues only in a small degree.
- --------------------------------------------------------------------------------
A 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 Baa Debt rated BBB/Baa 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 Ba Debt rated BB/Ba 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 also is used for debt subordinated to senior debt that
is assigned an actual or implied BBB- rating.
- --------------------------------------------------------------------------------
B 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 also is used
for debt subordinated to senior debt that is assigned an actual
or implied BB/Ba or BB-/Ba3 rating.
- --------------------------------------------------------------------------------
CCC Caa Debt rated CCC/Caa 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/Caa
rating category also is used for debt subordinated to senior
debt that is assigned an actual or implied B or B-/B3 rating.
- --------------------------------------------------------------------------------
CC Ca The rating CC/Ca typically is applied to debt subordinated to
Senior debt that is assigned an actual or implied CCC/Caa
rating.
- --------------------------------------------------------------------------------
C C The rating C typically is applied to debt subordinated to
senior debt, which is assigned an actual or implied CCC-/Caa3
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 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 is used upon the
filing of a bankruptcy petition if debt service payments
are jeopardized.
- --------------------------------------------------------------------------------
Statement of Additional Information 23
To provide more detailed indications of credit quality, the Standard &
Poor's 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. Similarly,
Moody's adds numerical modifiers (1,2,3) to designate relative standing within
its major bond rating categories. Fitch Investors Service, Inc. also rates bonds
and uses a ratings system that is substantially similar to that used by Standard
& Poor's.
COMMERCIAL PAPER RATINGS
S&P Moody's Description
- --------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety regarding
(P-1) timely payment is strong. Standard & Poor's
rates those issues determined to possess extremely
strong safety characteristics as A-1+.
- --------------------------------------------------------------------------------
A-2 Prime-2 Capacity for timely payment on commercial paper is
(P-2) satisfactory, but the relative degree of
safety is not as high as for issues designated A-1.
Earnings trends and coverage ratios, while sound,
will be more subject to variation. Capitalization
characteristics, while still appropriated, may be more
affected by external conditions. Ample alternate
liquidity is maintained.
- --------------------------------------------------------------------------------
A-3 Prime-3 This indicates satisfactory capacity for timely
(P-3) repayment. Issues that carry this rating are
somewhat more vulnerable to the adverse changes in
circumstances than obligations carrying the higher
designations.
- --------------------------------------------------------------------------------
NOTE RATINGS
S&P Moody's Description
- --------------------------------------------------------------------------------
SP-1 MIG-1; VMIG-1 Notes are of the highest quality enjoying
strong protection from established cash flows of funds
for their servicing or from established and broad-based
access to the market for refinancing, or both.
- --------------------------------------------------------------------------------
SP-2 MIG-2; VMIG-2 Notes are of high quality, with margins
of protection ample, although not so large as in the
preceding group.
- --------------------------------------------------------------------------------
SP-3 MIG-3; VMIG-3 Notes are of favorable quality, with all security
elements accounted for, but lacking the undeniable
strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less
well-established.
- --------------------------------------------------------------------------------
SP-4 MIG-4; VMIG-4 Notes are of adequate quality, carrying specific risk
but having protection and not distinctly or
predominantly speculative.
- --------------------------------------------------------------------------------
24 American Century Investments
MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS
ANNUAL AND SEMIANNUAL REPORTS
These contain more information about the fund's investments and the market
conditions and investment strategies that significantly affected the fund's
performance during the most recent fiscal period. The annual and semiannual
reports are incorporated by reference into this Statement of Additional
Information (SAI). This means that these are legally part of this SAI.
You can receive a free copy of the annual and semiannual reports, and ask any
questions about the fund, by contacting us at the address or one of the
telephone numbers listed below.
If you own or are considering purchasing fund shares through
* an employer-sponsored retirement plan
* a bank
* a broker-dealer
* an insurance company
* another financial intermediary
you can receive the annual and semiannual reports directly from them.
You also can get information about the fund from the Security and Exchange
Commission (SEC).
* In person SEC Public
Reference Room Washington, D.C.
Call 1-800-SEC-0330 for
location and hours.
* On the Internet www.sec.gov
* By mail SEC Public
Reference Section
Washington, D.C.
20549-6009
(The SEC will charge a
fee for copying the
documents.)
Investment Company Act File No. 811-7822
- --------------------------------------------------------------------------------
[american century logo (reg.sm)]
American
Century
AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri 64141-6200
INVESTOR RELATIONS
1-800-345-2021 or 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
WWW.AMERICANCENTURY.COM
FAX
816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 or 816-444-3485
BUSINESS; NOT-FOR-PROFIT AND
EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
SH-SAI 17403 9907
