SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
File No. 2-94608
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 40 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
File No. 811-4165
Amendment No. 42 [X]
(Check appropriate box or boxes.)
AMERICAN CENTURY TARGET MATURITIES TRUST
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(Exact Name of Registrant as Specified in Charter)
4500 Main Street, Kansas City, MO 64111
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (816) 531-5575
David C. Tucker, Esq., 4500 Main Street, 9th Floor, Kansas City, MO 64111
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: February 1, 2005
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on February 1, 2005 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Your
American Century Investments
prospectus
Investor Class
Target 2005 Fund
Target 2010 Fund
Target 2015 Fund
Target 2020 Fund
Target 2025 Fund
Target 2030 Fund
February 1, 2005
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO
TELLS YOU OTHERWISE IS COMMITTING A CRIME.
American Century
Investment Services, Inc.
[american century investments logo and text logo]
Dear Investor,
American Century Investments is committed to helping you achieve your financial
goals. That's why we focus on achieving superior results and building long-term
relationships with our investors. We believe an important first step is to
provide you with an easy-to-read prospectus.
In the prospectus, you will find the information you need to make confident
decisions about your investments. For example, you can find a fund's objectives,
performance history, fees and much more. Additionally, this information is
useful when comparing funds.
We realize you may have questions after reading this prospectus. If so, please
contact our Investor Relations Representatives at 1-800-345-2021. They are
available weekdays from 7 a.m. to 7 p.m. and Saturdays from 9 a.m. to 2 p.m.
Central time. If you prefer, you can visit our Web site, americancentury.com,
for information that may help answer many of your questions.
Thank you for considering American Century for your investment needs.
Sincerely,
Donna Byers
Senior Vice President
Direct Sales and Services
American Century Services Corporation
American Century Investments, Inc.
P.O. Box 419200, Kansas City, MO 64141-6200
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Services Corporation.
Table of Contents
AN OVERVIEW OF THE FUNDS......................................................X
FUND PERFORMANCE HISTORY......................................................X
FEES AND EXPENSES.............................................................X
OBJECTIVES, STRATEGIES AND RISKS.............................................XX
BASICS OF FIXED-INCOME INVESTING.............................................XX
MANAGEMENT...................................................................XX
INVESTING WITH AMERICAN CENTURY..............................................XX
SHARE PRICE AND DISTRIBUTIONS................................................XX
TAXES........................................................................XX
MULTIPLE CLASS INFORMATION...................................................XX
FINANCIAL HIGHLIGHTS.........................................................XX
THIS SYMBOL IS USED THROUGHOUT THE BOOK TO HIGHLIGHT DEFINITIONS
OF KEY INVESTMENT TERMS AND TO PROVIDE OTHER HELPFUL INFORMATION.
AN OVERVIEW OF THE FUNDS
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
The funds seek the highest return consistent with investment in U.S. Treasury
securities.
WHAT ARE THE FUNDS' PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
The funds invest primarily in zero-coupon U.S. Treasury securities and their
equivalents. Each fund invests in different maturities of these DEBT SECURITIES
and has different interest rate risks. The following chart shows the differences
among the funds' primary investments and principal risks. It is designed to help
you compare these funds with each other; it should not be used to compare these
funds with other mutual funds. A more detailed description about the funds'
investment strategies and risks begins on page XX.
DEBT SECURITIES INCLUDE FIXED-INCOME INVESTMENTS SUCH AS NOTES,
BONDS, COMMERCIAL PAPER AND U.S. TREASURY SECURITIES.
FUND PRIMARY INVESTMENTS PRINCIPAL RISKS
SHORTER TERM Target 2005 Zero-coupon Lowest interest rate risk
LESS VOLATILE U.S. Treasury securities*
Target 2010 Zero-coupon Medium interest rate risk
U.S. Treasury securities*
Target 2015 Zero-coupon High interest rate risk
U.S. Treasury securities*
Target 2020 Zero-coupon High interest rate risk
U.S. Treasury securities*
Target 2025 Zero-coupon High interest rate risk
U.S. Treasury securities*
LONGER TERM Target 2030 Zero-coupon Highest interest rate risk
MORE VOLATILE U.S. Treasury securities*
*INCLUDING ZERO-COUPON U.S. TREASURY EQUIVALENTS.
Each fund will be liquidated near the end of its target maturity year.
At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the
funds.
AN INVESTMENT IN THE FUNDS IS NOT A BANK DEPOSIT, AND IT IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
(FDIC) OR ANY OTHER GOVERNMENT AGENCY.
FUND PERFORMANCE HISTORY
TARGET 2005 FUND
TARGET 2010 FUND
TARGET 2015 FUND
TARGET 2020 FUND
TARGET 2025 FUND
TARGET 2030 FUND
Annual Total Returns (2004 information not available until after 12/31/2004)
The following bar charts show the performance of the funds' Investor Class
shares for each of the last 10 calendar years or for each full calendar year in
the life of the class if less than 10 years. They indicate the volatility of the
funds' historical returns from year to year. Account fees are not reflected in
the charts below. If they had been included, returns would be lower than those
shown.
TARGET 2005 FUND -- INVESTOR CLASS
2004 x.xx%
2003 2.11%
2002 10.14%
2001 8.53%
2000 13.26%
1999 -5.80%
1998 12.87%
1997 11.63%
1996 -1.24%
1995 32.65%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2005 12.46% (2Q 1995) -7.30% (1Q 1994)
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TARGET 2010 FUND - INVESTOR CLASS
2004 x.xx%
2003 3.21%
2002 18.29%
2001 4.28%
2000 22.57%
1999 -11.79%
1998 15.07%
1997 16.75%
1996 -3.54%
1995 42.09%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2010 15.87% (2Q 1995) -9.97% (1Q 1996)
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TARGET 2015 FUND -- INVESTOR CLASS
2004 x.xx%
2003 3.93%
2002 21.24%
2001 0.63%
2000 26.63%
1999 -14.57%
1998 14.60%
1997 22.92%
1996 -6.03%
1995 52.72%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2015 18.27% (2Q 1995) -13.82% (1Q 1996)
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TARGET 2020 FUND -- INVESTOR CLASS
2004 x.xx%
2003 3.48%
2002 21.45%
2001 -1.51%
2000 30.67%
1999 -18.35%
1998 16.49%
1997 28.62%
1996 -8.42%
1995 61.34%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2020 21.44% (2Q 1995) -16.61% (1Q 1996)
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TARGET 2025 FUND -- INVESTOR CLASS
2004 x.xx%
2003 2.03%
2002 20.48%
2001 -2.69%
2000 32.63%
1999 -20.70%
1998 21.81%
1997 30.11%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2025 20.36% (3Q 2002) -10.19% (1Q 1997)
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TARGET 2030 FUND -- INVESTOR CLASS
2004 x.xx%
2003 1.39%
2002 23.24%
The highest and lowest quarterly returns for the period reflected in the bar
chart are:
HIGHEST LOWEST
Target 2030 23.60% (3Q 2002) -5.87% (3Q 2003)
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Average Annual Total Returns
The following tables show the average annual total returns of the funds'
Investor Class shares calculated three different ways.
Return Before Taxes shows the actual change in the value of fund shares over the
time periods shown, but does not reflect the impact of taxes on fund
distributions or the sale of fund shares. The two after-tax returns take into
account taxes that may be associated with owning fund shares. Return After Taxes
on Distributions is a fund's actual performance, adjusted by the effect of taxes
on distributions made by the fund during the periods shown. Return After Taxes
on Distributions and Sale of Fund Shares is further adjusted to reflect the tax
impact on any change in the value of fund shares as if they had been sold on the
last day of the period.
After-tax returns are calculated using the historical highest federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor's tax situation and may differ from
those shown. After-tax returns shown are not relevant to investors who hold fund
shares through tax-deferred arrangements such as 401(k) plans or IRAs.
The benchmarks are unmanaged indices (except as noted) that have no operating
costs and are included in the table for performance comparison.
INVESTOR CLASS (INFORMATION AVAILABLE AFTER 12/31/2004)
FOR THE CALENDAR YEAR ENDED LIFE OF
DECEMBER 31, 2004 1 YEAR 5 YEARS 10 YEARS CLASS(1)
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Target 2005
Return Before Taxes xx% xx% xx% N/A
Return After Taxes on Distributions xx% xx% xx% N/A
Return After Taxes on Distributions xx% xx% xx% N/A
and Sale of Fund Shares
11/15/2005 STRIPS Issue(2) xx% xx% xx% N/A
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury xx% xx% xx% N/A
Total Return Index
(reflects no deduction for fees,
expenses or taxes)
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Target 2010
Return Before Taxes xx% xx% xx% N/A
Return After Taxes on Distributions xx% xx% xx% N/A
Return After Taxes on Distributions xx% xx% xx% N/A
and Sale of Fund Shares
11/15/2010 STRIPS Issue(2) xx% xx% xx% N/A
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury xx% xx% xx% N/A
Total Return Index
(reflects no deduction for fees,
expenses or taxes)
(1) THE INCEPTION DATES FOR THE INVESTOR CLASS ARE: TARGET 2005 AND TARGET
2010: MARCH 25, 1985. ONLY CLASSES WITH PERFORMANCE HISTORY FOR LESS THAN
10 YEARS SHOW RETURNS FOR LIFE OF CLASS.
(2) EACH TARGET FUND IS DESIGNED TO PERFORM LIKE A ZERO-COUPON U.S. TREASURY
SECURITY WITH THE SAME TERM TO MATURITY AS THE FUND. THE STRIPS ISSUES
LISTED IN THIS TABLE ARE U.S. TREASURY ZERO-COUPON SECURITIES WITH MATURITY
DATES SIMILAR TO THE RESPECTIVE FUND. THE STRIPS ISSUES ARE NOT INDICES,
BUT ARE IMPORTANT BENCHMARKS OF THE TARGET FUNDS' PERFORMANCE.
(3) SINCE MARCH 31, 1985, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
INVESTOR CLASS
FOR THE CALENDAR YEAR ENDED LIFE OF
DECEMBER 31, 2004 1 YEAR 5 YEARS 10 YEARS CLASS(1)
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Target 2015
Return Before Taxes xx% xx% xx% N/A
Return After Taxes on Distributions xx% xx% xx% N/A
Return After Taxes on Distributions xx% xx% xx% N/A
and Sale of Fund Shares
11/15/2015 STRIPS Issue(2) xx% xx% xx% N/A
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury xx% xx% xx% N/A
Total Return Index
(reflects no deduction for fees,
expenses or taxes)
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Target 2020
Return Before Taxes xx% xx% xx% N/A
Return After Taxes on Distributions xx% xx% xx% N/A
Return After Taxes on Distributions xx% xx% xx% N/A
and Sale of Fund Shares
11/15/2020 STRIPS Issue(2) xx% xx% xx% N/A
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury xx% xx% xx% N/A
Total Return Index
(reflects no deduction for fees,
expenses or taxes)
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Target 2025
Return Before Taxes xx% xx% N/A xx%
Return After Taxes on Distributions xx% xx% N/A xx%
Return After Taxes on Distributions xx% xx% N/A xx%
and Sale of Fund Shares
11/15/2025 STRIPS Issue(2) xx% xx% N/A xx%(4)
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury xx% xx% N/A xx%(4)
Total Return Index
(reflects no deduction for fees,
expenses or taxes)
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Target 2030
Return Before Taxes xx% N/A N/A xx%
Return After Taxes on Distributions xx% N/A N/A xx%
Return After Taxes on Distributions xx% N/A N/A xx%
and Sale of Fund Shares
05/15/2030 STRIPS Issue(2) xx% N/A N/A xx%(5)
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury xx% N/A N/A xx%(5)
Total Return Index
(reflects no deduction for fees,
expenses or taxes)
(1) THE INCEPTION DATES FOR THE INVESTOR CLASS ARE: TARGET 2015: SEPTEMBER 1,
1986; TARGET 2020: DECEMBER 29, 1989; TARGET 2025: FEBRUARY 15, 1996; AND
TARGET 2030: JUNE 1, 2001. ONLY CLASSES WITH PERFORMANCE HISTORY FOR LESS
THAN 10 YEARS SHOW RETURNS FOR LIFE OF CLASS.
(2) EACH TARGET FUND IS DESIGNED TO PERFORM LIKE A ZERO-COUPON U.S. TREASURY
SECURITY WITH THE SAME TERM TO MATURITY AS THE FUND. THE STRIPS ISSUES
LISTED IN THIS TABLE ARE U.S. TREASURY ZERO-COUPON SECURITIES WITH MATURITY
DATES SIMILAR TO THE RESPECTIVE FUND. THE STRIPS ISSUES ARE NOT INDICES,
BUT ARE IMPORTANT BENCHMARKS OF THE TARGET FUNDS' PERFORMANCE.
(3) SINCE AUGUST 31, 1986, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
(4) SINCE FEBRUARY 29, 1996, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR
WHICH DATA IS AVAILABLE.
(5) SINCE MAY 31, 2001, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
Performance information is designed to help you see how fund returns can vary.
Keep in mind that past performance (before and after taxes) does not predict how
a fund will perform in the future.
For current performance information, including yields, please call us at
1-800-345-2021 or visit us at .americancentury.com.
FEES AND EXPENSES
There are no sales loads, fees or other charges
o to buy fund shares directly from American Century
o to reinvest dividends in additional shares
o to exchange into the same class of shares of other American Century funds
o to redeem your shares other than a $10 fee to redeem by wire
The following tables describe the fees and expenses you may pay if you buy and
hold shares of the funds.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
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Investor Class (all funds)
Maximum Account Maintenance Fee $25(1)
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(1) APPLIES ONLY TO INVESTORS WHOSE TOTAL ELIGIBLE INVESTMENTS WITH AMERICAN
CENTURY ARE LESS THAN $10,000. SEE Account Maintenance Fee UNDER Investing
with American Century FOR MORE DETAILS.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT DISTRIBUTION AND OTHER TOTAL ANNUAL FUND
FEE(1) SERVICE (12B-1) FEES EXPENSES(2) OPERATING EXPENSES
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Target 2005
Investor Class 0.58% None 0.00% 0.58%
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Target 2010
Investor Class 0.58% None 0.00% 0.58%
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Target 2015
Investor Class 0.58% None 0.00% 0.58%
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Target 2020
Investor Class 0.58% None 0.00% 0.58%
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Target 2025
Investor Class 0.58% None 0.00% 0.58%
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Target 2030
Investor Class 0.58% None 0.00% 0.58%
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(1) BASED ON ASSETS DURING THE FUNDS' MOST RECENT FISCAL YEAR. THE FUNDS HAVE
STEPPED FEE SCHEDULES. AS A RESULT, THE FUNDS' MANAGEMENT FEE RATES
GENERALLY DECREASE AS FUND ASSETS INCREASE AND INCREASE AS FUND ASSETS
DECREASE.
(2) OTHER EXPENSES INCLUDE THE FEES AND EXPENSES OF THE FUNDS' INDEPENDENT
TRUSTEES AND THEIR LEGAL COUNSEL, AS WELL AS INTEREST.
EXAMPLE
The examples in the table below are intended to help you compare the costs of
investing in a fund with the costs of investing in other mutual funds. Of
course, your actual costs may be higher or lower. Assuming you . . .
o invest $10,000 in the fund
o redeem all of your shares at the end of the periods shown below
o earn a 5% return each year
o incur the same operating expenses as shown above
. . . your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Target 2005
Investor Class $59 $186 $323 $724
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Target 2010
Investor Class $59 $186 $323 $724
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Target 2015
Investor Class $59 $186 $323 $724
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Target 2020
Investor Class $59 $186 $323 $724
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Target 2025
Investor Class $59 $186 $323 $724
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Target 2030
Investor Class $59 $186 $323 $724
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OBJECTIVES, STRATEGIES AND RISKS
TARGET 2005 FUND
TARGET 2010 FUND
TARGET 2015 FUND
TARGET 2020 FUND
TARGET 2025 FUND
TARGET 2030 FUND
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
The funds seek the highest return consistent with investment in U.S. Treasury
securities.
HOW DO THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES?
Each fund invests primarily in zero-coupon U.S. Treasury securities and their
equivalents, and may invest up to 20% of its assets in AAA-rated zero-coupon
U.S. government agency securities. Not all of these U.S. government securities
are backed by the full faith and credit of the U.S. government as to payment of
interest and repayment of principal. Some are backed by the right of the issuer
to borrow from the U.S. Treasury. Others are backed only by the credit of the
agency or instrumentality. The fund may invest in securities, including
mortgage-backed securities, issued or guaranteed by U.S. government agencies or
instrumentalities, including the Government National Mortgage Association
("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae"), the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Federal Home Loan
Bank ("FHLB"), and the Tennessee Valley Authority ("TVA"). These securities may
include participation interests in pools of mortgage loans originated by the
U.S. government or private lenders and guaranteed by U.S. government agencies or
instrumentalities such as Ginnie Mae, Fannie Mae, Freddie Mac. Guarantees by
Ginnie Mae are backed by the full faith and credit of the U.S. government.
Guarantees by other agencies or instrumentalities of the U.S. government, such
as Fannie Mae, Freddie Mac, FHLB and TVA are not backed by the full faith and
credit of the U.S. government, although Fannie Mae, Freddie Mac, FHLB and TVA
are authorized to borrow from the U.S. Treasury to meet their obligations.
Each fund is designed to provide an investment experience that is similar to a
direct investment in a zero-coupon U.S. Treasury security.
A description of the funds' policies and procedures with respect to the
disclosure of the funds' portfolio securities is available in the funds'
statement of additional information.
WHAT ARE THE DIFFERENCES BETWEEN THE FUNDS?
Each fund is managed to mature in the year identified in its name; therefore,
each fund's weighted average maturity is different. Funds with longer weighted
average maturities have the most volatile share prices. For example, Target 2030
has the longest weighted average maturity, and its share price will fluctuate
the most.
WHAT ARE ZERO-COUPON SECURITIES?
Zero-coupon securities make no periodic interest or principal payments. Instead,
they trade at a deep discount to their face value and all of the interest and
principal is paid when the securities mature. Some zero-coupon securities are
created by separating the interest and principal payment obligations of a
traditional coupon-bearing bond. Each payment obligation becomes a separate
zero-coupon security. Zero-coupon U.S. Treasury and U.S. government agency
securities are created by financial institutions (such as broker-dealers), the
U.S. Treasury and other agencies of the federal government. The U.S. Treasury
and other agencies of the federal government may also issue zero-coupon
securities directly.
Zero-coupon U.S. Treasury securities (Treasury zeros) are created by separating
a Treasury bond's interest and principal payment obligations. The important
characteristic of Treasury zeros is that payment of the final maturity value is
an obligation of the U.S. Treasury and is backed by the full faith and credit of
the U.S. government.
Zero-coupon U.S. government agency securities (agency zeros) operate in all
respects like Treasury zeros, except that they are created by separating the
interest and principal payment obligations of bonds issued by the agency. Unlike
Treasury zeros, payment of the final maturity value is the obligation of the
issuing agency. If the agency zeros are ultimately backed by securities or
payment obligations of the U.S. Treasury and are generally considered by the
market to be of comparable credit quality, the manager considers them Treasury
zero equivalents. Otherwise, the manager will limit purchases of such agency
zeros to those that receive the highest rating (AAA) by an independent rating
organization and will further limit such investments to 20% of a fund's assets.
Zero-coupon securities are beneficial for investors who wish to invest for a
fixed period of time at a selected rate. When an investor purchases a
traditional coupon-bearing bond, it is paid periodic interest at a predetermined
rate. This interest payment must be reinvested elsewhere. However, the investor
may not be able to reinvest this interest payment in an investment that has a
return similar to a traditional coupon-bearing bond. This is called reinvestment
risk. Because zero-coupon securities do not pay interest periodically, investors
in zero-coupon securities are not exposed to reinvestment risk.
HOW IS AN INVESTMENT IN THE FUNDS LIKE AN INVESTMENT IN ZERO-COUPON U.S.
TREASURY SECURITIES?
The investment performance of the funds is designed to be similar to an
investment in zero-coupon U.S. Treasury securities. If you invest in a fund,
reinvest all distributions and hold your shares until the fund is liquidated,
your investment experience should be similar to that of an investment in a
zero-coupon U.S. Treasury security with the same term to maturity as the fund.
Each fund is managed to provide an investment return that will not differ
substantially from the ANTICIPATED GROWTH RATE (AGR) calculated on the day the
shares were purchased. Each fund also is managed to provide maturity value that
will not differ substantially from the ANTICIPATED VALUE AT MATURITY (AVM)
calculated on the day the shares were purchased.
A FUND'S ANTICIPATED GROWTH RATE IS AN ESTIMATE OF THE ANNUALIZED
RATE OF GROWTH OF THE FUND THAT AN INVESTOR MAY EXPECT FROM THE
PURCHASE DATE TO THE FUND'S WEIGHTED AVERAGE MATURITY DATE.
THE ANTICIPATED VALUE AT MATURITY IS AN ESTIMATE OF A FUND'S NET
ASSET VALUE AS OF THE FUND'S WEIGHTED AVERAGE MATURITY DATE. IT IS
BASED ON THE MATURITY VALUES OF THE ZERO-COUPON TREASURY SECURITIES
HELD BY THE FUND.
The advisor calculates each fund's AGR and AVM every business day. AGR and AVM
calculations assume, among other factors, that the fund's operating expenses (as
a percentage of the fund's assets) and composition of securities held by each
fund remain constant for the life of the fund. While many factors can influence
each fund's daily AGR and AVM, they tend to fluctuate within narrow ranges. The
following table shows how each fund's AVM for the Investor Class has fluctuated
in the last five years.
ANTICIPATED VALUES AT MATURITY
9/30/2000 9/30/2001 9/30/2002 9/30/2003 9/30/2004
Target 2005 $101.94 $101.32 $101.25 $101.04 $101.20
Target 2010 $105.14 $104.90 $105.04 $105.22 $105.59
Target 2015 $113.36 $113.56 $112.26 $112.88 $113.35
Target 2020 $108.05 $108.24 $107.26 $107.48 $108.07
Target 2025 $113.99 $116.77 $117.07 $117.43 $118.37
Target 2030 N/A $105.87 $103.58 $105.70 $105.52
THIS TABLE IS DESIGNED TO SHOW THE NARROW RANGES IN WHICH EACH
FUND'S AVMS VARY OVER TIME. THERE IS NO GUARANTEE THAT THE FUNDS' AVMS
WILL FLUCTUATE AS LITTLE IN THE FUTURE.
WHAT HAPPENS WHEN A FUND REACHES ITS MATURITY YEAR?
o The fund managers may begin buying traditional coupon-bearing securities
consistent with a fund's investment objective and strategy.
o As a fund's zero-coupon securities mature, the proceeds from the retirement
of these securities may be invested in zeros, traditional coupon-bearing
debt securities and cash equivalent securities.
o Each fund will be liquidated near the end of its maturity year.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
Because the funds have different weighted average maturities, each fund will
respond differently to changes in interest rates. Funds with longer weighted
average maturities are generally more sensitive to interest rate changes. When
interest rates rise, the funds' share values will decline, but the share values
of funds with longer weighted average maturities generally will decline further.
At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the
funds.
While we recommend that shareholders hold their investment in a fund until the
fund is liquidated, we do not restrict your (or any other shareholders') ability
to redeem shares. When a fund's shareholders redeem their shares before the
target maturity year, unanticipated capital gains or losses may result. The fund
will distribute these capital gains and losses to all shareholders.
The fund managers adhere to investment policies that are designed to provide an
investment that is similar to investing in a zero-coupon U.S. Treasury security
that matures in the year identified in the fund's name. However, an investment
in the funds involves different risks. A precise forecast of a fund's final
maturity value and yield to maturity is not possible.
BASICS OF FIXED-INCOME INVESTING
DEBT SECURITIES
When a fund buys a debt security, also called a fixed-income security, it is
essentially lending money to the security's issuer. Notes, bonds, commercial
paper and U.S. Treasury securities are examples of debt securities. After the
debt security is first sold by the issuer, it may be bought and sold by other
investors. The price of the debt security may rise or fall based on many
factors, including changes in interest rates, liquidity and credit quality.
The fund managers decide which debt securities to buy and sell by
o determining which debt securities help a fund meet its maturity
requirements
o identifying debt securities that satisfy a fund's credit quality standards
o evaluating current economic conditions and assessing the risk of inflation
o evaluating special features of the debt securities that may make them more
or less attractive
WEIGHTED AVERAGE MATURITY
Like most loans, debt securities eventually must be repaid or refinanced at some
date. This date is called the maturity date. The number of days left to a debt
security's maturity date is called the remaining maturity. The longer a debt
security's remaining maturity, generally the more sensitive its price is to
changes in interest rates.
Because a bond fund will own many debt securities, the fund managers calculate
the average of the remaining maturities of all the debt securities the fund owns
to evaluate the interest rate sensitivity of the entire portfolio. This average
is weighted according to the size of the fund's individual holdings and is
called the weighted average maturity. The following chart shows how fund
managers would calculate the weighted average maturity for a fund that owned
only two debt securities.
AMOUNT OF PERCENT OF REMAINING WEIGHTED
SECURITY OWNED PORTFOLIO MATURITY MATURITY
Debt Security A $100,000 25% 4 years 1 year
Debt Security B $300,000 75% 12 years 9 years
Weighted Average Maturity 10 years
TYPES OF RISK
The basic types of risk the funds face are described below.
INTEREST RATE RISK
Generally, interest rates and the prices of debt securities move in opposite
directions. When interest rates fall, the prices of most debt securities rise;
when interest rates rise, prices fall. Because the funds invest primarily in
debt securities, changes in interest rates will affect the funds' performance.
This sensitivity to interest rate changes is called interest rate risk.
The degree to which interest rate changes affect fund performance varies and is
related to the weighted average maturity of a particular fund. For example, when
interest rates rise, you can expect the share value of a long-term bond fund to
fall more than that of a short-term bond fund. When rates fall, the opposite is
true.
The following table shows the likely effect of a 1% (100 basis points) increase
in interest rates on the price of 7% coupon bonds of differing maturities:
REMAINING MATURITY CURRENT PRICE PRICE AFTER 1% INCREASE CHANGE IN PRICE
1 year $100.00 $99.06 -0.94%
3 years $100.00 $97.38 -2.62%
10 years $100.00 $93.20 -6.80%
30 years $100.00 $88.69 -11.31%
CREDIT RISK
Credit risk is the risk that an obligation won't be paid and a loss will result.
A high credit rating indicates a high degree of confidence by the rating
organization that the issuer will be able to withstand adverse business,
financial or economic conditions and make interest and principal payments on
time. Generally, a lower credit rating indicates a greater risk of non-payment.
A lower rating also may indicate that the issuer has a more senior series of
debt securities, which means that if the issuer has difficulties making its
payments, the more senior series of debt is first in line for payment.
Credit quality may be lower when the issuer has any of the following: a high
debt level, a short operating history, a difficult, competitive environment, or
a less stable cash flow.
The fund managers do not invest solely on the basis of a debt security's credit
rating; they also consider other factors, including potential returns. Higher
credit ratings usually mean lower interest rate payments, so the managers often
purchase debt securities that aren't the highest rated to increase return. If a
fund purchases lower-rated debt securities, it assumes additional credit risk.
Strictly speaking, U.S. Treasury securities are not "rated." However, U.S.
Treasury securities are backed by the full faith and credit of the United
States, and are considered among the safest securities in the world. The rating
on U.S. Treasury securities is, therefore, considered to be equivalent to a AAA
rating.
LIQUIDITY RISK
Debt securities can become difficult to sell, or less liquid, for a variety of
reasons, such as lack of an active trading market. The chance that a fund will
have difficulty selling its debt securities is called liquidity risk.
A COMPARISON OF BASIC RISK FACTORS
The following chart depicts the basic risks of investing in the funds. It is
designed to help you compare these funds with each other; it shouldn't be used
to compare these funds with other mutual funds.
INTEREST RATE RISK CREDIT RISK(1) LIQUIDITY RISK(2)
Target 2005 Lowest Low Low
Target 2010 Medium Low Low
Target 2015 High Low Low
Target 2020 High Low Low
Target 2025 High Low Low
Target 2030 Highest Low Low
(1) BECAUSE THE FUNDS ALL INVEST PRIMARILY IN ZERO-COUPON U.S. TREASURY
SECURITIES AND THEIR EQUIVALENTS, THERE IS NO DIFFERENCE IN CREDIT RISK.
U.S. TREASURY SECURITIES ARE CONSIDERED AMONG THE SAFEST SECURITIES IN THE
WORLD BECAUSE THEY ARE BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED
STATES.
(2) THE TREASURY MARKET IS CONSIDERED THE MOST LIQUID IN THE WORLD.
The funds engage in a variety of investment techniques as they pursue their
investment objectives. Each technique has its own characteristics and may pose
some level of risk to the funds. If you would like to learn more about these
techniques, please review the statement of additional information before making
an investment.
MANAGEMENT
WHO MANAGES THE FUNDS?
The Board of Trustees, investment advisor and fund management team play key
roles in the management of the funds.
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the funds, it has hired an investment advisor to do so.
More than three-fourths of the trustees are independent of the funds' advisor;
that is, they have never been employed by and have no financial interest in the
advisor or any of its affiliated companies (other than as shareholders of
American Century funds).
THE INVESTMENT ADVISOR
The funds' investment advisor is American Century Investment Management, Inc.
(the advisor). The advisor has been managing mutual funds since 1958 and is
headquartered at 4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the funds
and directing the purchase and sale of their investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the funds to operate.
For the services it provided to the funds, the advisor received a unified
management fee based on a percentage of the daily net assets of each specific
class of shares of the funds. The percentage rate used to calculate the
management fee for each class of shares of a fund is determined daily using a
two-component formula that takes into account (i) the daily net assets of the
accounts managed by the advisor that are in the same broad investment category
as the funds (the "Category Fee") and (ii) the assets of all funds in the
American Century family of funds (the "Complex Fee"). The management fee is
calculated daily and paid monthly in arrears.
The statement of additional information contains detailed information about the
calculation of the management fee. Out of each fund's fee, the advisor paid all
expenses of managing and operating that fund except brokerage expenses, taxes,
interest, fees and expenses of the independent trustees (including legal counsel
fees), and extraordinary expenses. A portion of each fund's management fee may
be paid by the fund's advisor to unaffiliated third parties who provide
recordkeeping and administrative services that would otherwise be performed by
an affiliate of the advisor.
MANAGEMENT FEES PAID BY THE FUNDS TO THE ADVISOR
AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE MOST
RECENT FISCAL YEAR ENDED SEPTEMBER 30, 2004 INVESTOR CLASS
Target 2005 0.58%
Target 2010 0.58%
Target 2015 0.58%
Target 2020 0.58%
Target 2025 0.58%
Target 2030 0.58%
THE FUND MANAGEMENT TEAM
The advisor uses a team of portfolio managers, assistant portfolio managers and
analysts to manage the funds. The team meets regularly to review portfolio
holdings and discuss purchase and sale activity. Team members buy and sell
securities for a fund as they see fit, guided by the fund's investment
objectives and strategy.
The funds are managed by the Taxable Bond team, whose members are identified
below.
G. DAVID MACEWEN
Mr. MacEwen, Chief Investment Officer - Fixed Income and Senior Vice President,
supervises the American Century Taxable Bond team. He has been a member of the
team since July 2001. He joined American Century in May 1991 as a Municipal
Portfolio Manager. He has a bachelor's degree in economics from Boston
University and an MBA in finance from the University of Delaware.
ROBERT V. GAHAGAN
Mr. Gahagan, Vice President and Senior Portfolio Manager, has been a member of
the team since 1986. He joined American Century in 1983 as a Fixed-Income
Analyst and was promoted to Portfolio Manger in August 1991. He has a bachelor's
degree in economics and an MBA from the University of Missouri - Kansas City.
JEREMY FLETCHER
Mr. Fletcher, Vice President and Portfolio Manager, has been a member of the
team since August 1997. He joined American Century in October 1991 as an
Investor Relations Representative. He has bachelor's degrees in economics and
mathematics from Claremont McKenna College. He is a CFA charterholder.
ALEJANDRO H. AGUILAR
Mr. Aguilar, Vice President and Senior Portfolio Manager, has been a member of
the team since joining American Century in October 2003. Prior to joining
American Century, he was an Investment Officer with CalPERS from July 2002 to
September 2003 and Director of Portfolio Management at TIAA-CREF from May 1997
to April 2002. He has a bachelor's degree in economics from the University of
Michigan. He is a CFA charterholder.
MICHAEL DIFLEY
Mr. Difley, Vice President and Portfolio Manager, has been a member of the team
since September 1997. He joined American Century as a Senior Corporate Credit
Analyst in July 1996 and was promoted to Portfolio Manager in November 2001. He
has a B.S. in business administration (finance concentration) from California
Polytechnic State University - San Luis Obispo. He is a Certified Public
Accountant and a CFA charterholder.
JEFFREY L. HOUSTON
Mr. Houston, Vice President and Senior Portfolio Manager, has been a member of
the team since June 1995. He joined American Century as an Investment Analyst in
November 1990 and was promoted to Portfolio Manager in 1994. He has a bachelor
of arts from the University of Delaware and an MPA from Syracuse University. He
is a CFA charterholder.
BRIAN HOWELL
Mr. Howell, Vice President and Portfolio Manager, has been a member of the team
since May 1998. He joined American Century in 1988. He has a bachelor's degree
in mathematics/statistics and an MBA from the University of California -
Berkeley.
JAMES E. PLATZ
Mr. Platz, Vice President and Senior Portfolio Manager, has been a member of the
team since joining American Century in October 2003. Prior to joining American
Century, he was a Vice President and Senior Portfolio Manager at Standish Mellon
Asset Management from July 1995 to September 2003. He has bachelor's degrees in
economics and history from the University of California - Berkeley and an MBA in
finance from the University of Southern California. He is a CFA charterholder.
JOHN F. WALSH
Mr. Walsh, Vice President and Portfolio Manager, has been a member of the team
since February 1996. He joined American Century in February 1996 as an
Investment Analyst and was promoted to Portfolio Manager in September 1997. He
has a bachelor's degree in marketing from Loyola Marymount University and an MBA
in finance from Creighton University.
Code of Ethics
American Century has a Code of Ethics designed to ensure that the interests of
fund shareholders come before the interests of the people who manage the funds.
Among other provisions, the Code of Ethics prohibits portfolio managers and
other investment personnel from buying securities in an initial public offering
or profiting from the purchase and sale of the same security within 60 calendar
days. It also contains limits on short-term transactions in American
Century-managed funds. In addition, the Code of Ethics requires portfolio
managers and other employees with access to information about the purchase or
sale of securities by the funds to obtain approval before executing personal
trades.
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the statement of additional
information and the investment objectives of the funds may not be changed
without shareholder approval. The Board of Trustees and/or the advisor may
change any other policies and investment strategies.
INVESTING WITH AMERICAN CENTURY
SERVICES AUTOMATICALLY AVAILABLE TO YOU
Most accounts automatically will have access to the services listed below when
the account is opened. If you do not want these services, see CONDUCTING
BUSINESS IN WRITING. If you have questions about the services that apply to your
account type, please call us.
CONDUCTING BUSINESS IN WRITING
If you prefer to conduct business in writing only, you can indicate this on the
account application. If you choose this option, you must provide written
instructions to invest, exchange and redeem. All account owners must sign
transaction instructions (with signatures guaranteed for redemptions in excess
of $100,000). If you want to add services later, you can complete an Investor
Service Options form. By choosing this option, you are not eligible to enroll
for exclusive online account management to waive the account maintenance fee.
See ACCOUNT MAINTENANCE FEE in this section.
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce the amount of mail you receive from us, we may deliver a single copy
of certain investor documents (such as shareholder reports and prospectuses) to
investors who share an address, even if accounts are registered under different
names. If you prefer to receive multiple copies of these documents individually
addressed, please call 1-800-345-2021. If you invest in American Century mutual
funds through a financial intermediary, please contact them directly. For
American Century Brokerage accounts, please call 1-888-345-2071.
YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS
American Century and its affiliated companies use procedures reasonably designed
to confirm that telephone, electronic and other instructions are genuine. These
procedures include recording telephone calls, requesting personalized security
codes or other information, and sending confirmation of transactions. If we
follow these procedures, we are not responsible for any losses that may occur
due to unauthorized instructions. For transactions conducted over the Internet,
we recommend the use of a secure Internet browser. In addition, you should
verify the accuracy of your confirmation statements immediately after you
receive them.
WAYS TO MANAGE YOUR ACCOUNT
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ONLINE
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americancentury.com
OPEN AN ACCOUNT
If you are a current or new investor, you can open an account by completing and
submitting our online application. Current investors also can open an account by
exchanging shares from another American Century account.
EXCHANGE SHARES
Exchange shares from another American Century account.
MAKE ADDITIONAL INVESTMENTS
Make an additional investment into an established American Century account if
you have authorized us to invest from your bank account.
SELL SHARES*
Redeem shares and proceeds will be electronically transferred to your authorized
bank account.
* ONLINE REDEMPTIONS UP TO $25,000 PER DAY.
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BY TELEPHONE
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INVESTOR RELATIONS
1-800-345-2021
BUSINESS, NOT-FOR-PROFIT AND
EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
AUTOMATED INFORMATION LINE
1-800-345-8765
OPEN AN ACCOUNT
If you are a current investor, you can open an account by exchanging shares from
another American Century account.
EXCHANGE SHARES
Call or use our Automated Information Line if you have authorized us to accept
telephone instructions. The Automated Information Line is available only to
Investor Class shareholders.
MAKE ADDITIONAL INVESTMENTS
Call or use our Automated Information Line if you have authorized us to invest
from your bank account.
SELL SHARES
Call a Service Representative.
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BY WIRE
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Please remember, if you request redemptions by wire, $10 will be deducted from
the amount redeemed. Your bank also may charge a fee.
OPEN AN ACCOUNT
Call to set up your account or mail a completed application to the address
provided in the BY MAIL OR FAX section. Give your bank the following information
to wire money.
o Our bank information
Commerce Bank N.A.
Routing No. 101000019
Account No. Please call for the appropriate account number
o The fund name
o Your American Century account number, if known*
o Your name
o The contribution year (for IRAs only)
*FOR ADDITIONAL INVESTMENTS ONLY
MAKE ADDITIONAL INVESTMENTS
Follow the BY WIRE - OPEN AN ACCOUNT instructions.
SELL SHARES
You can receive redemption proceeds by wire or electronic transfer.
EXCHANGE SHARES
Not available.
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BY MAIL OR FAX
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P.O. Box 419200
Kansas City, MO 64141-6200
Fax
816-340-7962
OPEN AN ACCOUNT
Send a signed, completed application and check or money order payable to
American Century Investments.
EXCHANGE SHARES
Send written instructions to exchange your shares from one American Century
account to another.
MAKE ADDITIONAL INVESTMENTS
Send your check or money order for at least $50 with an investment slip or $250
without an investment slip. If you don't have an investment slip, include your
name, address and account number on your check or money order.
SELL SHARES
Send written instructions or a redemption form to sell shares. Call a Service
Representative to request a form.
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AUTOMATICALLY
--------------------------------------------------------------------------------
OPEN AN ACCOUNT
Not available.
EXCHANGE SHARES
Send written instructions to set up an automatic exchange of your shares from
one American Century account to another.
MAKE ADDITIONAL INVESTMENTS
With the automatic investment service, you can purchase shares on a regular
basis. You must invest at least $600 per year per account.
SELL SHARES
If you have at least $10,000 in your account, you may sell shares automatically
by establishing Check-A-Month or Automatic Redemption plans.
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IN PERSON
--------------------------------------------------------------------------------
If you prefer to handle your transactions in person, visit one of our Investor
Centers and a representative can help you open an account, make additional
investments, and sell or exchange shares.
4500 Main Street 4917 Town Center Drive
Kansas City, Missouri Leawood, Kansas
8 a.m. to 5 p.m., Monday - Friday 8 a.m. to 5 p.m., Monday - Friday
8 a.m. to noon, Saturday
1665 Charleston Road 10350 Park Meadows Drive
Mountain View, California Littleton, Colorado
8 a.m. to 5 p.m., Monday - Friday 8:30 a.m. to 5 p.m., Monday - Friday
MINIMUM INITIAL INVESTMENT AMOUNTS
To open an account, the minimum initial investment amounts are $2,000 for a
Coverdell Education Savings Account (CESA) and $2,500 for all other accounts.
ACCOUNT MAINTENANCE FEE
If you hold Investor Class shares of any American Century fund, or Institutional
Class shares of the American Century Diversified Bond fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
we may charge you a $12.50 semiannual account maintenance fee if the value of
those shares is less than $10,000. We will determine the amount of your total
eligible investments twice per year, generally the last Friday in October and
April. If the value of those investments is less than $10,000 at that time, we
will redeem shares automatically in one of your accounts to pay the $12.50 fee.
Please note that you may incur a tax liability as a result of the redemption. In
determining your total eligible investment amount, we will include your
investments in all PERSONAL ACCOUNTS (including American Century Brokerage
accounts) registered under your Social Security number. We will not charge the
fee as long as you choose to manage your accounts exclusively online. You may
enroll for exclusive online account management on our Web site. To find out more
about exclusive online account management, visit americancentury.com/info/demo.
PERSONAL ACCOUNTS INCLUDE INDIVIDUAL ACCOUNTS, JOINT ACCOUNTS,
UGMA/UTMA ACCOUNTS, PERSONAL TRUSTS, COVERDELL EDUCATION SAVINGS
ACCOUNTS, IRAS (INCLUDING TRADITIONAL, ROTH, ROLLOVER, SEP-, SARSEP-
AND SIMPLE-IRAS), AND CERTAIN OTHER RETIREMENT ACCOUNTS. IF YOU HAVE
ONLY BUSINESS, BUSINESS RETIREMENT, EMPLOYER-SPONSORED OR AMERICAN
CENTURY BROKERAGE ACCOUNTS, YOU ARE CURRENTLY NOT SUBJECT TO THIS FEE,
BUT YOU MAY BE SUBJECT TO OTHER FEES.
REDEMPTIONS
Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order.
A FUND'S NET ASSET VALUE, OR NAV, IS THE PRICE OF THE FUND'S
SHARES.
However, we reserve the right to delay delivery of redemption proceeds up to
seven days. For example, each time you make an investment with American Century,
there is a seven-day holding period before we will release redemption proceeds
from those shares, unless you provide us with satisfactory proof that your
purchase funds have cleared. For funds with CheckWriting privileges, we will not
honor checks written against shares subject to this seven-day holding period.
Investments by wire generally require only a one-day holding period. If you
change your address, we may require that any redemption request made within 15
days be submitted in writing and be signed by all authorized signers with their
signatures guaranteed. If you change your bank information, we may impose a
15-day holding period before we will transfer or wire redemption proceeds to
your bank. In addition, we reserve the right to honor certain redemptions with
securities, rather than cash, as described in the next section.
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the value of a fund's assets if that amount is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of in cash. The fund
managers would select these securities from the fund's portfolio.
We will value these securities in the same manner as we do in computing the
fund's net asset value. We may provide these securities in lieu of cash without
prior notice. Also, if payment is made in securities, you may have to pay
brokerage or other transaction costs to convert the securities to cash.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on a fund and its remaining investors.
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
If your account balance falls below the minimum initial investment amount for
any reason other than as a result of market fluctuation, we will notify you and
give you 90 days to meet the minimum. If you do not meet the deadline, American
Century reserves the right to redeem the shares in the account and send the
proceeds to your address of record. You may incur tax liability as a result of
the redemption.
SIGNATURE GUARANTEES
A signature guarantee -- which is different from a notarized signature -- is a
warranty that the signature presented is genuine. We may require a signature
guarantee for the following transactions:
o Your redemption or distribution check, Check-A-Month or automatic
redemption is made payable to someone other than the account owners
o Your redemption proceeds or distribution amount is sent by wire or EFT to a
destination other than your personal bank account
o You are transferring ownership of an account over $100,000
We reserve the right to require a signature guarantee for other transactions, at
our discretion.
MODIFYING OR CANCELING AN INVESTMENT
Investment instructions are irrevocable. That means that once you have mailed or
otherwise transmitted your investment instruction, you may not modify or cancel
it. Each fund reserves the right to suspend the offering of shares for a period
of time and to reject any specific investment (including a purchase by
exchange). Additionally, we may refuse a purchase if, in our judgment, it is of
a size that would disrupt the management of a fund.
ABUSIVE TRADING PRACTICES
Short-term trading and other so-called market timing practices are not defined
or explicitly prohibited by any federal or state law. However, short-term
trading and other abusive trading practices may disrupt portfolio management
strategies and harm fund performance. If the cumulative amount of short-term
trading activity is significant relative to a fund's net assets, the fund may
incur trading costs that are higher than necessary as securities are first
purchased then quickly sold to meet the redemption request. In such case, the
fund's performance could be negatively impacted by the increased trading costs
created by short-term trading if the additional trading costs are significant.
Because of the potentially harmful effects of abusive trading practices, the
funds' board of trustees has approved American Century's abusive trading
policies and procedures, which are designed to reduce the frequency and effect
of these activities in our funds. These policies and procedures include
monitoring trading activity, imposing trading restrictions on certain accounts,
imposing redemption fees on certain funds, and using fair value pricing when
current market prices are not readily available. Although these efforts are
designed to discourage abusive trading practices, they cannot eliminate the
possibility that such activity will occur and will vary depending on the type of
fund, the class of shares or whether the shares are held directly or indirectly
with American Century. American Century seeks to exercise its judgment in
implementing these tools to the best of its abilities in a manner that it
believes is consistent with shareholder interests.
American Century uses a variety of techniques to monitor for and detect abusive
trading practices. These techniques may change from time to time as determined
by American Century in its sole discretion. To minimize harm to the funds and
their shareholders, we reserve the right to reject any purchase order (including
exchanges) from any shareholder we believe has a history of abusive trading or
whose trading, in our judgment, has been or may be disruptive to the funds. In
making this judgment, we may consider trading done in multiple accounts under
common ownership or control.
Currently, for shares held directly with American Century, we may deem the sale
of all or a substantial portion of a shareholder's purchase of fund shares to be
abusive if the sale is made
o within seven days of the purchase, or
o within 30 days of the purchase, if it happens more than once per year.
To the extent practicable, we try to use the same approach for defining abusive
trading for shares held through financial intermediaries. American Century
reserves the right, in its sole discretion, to identify other trading practices
as abusive and to modify its monitoring and other practices as necessary to deal
with novel or unique abusive trading practices.
In addition, American Century reserves the right to accept purchases and
exchanges in excess of the trading restrictions discussed above if it believes
that such transactions would not be inconsistent with the best interests of fund
shareholders or this policy.
American Century's policies do not permit us to enter into arrangements with
fund shareholders that permit such shareholders to engage in frequent purchases
and redemptions of fund shares. Due to the complexity and subjectivity involved
in identifying abusive trading activity and the volume of shareholder
transactions American Century handles, there can be no assurance that American
Century's efforts will identify all trades or trading practices that may be
considered abusive. In addition, American Century's ability to monitor trades
that are placed by the individual shareholders within group, or omnibus,
accounts maintained by financial intermediaries is severely limited because
American Century generally does not have access to the underlying shareholder
account information. However, American Century monitors aggregate trades placed
in omnibus accounts and seeks to work with financial intermediaries to
discourage shareholders from engaging in abusive trading practices and to impose
restrictions on excessive trades. There may be limitations on the ability of
financial intermediaries to impose restrictions on the trading practices of
their clients. As a result, American Century's ability to monitor and discourage
abusive trading practices in omnibus accounts may be limited.
INVESTING THROUGH FINANCIAL INTERMEDIARIES
If you do business with us through a financial intermediary or a retirement
plan, your ability to purchase, exchange, redeem and transfer shares will be
affected by the policies of that entity. Some policy differences may include
o minimum investment requirements
o exchange policies
o fund choices
o cutoff time for investments
o trading restrictions
Please contact your FINANCIAL INTERMEDIARY or plan sponsor for a complete
description of its policies. Copies of the funds' annual reports, semiannual
reports and statement of additional information are available from your
intermediary or plan sponsor.
FINANCIAL INTERMEDIARIES INCLUDE BANKS, BROKER-DEALERS, INSURANCE
COMPANIES AND INVESTMENT ADVISORS.
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, the advisor will pay such
service providers a fee for performing those services. Also, the advisor and the
fund's distributor may make payments for various additional services or other
expenses out of their profits or other available sources. Such expenses may
include distribution services, shareholder services or marketing, promotional or
related expenses. The amount of any payments described by this paragraph is
determined by the advisor or the distributor and is not paid by you.
Although fund share transactions may be made directly with American Century at
no charge, you also may purchase, redeem and exchange fund shares through
financial intermediaries that charge a transaction-based or other fee for their
services. Those charges are retained by the intermediary and are not shared with
American Century or the funds.
The funds have authorized certain financial intermediaries to accept orders on
each fund's behalf. American Century has contracts with these intermediaries
requiring them to track the time investment orders are received and to comply
with procedures relating to the transmission of orders. Orders must be received
by the intermediary on a fund's behalf before the time the net asset value is
determined in order to receive that day's share price. If those orders are
transmitted to American Century and paid for in accordance with the contract,
they will be priced at the net asset value next determined after your request is
received in the form required by the intermediary.
RIGHT TO CHANGE POLICIES
We reserve the right to change any stated investment requirement, including
those that relate to purchases, exchanges and redemptions. We also may alter,
add or discontinue any service or privilege. Changes may affect all investors or
only those in certain classes or groups. In addition, from time to time we may
waive a policy on a case-by-case basis, as the advisor deems appropriate.
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century will price the fund shares you purchase, exchange or redeem at
the net asset value (NAV) next determined after your order is received and
accepted by the fund's transfer agent, or other financial intermediary with the
authority to accept orders on the fund's behalf. We determine the NAV of each
fund as of one hour before the close of regular trading (usually 4 p.m. Eastern
time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. On
days when the NYSE is closed (including certain U.S. national holidays), we do
not calculate the NAV. A fund's NAV is the current value of the fund's assets,
minus any liabilities, divided by the number of shares outstanding.
The fund values portfolio securities for which market quotations are readily
available at their market price. As a general rule, equity securities listed on
a U.S. exchange are valued at the last current reported sale price as of the
time of valuation. Securities listed on the NASDAQ National Market System
(Nasdaq) are valued at the Nasdaq Official Closing Price (NOCP), as determined
by Nasdaq, or lacking an NOCP, at the last current reported sale price as of the
time of valuation. The fund may use pricing services to assist in the
determination of market value. Unlisted securities for which market quotations
are readily available are valued at the last quoted sale price or the last
quoted ask price, as applicable, except that debt obligations with 60 days or
less remaining until maturity may be valued at amortized cost. Exchange-traded
options, futures and options on futures are valued at the settlement price as
determined by the appropriate clearing corporation.
If the fund determines that the market price for a portfolio security is not
readily available or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined in good faith by, or in accordance with procedures adopted by, the
fund's board or its designee (a process referred to as "fair valuing" the
security). Circumstances that may cause the fund to fair value a security
include, but are not limited to:
o for funds investing in foreign securities, if, after the close of the
foreign exchange on which a portfolio security is principally traded,
but before the close of the NYSE, an event occurs that may materially
affect the value of the security;
o for funds that invest in debt securities, a debt security has been
declared in default; or
o trading in a security has been halted during the trading day.
If such circumstances occur, the fund will fair value the security if the fair
valuation would materially impact the fund's NAV. While fair value
determinations involve judgments that are inherently subjective, these
determinations are made in good faith in accordance with procedures adopted by
the fund's board.
The effect of using fair value determinations is that the fund's NAV will be
based, to some degree, on security valuations that the board or its designee
believes are fair rather than being solely determined by the market.
With respect to any portion of the fund's assets that are invested in one or
more open-end management investment companies that are registered with the SEC
(RICs), the fund's NAV will be calculated based upon the NAVs of such RICs.
These RICs are required by law to explain the circumstances under which they
will use fair value pricing and the effects of using fair value pricing in their
prospectuses.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.
Trading of securities in foreign markets may not take place every day the NYSE
is open. Also, trading in some foreign markets and on some electronic trading
networks may take place on weekends or holidays when the fund's NAV is not
calculated. So, the value of the fund's portfolio may be affected on days when
you will not be able to purchase, exchange or redeem fund shares.
DISTRIBUTIONS
Federal tax laws require each fund to make distributions to its shareholders in
order to qualify as a regulated investment company. Qualification as a regulated
investment company means a fund will not be subject to state or federal income
tax on amounts distributed. The distributions generally consist of dividends and
interest received by a fund, as well as CAPITAL GAINS realized by a fund on the
sale of its investment securities. Each fund generally pays distributions from
net income and capital gains, if any, once a year in December. The funds may
make more frequent distributions, if necessary, to comply with Internal Revenue
Code provisions.
CAPITAL GAINS ARE INCREASES IN THE VALUES OF CAPITAL ASSETS, SUCH
AS STOCK, FROM THE TIME THE ASSETS ARE PURCHASED.
You will participate in fund distributions when they are declared, starting the
next business day after your purchase is effective. For example, if you purchase
shares on a day that a distribution is declared, you will not receive that
distribution. If you redeem shares, you will receive any distribution declared
on the day you redeem. If you redeem all shares, we will include any
distributions received with your redemption proceeds.
Participants in tax-deferred retirement plans must reinvest all distributions.
For investors investing through taxable accounts, we will reinvest distributions
unless you elect to have dividends and/or capital gains sent to another American
Century account, to your bank electronically, or to your home address or to
another person or address by check.
REVERSE SHARE SPLITS
When a fund pays its distributions, the board also declares a reverse share
split for that fund that exactly offsets the per-share amount of the
distribution. If you reinvest your dividends, this reverse share split means
that you will hold exactly the same number of shares after a dividend as you did
before. This reverse share split makes changes in the funds' share prices behave
like changes in the values of zero-coupon securities.
FUND LIQUIDATION
During a fund's target maturity year, the Board of Trustees will adopt a plan of
liquidation that specifies the last day investors can open a new account, the
last day the fund will accept new investments from existing investors, and the
liquidation date of the fund. During the fund's target maturity year, you will
be asked how you want to receive the proceeds from the liquidation of your
shares. You can choose one of the following
o cash
o shares of another American Century mutual fund
TAXES
The tax consequences of owning shares of the funds will vary depending on
whether you own them through a taxable or tax-deferred account. Tax consequences
result from distributions by the funds of dividend and interest income they have
received or capital gains they have generated through their investment
activities. Tax consequences also may result when investors sell fund shares
after the net asset value has increased or decreased.
TAX-DEFERRED ACCOUNTS
If you purchase fund shares through a tax-deferred account, such as an IRA or a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions usually will not be subject to current taxation but will
accumulate in your account under the plan on a tax-deferred basis. Likewise,
moving from one fund to another fund within a plan or tax-deferred account
generally will not cause you to be taxed. For information about the tax
consequences of making purchases or withdrawals through a tax-deferred account,
please consult your plan administrator, your summary plan description or a tax
advisor.
TAXABLE ACCOUNTS
If you own fund shares through a taxable account, you may be taxed on your
investments if the fund makes distributions or if you sell your fund shares.
TAXABILITY OF DISTRIBUTIONS
Fund distributions may consist of income such as dividends and interest earned
by a fund from its investments, or capital gains generated by a fund from the
sale of its investment securities. Distributions of income are taxed as ordinary
income unless they are designated as QUALIFIED DIVIDEND INCOME and you meet a
minimum required holding period with respect to your shares of the fund, in
which case distributions of income are taxed as long-term capital gains.
QUALIFIED DIVIDEND INCOME IS A DIVIDEND RECEIVED BY A FUND FROM
THE STOCK OF A DOMESTIC OR QUALIFYING FOREIGN CORPORATION, PROVIDED
THAT THE FUND HAS HELD THE STOCK FOR A REQUIRED HOLDING PERIOD.
For capital gains and for income distributions designated as qualified dividend
income, the following rates apply:
TAX RATE FOR 10% AND TAX RATE FOR
TYPE OF DISTRIBUTION 15% BRACKETS ALL OTHER BRACKETS
Short-term capital gains Ordinary Income Ordinary Income
Long-term capital gains ( 1 year)
and Qualified Dividend Income 5% 15%
The tax status of any distributions of capital gains is determined by how long a
fund held the underlying security that was sold, not by how long you have been
invested in the fund, or whether you reinvest your distributions in additional
shares or take them in cash. For taxable accounts, American Century or your
financial intermediary will inform you of the tax status of fund distributions
for each calendar year in an annual tax mailing (Form 1099-DIV).
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, you may want to consult your tax professional about
federal, state and local tax consequences.
TAXES ON TRANSACTIONS
Your redemptions--including exchanges to other American Century funds--are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. However, you should note that loss realized upon the
sale or exchange of shares held for six months or less will be treated as a
long-term capital loss to the extent of any distribution of long-term capital
gain to you with respect to those shares. If a loss is realized on the
redemption of fund shares, the reinvestment in additional fund shares within 30
days before or after the redemption may be subject to the wash sale rules of the
Internal Revenue Code. This may result in a postponement of the recognition of
such loss for federal income tax purposes.
If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to withholding, we
are required to withhold and pay to the IRS the applicable federal withholding
tax rate on taxable dividends, capital gains distributions and redemption
proceeds.
BUYING A DIVIDEND
Purchasing fund shares in a taxable account shortly before a distribution is
sometimes known as buying a dividend. In taxable accounts, you must pay income
taxes on the distribution whether you reinvest the distribution or take it in
cash. In addition, you will have to pay taxes on the distribution whether the
value of your investment decreased, increased or remained the same after you
bought the fund shares.
The risk in buying a dividend is that the fund's portfolio may build up taxable
gains throughout the period covered by a distribution, as securities are sold at
a profit. The funds distribute those gains to you, after subtracting any losses,
even if you did not own the shares when the gains occurred.
If you buy a dividend, you incur the full tax liability of the distribution
period, but you may not enjoy the full benefit of the gains realized in the
fund's portfolio.
MULTIPLE CLASS INFORMATION
American Century offers three classes of the funds: Investor Class, Advisor
Class and C Class. The shares offered by this prospectus are Investor Class
shares, which have no up-front or deferred charges, commissions or 12b-1 fees.
Target 2030 is the only fund offering C Class shares.
The other classes have different fees, expenses and/or minimum investment
requirements from the class offered by this prospectus. The difference in the
fee structures between the classes is the result of their separate arrangements
for shareholder and distribution services. It is not the result of any
difference in advisory or custodial fees or other expenses related to the
management of the funds' assets, which do not vary by class. Different fees and
expenses will affect performance. For additional information concerning the
other classes of shares not offered by this prospectus, call us at
1-800-345-3533. You also can contact a sales representative or financial
intermediary who offers those classes of shares.
Except as described below, all classes of shares of the funds have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences between the classes are (a) each class may be
subject to different expenses specific to that class; (b) each class has a
different identifying designation or name; (c) each class has exclusive voting
rights with respect to matters solely affecting such class; and (d) each class
may have different exchange privileges.
FINANCIAL HIGHLIGHTS
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The tables on the next few pages itemize what contributed to the changes in
share price during the most recently ended fiscal year. They also show the
changes in share price for this period in comparison to changes over the last
five fiscal years or less, if the share class is not five years old.
On a per-share basis, each table includes as appropriate
o share price at the beginning of the period
o investment income and capital gains or losses
o distributions of income and capital gains paid to investors
o reverse share split
o share price at the end of the period
Each table also includes some key statistics for the period as appropriate
o TOTAL RETURN - the overall percentage of return of the fund, assuming the
reinvestment of all distributions
o EXPENSE RATIO - the operating expenses of the fund as a percentage of
average net assets
o NET INCOME RATIO - the net investment income of the fund as a percentage of
average net assets
o PORTFOLIO TURNOVER - the percentage of the fund's investment portfolio that
is replaced during the period
The Financial Highlights have been audited by PricewaterhouseCoopers LLP,
independent registered public accounting firm. Their Report of Independent
Registered Public Accounting Firm and the financial statements are included in
the funds' Annual Report, which is available upon request.
Target 2005 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
INVESTOR CLASS
----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $99.07 $96.34 $88.67 $77.09 $72.55
----------------------------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(1) 3.65 3.69 4.20 4.24 4.09
---------------------------
Net Realized and
Unrealized Gain (Loss) (3.21) (0.96) 3.47 7.34 0.45
----------------------------------------------------------------------------------------------------
Total From
Investment Operations 0.44 2.73 7.67 11.58 4.54
----------------------------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (4.03) (3.92) (4.07) (4.71) (3.89)
---------------------------
From Net Realized Gains (1.96) -- -- -- (1.56)
----------------------------------------------------------------------------------------------------
Total Distributions (5.99) (3.92) (4.07) (4.71) (5.45)
----------------------------------------------------------------------------------------------------
Reverse Share Split 5.99 3.92 4.07 4.71 5.45
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $99.51 $99.07 $96.34 $88.67 $77.09
====================================================================================================
TOTAL RETURN(2) 0.44% 2.83% 8.65% 15.02% 6.26%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.58% 0.59% 0.59% 0.59% 0.59%
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 3.69% 3.78% 4.65% 5.12% 5.58%
---------------------------
Portfolio Turnover Rate 24% 36% 11% 49% 17%
---------------------------
Net Assets, End of Period
(in thousands) $316,914 $385,809 $429,624 $347,512 $274,117
----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
Target 2010 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
INVESTOR CLASS
----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $84.49 $81.12 $70.64 $59.92 $55.10
----------------------------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(1) 3.65 3.45 3.55 3.39 3.32
---------------------------
Net Realized and
Unrealized Gain (Loss) (1.44) (0.08) 6.93 7.33 1.50
----------------------------------------------------------------------------------------------------
Total From
Investment Operations 2.21 3.37 10.48 10.72 4.82
----------------------------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (3.94) (3.46) (3.69) (3.27) (3.21)
---------------------------
From Net Realized Gains (4.52) (2.20) (0.66) -- --
----------------------------------------------------------------------------------------------------
Total Distributions (8.46) (5.66) (4.35) (3.27) (3.21)
----------------------------------------------------------------------------------------------------
Reverse Share Split 8.46 5.66 4.35 3.27 3.21
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $86.70 $84.49 $81.12 $70.64 $59.92
====================================================================================================
TOTAL RETURN(2) 2.62% 4.15% 14.84% 17.89% 8.75%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.58% 0.59% 0.59% 0.59% 0.59%
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.32% 4.21% 4.96% 5.15% 5.90%
---------------------------
Portfolio Turnover Rate 15% 45% 46% 60% 22%
---------------------------
Net Assets, End of Period
(in thousands) $215,621 $262,825 $314,951 $288,867 $231,202
----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
Target 2015 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
INVESTOR CLASS
----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $67.58 $64.60 $55.37 $48.01 $43.04
----------------------------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(1) 3.35 3.09 2.95 2.75 2.58
---------------------------
Net Realized and
Unrealized Gain (Loss) 1.17 (0.11) 6.28 4.61 2.39
----------------------------------------------------------------------------------------------------
Total From
Investment Operations 4.52 2.98 9.23 7.36 4.97
----------------------------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (3.64) (2.84) (3.04) (2.81) (2.46)
---------------------------
From Net Realized Gains (2.19) (0.16) (0.08) -- (0.03)
----------------------------------------------------------------------------------------------------
Total Distributions (5.83) (3.00) (3.12) (2.81) (2.49)
----------------------------------------------------------------------------------------------------
Reverse Share Split 5.83 3.00 3.12 2.81 2.49
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $72.10 $67.58 $64.60 $55.37 $48.01
====================================================================================================
TOTAL RETURN(2) 6.69% 4.61% 16.65% 15.35% 11.55%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.58% 0.59% 0.59% 0.59% 0.59%
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.92% 4.72% 5.28% 5.30% 5.82%
---------------------------
Portfolio Turnover Rate 12% 17% 24% 23% 26%
---------------------------
Net Assets, End of Period
(in thousands) $156,287 $149,266 $175,421 $145,567 $134,704
----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
Target 2020 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
INVESTOR CLASS
----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $48.19 $46.23 $39.09 $34.79 $30.61
----------------------------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(1) 2.34 2.19 2.07 1.90 1.77
---------------------------
Net Realized and
Unrealized Gain (Loss) 1.79 (0.23) 5.07 2.40 2.41
----------------------------------------------------------------------------------------------------
Total From
Investment Operations 4.13 1.96 7.14 4.30 4.18
----------------------------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (2.47) (2.13) (2.43) (1.79) (1.85)
---------------------------
From Net Realized Gains (2.63) (3.37) (4.62) (3.19) (3.30)
----------------------------------------------------------------------------------------------------
Total Distributions (5.10) (5.50) (7.05) (4.98) (5.15)
----------------------------------------------------------------------------------------------------
Reverse Share Split 5.10 5.50 7.05 4.98 5.15
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $52.32 $48.19 $46.23 $39.09 $34.79
====================================================================================================
TOTAL RETURN(2) 8.57% 4.24% 18.27% 12.36% 13.66%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.57% 0.59% 0.59% 0.59% 0.59%
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.83% 4.68% 5.21% 5.10% 5.49%
---------------------------
Portfolio Turnover Rate 26% 45% 24% 54% 11%
---------------------------
Net Assets, End of Period
(in thousands) $173,662 $180,656 $210,814 $225,535 $244,203
----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
Target 2025 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
INVESTOR CLASS
----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $39.67 $38.95 $33.25 $29.32 $26.22
----------------------------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(1) 1.90 1.79 1.70 1.62 1.54
---------------------------
Net Realized and
Unrealized Gain (Loss) 2.23 (1.07) 4.00 2.31 1.56
----------------------------------------------------------------------------------------------------
Total From
Investment Operations 4.13 0.72 5.70 3.93 3.10
----------------------------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (2.08) (2.06) (2.26) (2.00) (1.11)
---------------------------
From Net Realized Gains (2.17) (2.36) (0.80) (0.42) --
----------------------------------------------------------------------------------------------------
Total Distributions (4.25) (4.42) (3.06) (2.42) (1.11)
----------------------------------------------------------------------------------------------------
Reverse Share Split 4.25 4.42 3.06 2.42 1.11
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $43.80 $39.67 $38.95 $33.25 $29.32
====================================================================================================
TOTAL RETURN(2) 10.41% 1.85% 17.14% 13.40% 11.82%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.58% 0.59% 0.59% 0.59% 0.59%
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.74% 4.64% 5.13% 5.15% 5.64%
---------------------------
Portfolio Turnover Rate 24% 22% 23% 25% 52%
---------------------------
Net Assets, End of Period
(in thousands) $92,440 $151,701 $217,965 $310,094 $514,663
----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
Target 2030 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
(EXCEPT AS NOTED)
--------------------------------------------------------------------------------
INVESTOR CLASS
--------------------------------------------------------------------------------
2004 2003 2002 2001(1)
--------------------------------------------------------------------------------
PER-SHARE DATA
--------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $29.03 $28.70 $23.95 $23.00
--------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(2) 1.41 1.32 1.27 0.47
---------------------------
Net Realized and
Unrealized Gain (Loss) 1.39 (0.99) 3.48 0.48
--------------------------------------------------------------------------------
Total From
Investment Operations 2.80 0.33 4.75 0.95
--------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (1.61) (1.17) (0.60) --
---------------------------
From Net Realized Gains (1.37) (0.04) (0.08) --
--------------------------------------------------------------------------------
Total Distributions (2.98) (1.21) (0.68) --
--------------------------------------------------------------------------------
Reverse Share Split 2.98 1.21 0.68 --
--------------------------------------------------------------------------------
Net Asset Value,
End of Period $31.83 $29.03 $28.70 $23.95
================================================================================
TOTAL RETURN(3) 9.65% 1.15% 19.83% 4.13%
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.58% 0.59% 0.59% 0.59%(4)
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.87% 4.72% 5.25% 6.04%(4)
---------------------------
Portfolio Turnover Rate 39% 95% 43% 0%
---------------------------
Net Assets, End of Period
(in thousands) $12,251 $14,312 $20,528 $4,856
--------------------------------------------------------------------------------
(1) June 1, 2001 (inception) through September 30, 2001.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two
decimal places is made in accordance with SEC guidelines and does not result
in any gain or loss of value between one class and another.
(4) Annualized.
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
ANNUAL AND SEMIANNUAL REPORTS
Annual and semiannual reports contain more information about the funds'
investments and the market conditions and investment strategies that
significantly affected the funds' performance during the most recent fiscal
period.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains a more detailed, legal description of the funds' operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this prospectus. This means that it is legally part of this
prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the funds or your accounts, by contacting American Century at
the address or telephone numbers listed below.
You also can get information about the funds (including the SAI) from the
Securities and Exchange Commission (SEC). The SEC charges a duplicating fee to
provide copies of this information.
IN PERSON SEC Public Reference Room, Washington, D.C.
Call 202-942-8090 for location and hours.
ON THE INTERNET o EDGAR database at sec.gov
o By email request at publicinfo@sec.gov
BY MAIL SEC Public Reference Section
Washington, D.C. 20549-0102
This prospectus shall not constitute an offer to sell securities of a fund in
any state, territory, or other jurisdiction where the fund's shares have not
been registered or qualified for sale, unless such registration or qualification
is not required, or under any circumstances in which such offer or solicitation
would be unlawful.
FUND REFERENCE FUND CODE TICKER NEWSPAPER LISTING
--------------------------------------------------------------------------------
Target 2005 Fund
Investor Class 964 BTFIX Tg2005
--------------------------------------------------------------------------------
Target 2010 Fund
Investor Class 965 BTTNX Tg2010
--------------------------------------------------------------------------------
Target 2015 Fund
Investor Class 966 BTFTX Tg2015
--------------------------------------------------------------------------------
Target 2020 Fund
Investor Class 967 BTTTX Tg2020
--------------------------------------------------------------------------------
Target 2025 Fund
Investor Class 968 BTTRX Tg2025
--------------------------------------------------------------------------------
Target 2030 Fund
Investor Class 969 ACTAX N/A
--------------------------------------------------------------------------------
Investment Company Act File No. 811-4165
AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021 or 816-531-5575
americancentury.com
0502
SH-PRS-XXXXX
Your
American Century Investments
prospectus
Advisor Class
Target 2005 Fund
Target 2010 Fund
Target 2015 Fund
Target 2020 Fund
Target 2025 Fund
Target 2030 Fund
C Class
Target 2030 Fund
February 1, 2005
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO
TELLS YOU OTHERWISE IS COMMITTING A CRIME.
American Century
Investment Services, Inc.
[american century investments logo and text logo]
Dear Investor,
American Century Investments is committed to helping people make the most of
their financial opportunities. That's why we are focused on achieving superior
results and building long-term relationships with investors.
We believe our relationship with you begins with an easy to read prospectus that
provides you with the information you need to feel confident about your
investment decisions.
Naturally, you may have questions about investing after you read through the
prospectus. Please contact your investment professional with questions or for
more information about our funds.
Sincerely,
Brian Jeter
Senior Vice President
Third Party Sales and Services
American Century Investment Services, Inc.
American Century Investments
P.O. Box 419786, Kansas City, MO 64141-6786
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Services Corporation.
Table of Contents
AN OVERVIEW OF THE FUNDS.......................................................X
FUND PERFORMANCE HISTORY.......................................................X
FEES AND EXPENSES..............................................................X
OBJECTIVES, STRATEGIES AND RISKS...............................................X
BASICS OF FIXED-INCOME INVESTING..............................................XX
MANAGEMENT....................................................................XX
INVESTING WITH AMERICAN CENTURY...............................................XX
SHARE PRICE AND DISTRIBUTIONS.................................................XX
TAXES.........................................................................XX
MULTIPLE CLASS INFORMATION....................................................XX
FINANCIAL HIGHLIGHTS..........................................................XX
THIS SYMBOL IS USED THROUGHOUT THE BOOK TO HIGHLIGHT DEFINITIONS
OF KEY INVESTMENT TERMS AND TO PROVIDE OTHER HELPFUL INFORMATION.
AN OVERVIEW OF THE FUNDS
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
The funds seek the highest return consistent with investment in U.S. Treasury
securities.
WHAT ARE THE FUNDS' PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
The funds invest primarily in zero-coupon U.S. Treasury securities and their
equivalents. Each fund invests in different maturities of these DEBT SECURITIES
and has different interest rate risks. The following chart shows the differences
among the funds' primary investments and principal risks. It is designed to help
you compare these funds with each other; it should not be used to compare these
funds with other mutual funds. A more detailed description about the funds'
investment strategies and risks begins on page X.
DEBT SECURITIES INCLUDE FIXED-INCOME INVESTMENTS SUCH AS NOTES,
BONDS, COMMERCIAL PAPER AND U.S. TREASURY SECURITIES.
FUND PRIMARY INVESTMENTS PRINCIPAL RISKS
SHORTER TERM Target 2005 Zero-coupon Lowest interest rate risk
LESS VOLATILE U.S. Treasury securities*
Target 2010 Zero-coupon Medium interest rate risk
U.S. Treasury securities*
Target 2015 Zero-coupon High interest rate risk
U.S. Treasury securities*
Target 2020 Zero-coupon High interest rate risk
U.S. Treasury securities*
Target 2025 Zero-coupon High interest rate risk
U.S. Treasury securities*
LONGER TERM Target 2030 Zero-coupon Highest interest rate risk
MORE VOLATILE U.S. Treasury securities*
*INCLUDING ZERO-COUPON U.S. TREASURY EQUIVALENTS.
Each fund will be liquidated near the end of its target maturity year.
At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the
funds.
AN INVESTMENT IN THE FUNDS IS NOT A BANK DEPOSIT, AND IT IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
(FDIC) OR ANY OTHER GOVERNMENT AGENCY.
FUND PERFORMANCE HISTORY
TARGET 2005 FUND
TARGET 2010 FUND
TARGET 2015 FUND
TARGET 2020 FUND
TARGET 2025 FUND
TARGET 2030 FUND
ANNUAL TOTAL RETURNS (2004 information not available until after 12/31/2004)
The following bar charts show the performance of Target 2005, Target 2010,
Target 2015, Target 2020, and Target 2025 Advisor Class shares and Target 2030 C
Class shares for each full calendar year in the life of the class. They indicate
the volatility of the funds' historical returns from year to year. The returns
of Target 2030 Advisor Class will differ from the C Class returns shown in the
chart, depending on the expenses of that class.
TARGET 2005 FUND -- ADVISOR CLASS
2004 x.xx%
2003 1.85%
2002 9.87%
2001 8.25%
2000 13.04%
1999 -6.02%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2005 6.07% (3Q 2001) -3.08% (1Q 1999)
--------------------------------------------------------------------------------
TARGET 2010 FUND -- ADVISOR CLASS
2004 x.xx%
2003 2.97%
2002 17.99%
2001 4.01%
2000 22.40%
1999 -12.03%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2010 11.91% (3Q 2002) -5.49% (1Q 1999)
--------------------------------------------------------------------------------
TARGET 2015 FUND -- ADVISOR CLASS
2004 x.xx%
2003 3.67%
2002 20.93%
2001 0.38%
2000 26.32%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2015 15.72% (3Q 2002) -4.25% (4Q 2001)
--------------------------------------------------------------------------------
TARGET 2020 FUND -- ADVISOR CLASS
2004 x.xx%
2003 3.23%
2002 21.15%
2001 -1.78%
2000 30.44%
1999 -18.52%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2020 17.69% (3Q 2002) -8.41% (1Q 1999)
--------------------------------------------------------------------------------
TARGET 2025 FUND - ADVISOR CLASS
2004 x.xx%
2003 1.79%
2002 20.17%
2001 -2.98%
2000 32.42%
1999 -20.89%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2025 20.27% (3Q 2002) -9.75% (1Q 1999)
--------------------------------------------------------------------------------
TARGET 2030 - C CLASS
2004 x.xx%
2003 0.62%
2002 22.48%
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
Target 2030 23.49% (3Q 2002) -6.04% (3Q 2003)
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
The following tables show the average annual total returns of the funds' Advisor
Class and C Class shares calculated three different ways. Because Target 2030
Advisor Class was not in operation for a full calendar year, it is not included
in the tables below.
Return Before Taxes shows the actual change in the value of fund shares over the
time periods shown, but does not reflect the impact of taxes on fund
distributions or the sale of fund shares. The two after-tax returns take into
account taxes that may be associated with owning fund shares. Return After Taxes
on Distributions is a fund's actual performance, adjusted by the effect of taxes
on distributions made by the fund during the periods shown. Return After Taxes
on Distributions and Sale of Fund Shares is further adjusted to reflect the tax
impact on any change in the value of fund shares as if they had been sold on the
last day of the period.
After-tax returns are calculated using the historical highest federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor's tax situation and may differ from
those shown. After-tax returns shown are not relevant to investors who hold fund
shares through tax-deferred arrangements such as 401(k) plans or IRAs.
The benchmarks are unmanaged indices (except as noted) that have no operating
costs and are included in the table for performance comparison.
ADVISOR CLASS (INFORMATION AVAILABLE AFTER 12/31/04)
FOR THE CALENDAR YEAR ENDED LIFE OF
DECEMBER 31, 2004 1 YEAR 5 YEARS 10 YEARS CLASS(1)
--------------------------------------------------------------------------------
Target 2005
Return Before Taxes xx% xxx% N/A xxx%
Return After Taxes on Distributions xxx% xxx% N/A xxx%
Return After Taxes on Distributions xxx% xxx% N/A xxx%
and Sale of Fund Shares
11/15/2005 STRIPS Issue(2) xxx% xxx% N/A xxx%(3)
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury Total xxx% xxx% N/A xxx%(3)
Return Index (reflects no deduction
for fees, expenses or taxes)
--------------------------------------------------------------------------------
Target 2010
Return Before Taxes xxx% xxx% N/A xxx%
Return After Taxes on Distributions xxx% xxx% N/A xxx%
Return After Taxes on Distributions xxx% xxx% N/A xxx%
and Sale of Fund Shares
11/15/2010 STRIPS Issue(2) xxx% xxx% N/A xxx%(4)
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury xxx% xxx% N/A xxx%(4)
Total Return Index (reflects no
deduction for fees, expenses or taxes)
(1) THE INCEPTION DATES FOR THE ADVISOR CLASS ARE: TARGET 2005: AUGUST 3, 1998
AND TARGET 2010; OCTOBER 20, 1998. ONLY CLASSES WITH PERFORMANCE HISTORY
FOR LESS THAN 10 YEARS SHOW RETURNS FOR LIFE OF CLASS.
(2) EACH TARGET FUND IS DESIGNED TO PERFORM LIKE A ZERO-COUPON U.S. TREASURY
SECURITY WITH THE SAME TERM TO MATURITY AS THE FUND. THE STRIPS ISSUES
LISTED IN THIS TABLE ARE U.S. TREASURY ZERO-COUPON SECURITIES WITH MATURITY
DATES SIMILAR TO THE RESPECTIVE FUND. THE STRIPS ISSUES ARE NOT INDICES,
BUT ARE IMPORTANT BENCHMARKS OF THE TARGET FUNDS' PERFORMANCE.
(3) SINCE JULY 31, 1998, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
(4) SINCE OCTOBER 31, 1998, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
ADVISOR CLASS
FOR THE CALENDAR YEAR ENDED LIFE OF
DECEMBER 31, 2004 1 YEAR 5 YEARS 10 YEARS CLASS(1)
--------------------------------------------------------------------------------
Target 2015
Return Before Taxes xx% N/A N/A xx%
Return After Taxes on Distributions xx% N/A N/A xx%
Return After Taxes on Distributions xx% N/A N/A xx%
and Sale of Fund Shares
11/15/2015 STRIPS Issue(2) xx% N/A N/A xx%(3)
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury xx% N/A N/A xx%(3)
Total Return Index (reflects no
deduction for fees, expenses or taxes)
TARGET 2020
Return Before Taxes xx% xx% N/A xx%
Return After Taxes on Distributions xx% xx% N/A xx%
Return After Taxes on Distributions xx% xx% N/A xx%
and Sale of Fund Shares
11/15/2020 STRIPS Issue(2) xx% xx% N/A xx%(4)
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury xx% xx% N/A xx%(4)
Total Return Index (reflects no
deduction for fees, expenses or taxes)
--------------------------------------------------------------------------------
Target 2025
Return Before Taxes xx% xx% N/A xx%
Return After Taxes on Distributions xx% xx% N/A xx%
Return After Taxes on Distributions xx% xx% N/A xx%
and Sale of Fund Shares
11/15/2025 STRIPS Issue(2) xx% xx% N/A xx%(5)
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury xx% xx% N/A xx%(5)
Total Return Index
(reflects no deduction for fees,
expenses or taxes)
C CLASS
FOR THE CALENDAR YEAR ENDED LIFE OF
DECEMBER 31, 2004 1 YEAR OF CLASS(1)
--------------------------------------------------------------------------------
Target 2030
Return Before Taxes xx% xx%
Return After Taxes on Distributions xx% xx%
Return After Taxes on Distributions and xx% xx%
Sale of Fund Shares
5/15/2030 STRIPS Issue(2) xx% xx(6)
(reflects no deduction for fees,
expenses or taxes)
Merrill Lynch 10+ Year Treasury Total Return Index xx% xx%(6)
(reflects no deduction for fees,
expenses or taxes)
(1) THE INCEPTION DATES FOR THE ADVISOR CLASS ARE: TARGET 2015: JULY 23, 1999;
TARGET 2020: OCTOBER 19, 1998; AND TARGET 2025: JUNE 1, 1998. THE INCEPTION
DATE FOR THE C CLASS IS: TARGET 2030: OCTOBER 8, 2001. ONLY CLASSES WITH
PERFORMANCE HISTORY FOR LESS THAN 10 YEARS SHOW RETURNS FOR LIFE OF CLASS.
(2) EACH TARGET FUND IS DESIGNED TO PERFORM LIKE A ZERO-COUPON U.S. TREASURY
SECURITY WITH THE SAME TERM TO MATURITY AS THE FUND. THE STRIPS ISSUES
LISTED IN THIS TABLE ARE U.S. TREASURY ZERO-COUPON SECURITIES WITH MATURITY
DATES SIMILAR TO THE RESPECTIVE FUND. THE STRIPS ISSUES ARE NOT INDICES,
BUT ARE IMPORTANT BENCHMARKS OF THE TARGET FUNDS' PERFORMANCE.
(3) SINCE JULY 31, 1999, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
(4) SINCE OCTOBER 31, 1998, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
(5) SINCE MAY 31, 1998, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
(6) SINCE SEPTEMBER 30, 2001, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR
WHICH DATA IS AVAILABLE.
Performance information is designed to help you see how fund returns can vary.
Keep in mind that past performance (before and after taxes) does not predict how
a fund will perform in the future.
For current performance information, including yields, please call us at
1-800-378-9878.
FEES AND EXPENSES
There are no sales loads, fees or other charges
o to buy fund shares directly from American Century
o to reinvest dividends in additional shares
o to exchange into the same class of shares of other American Century funds
o to redeem your C Class shares after you have held them for 12 months (other
than a $10 fee to redeem by wire)
The following tables describe the fees and expenses you may pay if you buy and
hold shares of the funds.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------
C Class
Maximum Deferred Sales Charge (load)
(as a percentage of net asset value) 1.00%(1)
--------------------------------------------------------------------------------
(1) THE DEFERRED SALES CHARGE IS CONTINGENT ON THE LENGTH OF TIME YOU HAVE
OWNED YOUR SHARES. THE CHARGE IS 1.00% DURING THE FIRST YEAR AFTER PURCHASE
AND IS ELIMINATED THEREAFTER.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT DISTRIBUTION AND OTHER TOTAL ANNUAL FUND
FEE(1) SERVICE (12B-1) FEES EXPENSES(2) OPERATING EXPENSES
--------------------------------------------------------------------------------------
Target 2005
Advisor Class 0.33% 0.50%(3) 0.00% 0.83%
--------------------------------------------------------------------------------------
Target 2010
Advisor Class 0.33% 0.50%(3) 0.00% 0.83%
--------------------------------------------------------------------------------------
Target 2015
Advisor Class 0.33% 0.50%(3) 0.00% 0.83%
--------------------------------------------------------------------------------------
Target 2020
Advisor Class 0.33% 0.50%(3) 0.00% 0.83%
--------------------------------------------------------------------------------------
Target 2025
Advisor Class 0.33% 0.50%(3) 0.00% 0.83%
--------------------------------------------------------------------------------------
Target 2030
Advisor Class 0.33% 0.50%(3) 0.00% 0.83%
C Class 0.58% 1.00%(4) 0.00% 1.58%
(1) BASED ON ASSETS DURING THE FUNDS' MOST RECENT FISCAL YEAR. THE FUNDS HAVE
STEPPED FEE SCHEDULES. AS A RESULT, THE FUNDS' MANAGEMENT FEE RATES
GENERALLY DECREASE AS ASSETS INCREASE AND INCREASE AS ASSETS DECREASE.
(2) OTHER EXPENSES INCLUDE THE FEES AND EXPENSES OF THE FUNDS' INDEPENDENT
TRUSTEES AND THEIR LEGAL COUNSEL, AS WELL AS INTEREST.
(3) THE 12B-1 FEE IS DESIGNED TO PERMIT INVESTORS TO PURCHASE SHARES THROUGH
BROKER-DEALERS, BANKS, INSURANCE COMPANIES AND OTHER FINANCIAL
INTERMEDIARIES. HALF OF THE ADVISOR CLASS 12B-1 FEE (0.25%) IS FOR ONGOING
RECORDKEEPING AND ADMINISTRATIVE SERVICES PROVIDED BY FINANCIAL
INTERMEDIARIES, WHICH WOULD OTHERWISE BE PAID BY THE ADVISOR OUT OF THE
UNIFIED MANAGEMENT FEE. THE ADVISOR HAS REDUCED ITS UNIFIED MANAGEMENT FEE
FOR ADVISOR CLASS SHARES, BUT THE FEE FOR CORE INVESTMENT ADVISORY SERVICES
IS THE SAME FOR ALL CLASSES. FOR MORE INFORMATION, SEE SERVICE,
DISTRIBUTION AND ADMINISTRATIVE FEES, PAGE XX.
(4) THE 12B-1 FEE IS DESIGNED TO PERMIT INVESTORS TO PURCHASE SHARES THROUGH
BROKER-DEALERS, BANKS, INSURANCE COMPANIES AND OTHER FINANCIAL
INTERMEDIARIES. THE FEE MAY BE USED TO COMPENSATE SUCH FINANCIAL
INTERMEDIARIES FOR DISTRIBUTION AND OTHER SHAREHOLDER SERVICES. FOR MORE
INFORMATION, SEE SERVICE, DISTRIBUTION AND ADMINISTRATIVE FEES, PAGE XX.
EXAMPLE
The examples in the table below are intended to help you compare the costs of
investing in a fund with the costs of investing in other mutual funds. Of
course, your actual costs may be higher or lower. Assuming you . . .
o invest $10,000 in the fund
o redeem all of your shares at the end of the periods shown below
o earn a 5% return each year
o incur the same operating expenses as shown above
. . . your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Target 2005
Advisor Class $85 $264 $459 $1,022
--------------------------------------------------------------------------------
Target 2010
Advisor Class $85 $264 $459 $1,022
--------------------------------------------------------------------------------
Target 2015
Advisor Class $85 $264 $459 $1,022
--------------------------------------------------------------------------------
Target 2020
Advisor Class $85 $264 $459 $1,022
--------------------------------------------------------------------------------
Target 2025
Advisor Class $85 $264 $459 $1,022
--------------------------------------------------------------------------------
Target 2030
Advisor Class $85 $264 $459 $1,022
C Class $160 $496 $855 $1,864
OBJECTIVES, STRATEGIES AND RISKS
TARGET 2005 FUND
TARGET 2010 FUND
TARGET 2015 FUND
TARGET 2020 FUND
TARGET 2025 FUND
TARGET 2030 FUND
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
The funds seek the highest return consistent with investment in U.S. Treasury
securities.
HOW DO THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES?
Each fund invests primarily in zero-coupon U.S. Treasury securities and their
equivalents, and may invest up to 20% of its assets in AAA-rated zero-coupon
U.S. government agency securities. Not all of these U.S. government securities
are backed by the full faith and credit of the U.S. government as to payment of
interest and repayment of principal. Some are backed by the right of the issuer
to borrow from the U.S. Treasury. Others are backed only by the credit of the
agency or instrumentality. The fund may invest in securities, including
mortgage-backed securities, issued or guaranteed by U.S. government agencies or
instrumentalities, including the Government National Mortgage Association
("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae"), the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Federal Home Loan
Bank ("FHLB"), and the Tennessee Valley Authority ("TVA"). These securities may
include participation interests in pools of mortgage loans originated by the
U.S. government or private lenders and guaranteed by U.S. government agencies or
instrumentalities such as Ginnie Mae, Fannie Mae, Freddie Mac. Guarantees by
Ginnie Mae are backed by the full faith and credit of the U.S. government.
Guarantees by other agencies or instrumentalities of the U.S. government, such
as Fannie Mae, Freddie Mac, FHLB and TVA are not backed by the full faith and
credit of the U.S. government, although Fannie Mae, Freddie Mac, FHLB and TVA
are authorized to borrow from the U.S. Treasury to meet their obligations.
Each fund is designed to provide an investment experience that is similar to a
direct investment in a zero-coupon U.S. Treasury security.
A description of the funds' policies and procedures with respect to the
disclosure of the funds' portfolio securities is available in the funds'
statement of additional information.
WHAT ARE THE DIFFERENCES BETWEEN THE FUNDS?
Each fund is managed to mature in the year identified in its name; therefore,
each fund's weighted average maturity is different. Funds with longer weighted
average maturities have the most volatile share prices. For example, Target 2030
has the longest weighted average maturity, and its share price will fluctuate
the most.
WHAT ARE ZERO-COUPON SECURITIES?
Zero-coupon securities make no periodic interest or principal payments. Instead,
they trade at a deep discount to their face value and all of the interest and
principal is paid when the securities mature. Some zero-coupon securities are
created by separating the interest and principal payment obligations of a
traditional coupon-bearing bond. Each payment obligation becomes a separate
zero-coupon security. Zero-coupon U.S. Treasury and U.S. government agency
securities are created by financial institutions (such as broker-dealers), the
U.S. Treasury and other agencies of the federal government. The U.S. Treasury
and other agencies of the federal government may also issue zero-coupon
securities directly.
Zero-coupon U.S. Treasury securities (Treasury zeros) are created by separating
a Treasury bond's interest and principal payment obligations. The important
characteristic of Treasury zeros is that payment of the final maturity value is
an obligation of the U.S. Treasury and is backed by the full faith and credit of
the U.S. government.
Zero-coupon U.S. government agency securities (agency zeros) operate in all
respects like Treasury zeros, except that they are created by separating the
interest and principal payment obligations of bonds issued by the agency. Unlike
Treasury zeros, payment of the final maturity value is the obligation of the
issuing agency. If the agency zeros are ultimately backed by securities or
payment obligations of the U.S. Treasury and are generally considered by the
market to be of comparable credit quality, the manager considers them Treasury
zero equivalents. Otherwise, the manager will limit purchases of such agency
zeros to those that receive the highest rating (AAA) by an independent rating
organization and will further limit such investments to 20% of a fund's assets.
Zero-coupon securities are beneficial for investors who wish to invest for a
fixed period of time at a selected rate. When an investor purchases a
traditional coupon-bearing bond, it is paid periodic interest at a predetermined
rate. This interest payment must be reinvested elsewhere. However, the investor
may not be able to reinvest this interest payment in an investment that has a
return similar to a traditional coupon-bearing bond. This is called reinvestment
risk. Because zero-coupon securities do not pay interest periodically, investors
in zero-coupon securities are not exposed to reinvestment risk.
HOW IS AN INVESTMENT IN THE FUNDS LIKE AN INVESTMENT IN ZERO-COUPON U.S.
TREASURY SECURITIES?
The investment performance of the funds is designed to be similar to an
investment in zero-coupon U.S. Treasury securities. If you invest in a fund,
reinvest all distributions and hold your shares until the fund is liquidated,
your investment experience should be similar to that of an investment in a
zero-coupon U.S. Treasury security with the same term to maturity as the fund.
Each fund is managed to provide an investment return that will not differ
substantially from the ANTICIPATED GROWTH RATE (AGR) calculated on the day the
shares were purchased. Each fund also is managed to provide maturity value that
will not differ substantially from the ANTICIPATED VALUE AT MATURITY (AVM)
calculated on the day the shares were purchased.
A FUND'S ANTICIPATED GROWTH RATE IS AN ESTIMATE OF THE ANNUALIZED
RATE OF GROWTH OF THE FUND THAT AN INVESTOR MAY EXPECT FROM THE
PURCHASE DATE TO THE FUND'S WEIGHTED AVERAGE MATURITY DATE.
THE ANTICIPATED VALUE AT MATURITY IS AN ESTIMATE OF A FUND'S NET
ASSET VALUE AS OF THE FUND'S WEIGHTED AVERAGE MATURITY DATE. IT IS
BASED ON THE MATURITY VALUES OF THE ZERO-COUPON TREASURY SECURITIES
HELD BY THE FUND.
The advisor calculates each fund's AGR and AVM every business day. AGR and AVM
calculations assume, among other factors, that the fund's operating expenses (as
a percentage of the fund's assets) and composition of securities held by each
fund remain constant for the life of the fund. While many factors can influence
each fund's daily AGR and AVM, they tend to fluctuate within narrow ranges. The
following table shows how each fund's AVM for the Investor Class has fluctuated
in the last five years. The AVM for the Advisor and C Classes of each fund will
differ from that of the Investor Class, depending on the expenses of those
classes.
ANTICIPATED VALUES AT MATURITY
9/30/2000 9/30/2001 9/30/2002 9/30/2003 9/30/2004
Target 2005 $101.94 $101.32 $101.25 $101.04 $101.20
Target 2010 $105.14 $104.90 $105.04 $105.22 $105.59
Target 2015 $113.36 $113.56 $112.26 $112.88 $113.35
Target 2020 $108.05 $108.24 $107.26 $107.48 $108.07
Target 2025 $113.99 $116.77 $117.07 $117.43 $118.37
Target 2030 N/A $105.87 $103.58 $105.70 $105.52
THIS TABLE IS DESIGNED TO SHOW THE NARROW RANGES IN WHICH EACH
FUND'S AVMS VARY OVER TIME. THERE IS NO GUARANTEE THAT THE FUNDS' AVMS
WILL FLUCTUATE AS LITTLE IN THE FUTURE.
WHAT HAPPENS WHEN A FUND REACHES ITS MATURITY YEAR?
o The fund managers may begin buying traditional coupon-bearing securities
consistent with a fund's investment objective and strategy.
o As a fund's zero-coupon securities mature, the proceeds from the retirement
of these securities may be invested in zeros, traditional coupon-bearing
debt securities and cash equivalent securities.
o Each fund will be liquidated near the end of its maturity year.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
Because the funds have different weighted average maturities, each fund will
respond differently to changes in interest rates. Funds with longer weighted
average maturities are generally more sensitive to interest rate changes. When
interest rates rise, the funds' share values will decline, but the share values
of funds with longer weighted average maturities generally will decline further.
At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the
funds.
While we recommend that shareholders hold their investment in a fund until the
fund is liquidated, we do not restrict your (or any other shareholders') ability
to redeem shares. When a fund's shareholders redeem their shares before the
target maturity year, unanticipated capital gains or losses may result. The fund
will distribute these capital gains and losses to all shareholders.
The fund managers adhere to investment policies that are designed to provide an
investment that is similar to investing in a zero-coupon U.S. Treasury security
that matures in the year identified in the fund's name. However, an investment
in the funds involves different risks. A precise forecast of a fund's final
maturity value and yield to maturity is not possible.
BASICS OF FIXED-INCOME INVESTING
DEBT SECURITIES
When a fund buys a debt security, also called a fixed-income security, it is
essentially lending money to the security's issuer. Notes, bonds, commercial
paper and U.S. Treasury securities are examples of debt securities. After the
debt security is first sold by the issuer, it may be bought and sold by other
investors. The price of the debt security may rise or fall based on many
factors, including changes in interest rates, liquidity and credit quality.
The fund managers decide which debt securities to buy and sell by
o determining which debt securities help a fund meet its maturity
requirements
o identifying debt securities that satisfy a fund's credit quality standards
o evaluating current economic conditions and assessing the risk of inflation
o evaluating special features of the debt securities that may make them more
or less attractive
WEIGHTED AVERAGE MATURITY
Like most loans, debt securities eventually must be repaid or refinanced at some
date. This date is called the maturity date. The number of days left to a debt
security's maturity date is called the remaining maturity. The longer a debt
security's remaining maturity, generally the more sensitive its price is to
changes in interest rates.
Because a bond fund will own many debt securities, the fund managers calculate
the average of the remaining maturities of all the debt securities the fund owns
to evaluate the interest rate sensitivity of the entire portfolio. This average
is weighted according to the size of the fund's individual holdings and is
called the weighted average maturity. The following chart shows how fund
managers would calculate the weighted average maturity for a fund that owned
only two debt securities.
AMOUNT OF PERCENT OF REMAINING WEIGHTED
SECURITY OWNED PORTFOLIO MATURITY MATURITY
Debt Security A $100,000 25% 4 years 1 year
Debt Security B $300,000 75% 12 years 9 years
WEIGHTED AVERAGE MATURITY 10 YEARS
TYPES OF RISK
The basic types of risk the funds face are described below.
INTEREST RATE RISK
Generally, interest rates and the prices of debt securities move in opposite
directions. When interest rates fall, the prices of most debt securities rise;
when interest rates rise, prices fall. Because the funds invest primarily in
debt securities, changes in interest rates will affect the funds' performance.
This sensitivity to interest rate changes is called interest rate risk.
The degree to which interest rate changes affect fund performance varies and is
related to the weighted average maturity of a particular fund. For example, when
interest rates rise, you can expect the share value of a long-term bond fund to
fall more than that of a short-term bond fund. When rates fall, the opposite is
true.
The following table shows the likely effect of a 1% (100 basis points) increase
in interest rates on the price of 7% coupon bonds of differing maturities:
REMAINING MATURITY CURRENT PRICE PRICE AFTER 1% INCREASE CHANGE IN PRICE
1 year $100.00 $99.06 -0.94%
3 years $100.00 $97.38 -2.62%
10 years $100.00 $93.20 -6.80%
30 years $100.00 $88.69 -11.31%
CREDIT RISK
Credit risk is the risk that an obligation won't be paid and a loss will result.
A high credit rating indicates a high degree of confidence by the rating
organization that the issuer will be able to withstand adverse business,
financial or economic conditions and make interest and principal payments on
time. Generally, a lower credit rating indicates a greater risk of non-payment.
A lower rating also may indicate that the issuer has a more senior series of
debt securities, which means that if the issuer has difficulties making its
payments, the more senior series of debt is first in line for payment.
Credit quality may be lower when the issuer has any of the following: a high
debt level, a short operating history, a difficult, competitive environment, or
a less stable cash flow.
The fund managers do not invest solely on the basis of a debt security's credit
rating; they also consider other factors, including potential returns. Higher
credit ratings usually mean lower interest rate payments, so the managers often
purchase debt securities that aren't the highest rated to increase return. If a
fund purchases lower-rated debt securities, it assumes additional credit risk.
Strictly speaking, U.S. Treasury securities are not "rated." However, U.S.
Treasury securities are backed by the full faith and credit of the United
States, and are considered among the safest securities in the world. The rating
on U.S. Treasury securities is, therefore, considered to be equivalent to a AAA
rating.
LIQUIDITY RISK
Debt securities can become difficult to sell, or less liquid, for a variety of
reasons, such as lack of an active trading market. The chance that a fund will
have difficulty selling its debt securities is called liquidity risk.
A COMPARISON OF BASIC RISK FACTORS
The following chart depicts the basic risks of investing in the funds. It is
designed to help you compare these funds with each other; it shouldn't be used
to compare these funds with other mutual funds.
INTEREST RATE RISK CREDIT RISK(1) LIQUIDITY RISK(2)
Target 2005 Lowest Low Low
Target 2010 Medium Low Low
Target 2015 High Low Low
Target 2020 High Low Low
Target 2025 High Low Low
Target 2030 Highest Low Low
(1) BECAUSE THE FUNDS ALL INVEST PRIMARILY IN ZERO-COUPON U.S. TREASURY
SECURITIES AND THEIR EQUIVALENTS, THERE IS NO DIFFERENCE IN CREDIT RISK.
U.S. TREASURY SECURITIES ARE CONSIDERED AMONG THE SAFEST SECURITIES IN THE
WORLD BECAUSE THEY ARE BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED
STATES.
(2) THE TREASURY MARKET IS CONSIDERED THE MOST LIQUID IN THE WORLD.
The funds engage in a variety of investment techniques as they pursue their
investment objectives. Each technique has its own characteristics and may pose
some level of risk to the funds. If you would like to learn more about these
techniques, please review the statement of additional Information before making
an investment.
MANAGEMENT
WHO MANAGES THE FUNDS?
The Board of Trustees, investment advisor and fund management team play key
roles in the management of the funds.
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the funds, it has hired an investment advisor to do so.
More than three-fourths of the trustees are independent of the funds' advisor;
that is, they have never been employed by and have no financial interest in the
advisor or any of its affiliated companies (other than as shareholders of
American Century funds).
THE INVESTMENT ADVISOR
The funds' investment advisor is American Century Investment Management, Inc.
(the advisor).The advisor has been managing mutual funds since 1958 and is
headquartered at 4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the funds
and directing the purchase and sale of their investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the funds to operate.
For the services it provided to the funds, the advisor received a unified
management fee based on a percentage of the daily net assets of each specific
class of shares of the funds. The percentage rate used to calculate the
management fee for each class of shares of a fund is determined daily using a
two-component formula that takes into account (i) the daily net assets of the
accounts managed by the advisor that are in the same broad investment category
as the funds (the "Category Fee") and (ii) the assets of all funds in the
American Century family of funds (the "Complex Fee"). The management fee is
calculated daily and paid monthly in arrears.
The statement of additional information contains detailed information about the
calculation of the management fee. Out of each fund's fee, the advisor paid all
expenses of managing and operating that fund except brokerage expenses, taxes,
interest, fees and expenses of the independent trustees (including legal counsel
fees), and extraordinary expenses. A portion of each fund's management fee may
be paid by the fund's advisor to unaffiliated third parties who provide
recordkeeping and administrative services that would otherwise be performed by
an affiliate of the advisor.
MANAGEMENT FEES PAID BY THE FUNDS TO THE ADVISOR
AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE MOST
RECENT FISCAL YEAR ENDED SEPTEMBER 30, 2004 ADVISOR CLASS C CLASS
Target 2005 0.33% N/A(2)
Target 2010 0.33% N/A(2)
Target 2015 0.33% N/A(2)
Target 2020 0.33% N/A(2)
Target 2025 0.33% N/A(2)
Target 2030 N/A(1) 0.58%
(1) THE CLASS WAS NOT IN OPERATION DURING THE FISCAL YEAR ENDED SEPTEMBER 30,
2004. THE FUND WILL PAY THE ADVISOR A UNIFIED MANAGEMENT FEE CALCULATED BY
ADDING THE APPROPRIATE INVESTMENT CATEGORY AND COMPLEX FEES FROM THE
FOLLOWING SCHEDULES.
(2) THE FUND DOES NOT OFFER C CLASS SHARES.
INVESTMENT CATEGORY FEE SCHEDULE COMPLEX FEE SCHEDULE
FOR TARGET 2030
FEE RATE FEE RATE
CATEGORY ASSETS FEE RATE COMPLEX ASSETS ADVISOR CLASS C CLASS
FIRST $1 BILLION 0.3600% FIRST $2.5 BILLION 0.0600% 0.3100%
NEXT $1 BILLION 0.3080% NEXT $7.5 BILLION 0.0500% 0.3000%
NEXT $3 BILLION 0.2780% NEXT $15 BILLION 0.0485% 0.2985%
NEXT $5 BILLION 0.2580% NEXT $25 BILLION 0.0470% 0.2970%
NEXT $15 BILLION 0.2450% NEXT $25 BILLION 0.0370% 0.2870%
NEXT $25 BILLION 0.2430% NEXT $25 BILLION 0.0300% 0.2800%
THEREAFTER 0.2425% NEXT $25 BILLION 0.0200% 0.2700%
NEXT $25 BILLION 0.0150% 0.2650%
NEXT $25 BILLION 0.0100% 0.2600%
NEXT $25 BILLION 0.0050% 0.2550%
THEREAFTER 0.0000% 0.2500%
THE FUND MANAGEMENT TEAM
The advisor uses a team of portfolio managers, assistant portfolio managers and
analysts to manage the funds. The team meets regularly to review portfolio
holdings and discuss purchase and sale activity. Team members buy and sell
securities for a fund as they see fit, guided by the fund's investment
objectives and strategy.
The funds are managed by the Taxable Bond team, whose members are identified
below.
G. DAVID MACEWEN
Mr. MacEwen, Chief Investment Officer - Fixed Income and Senior Vice President,
supervises the American Century Taxable Bond team. He has been a member of the
team since July 2001. He joined American Century in May 1991 as a Municipal
Portfolio Manager. He has a bachelor's degree in economics from Boston
University and an MBA in finance from the University of Delaware.
ROBERT V. GAHAGAN
Mr. Gahagan, Vice President and Senior Portfolio Manager, has been a member of
the team since 1986. He joined American Century in 1983 as a Fixed-Income
Analyst and was promoted to Portfolio Manager in August 1991. He has a
bachelor's degree in economics and an MBA from the University of Missouri -
Kansas City.
JEREMY FLETCHER
Mr. Fletcher, Vice President and Portfolio Manager, has been a member of the
team since August 1997. He joined American Century in October 1991 as an
Investor Relations Representative. He has bachelor's degrees in economics and
mathematics from Claremont McKenna College. He is a CFA charterholder.
ALEJANDRO H. AGUILAR
Mr. Aguilar, Vice President and Senior Portfolio Manager, has been a member of
the team since joining American Century in October 2003. Prior to joining
American Century, he was an Investment Officer with CalPERS from July 2002 to
September 2003 and Director of Portfolio Management at TIAA-CREF from May 1997
to April 2002. He has a bachelor's degree in economics from the University of
Michigan. He is a CFA charterholder.
MICHAEL DIFLEY
Mr. Difley, Vice President and Portfolio Manager, has been a member of the team
since September 1997. He joined American Century as a Senior Corporate Credit
Analyst in July 1996 and was promoted to Portfolio Manager in November 2001. He
has a B.S. in business administration (finance concentration) from California
Polytechnic State University - San Luis Obispo. He is a Certified Public
Accountant and a CFA charterholder.
JEFFREY L. HOUSTON
Mr. Houston, Vice President and Senior Portfolio Manager, has been a member of
the team since June 1995. He joined American Century as an Investment Analyst in
November 1990 and was promoted to Portfolio Manager in 1994. He has a bachelor
of arts from the University of Delaware and an MPA from Syracuse University. He
is a CFA charterholder.
BRIAN HOWELL
Mr. Howell, Vice President and Portfolio Manager, has been a member of the team
since May 1998. He joined American Century in 1988. He has a bachelor's degree
in mathematics/statistics and an MBA from the University of California -
Berkeley.
JAMES E. PLATZ
Mr. Platz, Vice President and Senior Portfolio Manager, has been a member of the
team since joining American Century in October 2003. Prior to joining American
Century, he was a Vice President and Senior Portfolio Manager at Standish Mellon
Asset Management from July 1995 to September 2003. He has bachelor's degrees in
economics and history from the University of California - Berkeley and an MBA in
finance from the University of Southern California. He is a CFA charterholder.
JOHN F. WALSH
Mr. Walsh, Vice President and Portfolio Manager, has been a member of the team
since February 1996. He joined American Century in February 1996 as an
Investment Analyst and was promoted to Portfolio Manager in September 1997. He
has a bachelor's degree in marketing from Loyola Marymount University and an MBA
in finance from Creighton University.
CODE OF ETHICS
American Century has a Code of Ethics designed to ensure that the interests of
fund shareholders come before the interests of the people who manage the funds.
Among other provisions, the Code of Ethics prohibits portfolio managers and
other investment personnel from buying securities in an initial public offering
or profiting from the purchase and sale of the same security within 60 calendar
days. It also contains limits on short-term transactions in American
Century-managed funds. In addition, the Code of Ethics requires portfolio
managers and other employees with access to information about the purchase or
sale of securities by the funds to obtain approval before executing personal
trades.
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the statement of additional
information and the investment objectives of the funds may not be changed
without shareholder approval. The Board of Trustees and/or the advisor may
change any other policies and investment strategies.
INVESTING WITH AMERICAN CENTURY
ELIGIBILITY FOR ADVISOR CLASS AND C CLASS SHARES
The Advisor Class and C Class shares are intended for purchase by participants
in employer-sponsored retirement or savings plans and for persons purchasing
shares through broker-dealers, banks, insurance companies and other financial
intermediaries that provide various administrative and distribution services.
MINIMUM INITIAL INVESTMENT AMOUNTS (FOR ALL CLASSES)
To open an account, the minimum initial investment amounts are $2,000 for a
Coverdell Education Savings Account (CESA) and $2,500 for all other accounts.
Aggregate purchases are limited to amounts less than $1,000,000 for C Class
shares.
INVESTING THROUGH FINANCIAL INTERMEDIARIES
If you do business with us through a financial intermediary or a retirement
plan, your ability to purchase, exchange, redeem and transfer shares will be
affected by the policies of that entity. Some policy differences may include
o minimum investment requirements
o exchange policies
o fund choices
o cutoff time for investments
o trading restrictions
Please contact your FINANCIAL INTERMEDIARY or plan sponsor for a complete
description of its policies. Copies of the funds' annual reports, semiannual
reports and statement of additional information are available from your
intermediary or plan sponsor.
FINANCIAL INTERMEDIARIES INCLUDE BANKS, BROKER-DEALERS, INSURANCE
COMPANIES AND INVESTMENT ADVISORS.
Although fund share transactions may be made directly with American Century at
no charge, you also may purchase, redeem and exchange fund shares through
financial intermediaries that charge a transaction-based or other fee for their
services. Those charges are retained by the intermediary and are not shared with
American Century or the funds.
The funds have authorized certain financial intermediaries to accept orders on
each fund's behalf. American Century has contracts with these intermediaries
requiring them to track the time investment orders are received and to comply
with procedures relating to the transmission of orders. Orders must be received
by the intermediary on a fund's behalf before the time the net asset value is
determined in order to receive that day's share price. If those orders are
transmitted to American Century and paid for in accordance with the contract,
they will be priced at the net asset value next determined after your request is
received in the form required by the intermediary.
MODIFYING OR CANCELING AN INVESTMENT
Investment instructions are irrevocable. That means that once you have mailed or
otherwise transmitted your investment instruction, you may not modify or cancel
it. Each fund reserves the right to suspend the offering of shares for a period
of time and to reject any specific investment (including a purchase by
exchange). Additionally, we may refuse a purchase if, in our judgment, it is of
a size that would disrupt the management of a fund.
ABUSIVE TRADING PRACTICES
Short-term trading and other so-called market timing practices are not defined
or explicitly prohibited by any federal or state law. However, short-term
trading and other abusive trading practices may disrupt portfolio management
strategies and harm fund performance. If the cumulative amount of short-term
trading activity is significant relative to a fund's net assets, the fund may
incur trading costs that are higher than necessary as securities are first
purchased then quickly sold to meet the redemption request. In such case, the
fund's performance could be negatively impacted by the increased trading costs
created by short-term trading if the additional trading costs are significant.
Because of the potentially harmful effects of abusive trading practices, the
funds' board of trustees has approved American Century's abusive trading
policies and procedures, which are designed to reduce the frequency and effect
of these activities in our funds. These policies and procedures include
monitoring trading activity, imposing trading restrictions on certain accounts,
imposing redemption fees on certain funds, and using fair value pricing when
current market prices are not readily available. Although these efforts are
designed to discourage abusive trading practices, they cannot eliminate the
possibility that such activity will occur and will vary depending on the type of
fund, the class of shares or whether the shares are held directly or indirectly
with American Century. American Century seeks to exercise its judgment in
implementing these tools to the best of its abilities in a manner that it
believes is consistent with shareholder interests.
American Century uses a variety of techniques to monitor for and detect abusive
trading practices. These techniques may change from time to time as determined
by American Century in its sole discretion. To minimize harm to the funds and
their shareholders, we reserve the right to reject any purchase order (including
exchanges) from any shareholder we believe has a history of abusive trading or
whose trading, in our judgment, has been or may be disruptive to the funds. In
making this judgment, we may consider trading done in multiple accounts under
common ownership or control.
Currently, for shares held directly with American Century, we may deem the sale
of all or a substantial portion of a shareholder's purchase of fund shares to be
abusive if the sale is made
o within seven days of the purchase, or
o within 30 days of the purchase, if it happens more than once per year.
To the extent practicable, we try to use the same approach for defining abusive
trading for shares held through financial intermediaries. American Century
reserves the right, in its sole discretion, to identify other trading practices
as abusive and to modify its monitoring and other practices as necessary to deal
with novel or unique abusive trading practices.
In addition, American Century reserves the right to accept purchases and
exchanges in excess of the trading restrictions discussed above if it believes
that such transactions would not be inconsistent with the best interests of fund
shareholders or this policy.
American Century's policies do not permit us to enter into arrangements with
fund shareholders that permit such shareholders to engage in frequent purchases
and redemptions of fund shares. Due to the complexity and subjectivity involved
in identifying abusive trading activity and the volume of shareholder
transactions American Century handles, there can be no assurance that American
Century's efforts will identify all trades or trading practices that may be
considered abusive. In addition, American Century's ability to monitor trades
that are placed by the individual shareholders within group, or omnibus,
accounts maintained by financial intermediaries is severely limited because
American Century generally does not have access to the underlying shareholder
account information. However, American Century monitors aggregate trades placed
in omnibus accounts and seeks to work with financial intermediaries to
discourage shareholders from engaging in abusive trading practices and to impose
restrictions on excessive trades. There may be limitations on the ability of
financial intermediaries to impose restrictions on the trading practices of
their clients. As a result, American Century's ability to monitor and discourage
abusive trading practices in omnibus accounts may be limited.
YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS
American Century and its affiliated companies use procedures reasonably designed
to confirm that telephone, electronic and other instructions are genuine. These
procedures include recording telephone calls, requesting personalized security
codes or other information, and sending confirmation of transactions. If we
follow these procedures, we are not responsible for any losses that may occur
due to unauthorized instructions. For transactions conducted over the Internet,
we recommend the use of a secure Internet browser. In addition, you should
verify the accuracy of your confirmation statements immediately after you
receive them.
REDEMPTIONS
For C Class shares, if you sell your shares within 12 months of their purchase,
you will pay a sales charge the amount of which is contingent upon the length of
time you have held your shares.
Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order.
A FUND'S NET ASSET VALUE, OR NAV, IS THE PRICE OF THE FUND'S
SHARES.
However, we reserve the right to delay delivery of redemption proceeds up to
seven days. For example, each time you make an investment with American Century,
there is a seven-day holding period before we will release redemption proceeds
from those shares, unless you provide us with satisfactory proof that your
purchase funds have cleared. This seven-day holding period begins the day after
your investment is processed. For funds with CheckWriting privileges, we will
not honor checks written against shares subject to this seven-day holding
period. Investments by wire generally require only a one-day holding period. If
you change your address, we may require that any redemption request made within
15 days be submitted in writing and be signed by all authorized signers with
their signatures guaranteed. If you change your bank information, we may impose
a 15-day holding period before we will transfer or wire redemption proceeds to
your bank. In addition, we reserve the right to honor certain redemptions with
securities, rather than cash, as described in the next section.
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the value of a fund's assets if that amount is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of in cash. The fund
managers would select these securities from the fund's portfolio.
We will value these securities in the same manner as we do in computing the
fund's net asset value. We may provide these securities in lieu of cash without
prior notice. Also, if payment is made in securities, you may have to pay
brokerage or other transaction costs to convert the securities to cash.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on a fund and its remaining investors.
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
If your account balance falls below the minimum initial investment amount for
any reason other than as a result of market fluctuation, we will notify you and
give you 90 days to meet the minimum. If you do not meet the deadline, American
Century reserves the right to redeem the shares in the account and send the
proceeds to your address of record. Please note that C Class shares redeemed in
this manner may be subject to a sales charge if held less than 12 months. You
also may incur tax liability as a result of the redemption.
SIGNATURE GUARANTEES
A signature guarantee--which is different from a notarized signature--is a
warranty that the signature presented is genuine. We may require a signature
guarantee for the following transactions:
o Your redemption or distribution check, Check-A-Month or automatic
redemption is made payable to someone other than the account owners
o Your redemption proceeds or distribution amount is sent by wire or EFT to a
destination other than your personal bank account
o You are transferring ownership of an account over $100,000
We reserve the right to require a signature guarantee for other transactions, at
our discretion.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE (CDSC)
C Class shares are sold at their net asset value without an initial sales
charge. However, if you redeem your shares within 12 months of purchase you will
pay a CDSC of 1.00% of the original purchase price or the value at redemption,
whichever is less.
The CDSC will not be charged on shares acquired through reinvestment of
dividends or distributions or increases in the net asset value of shares.
To minimize the amount of the CDSC you may pay when you redeem shares, the fund
will first redeem shares acquired through reinvested dividends and capital gain
distributions, which are not subject to a CDSC. Shares that have been in your
account long enough that they are not subject to a CDSC are redeemed next. For
any remaining redemption amount, shares will be sold in the order they were
purchased (earliest to latest).
CDSC WAIVERS
Any applicable contingent deferred sales charge may be waived in the following
cases:
o redemptions through systematic withdrawal plans not exceeding 12% annually
of the lesser of the original purchase cost or current market value
o distributions from IRAs due to attainment of age 59 1/2
o required minimum distributions from retirement accounts upon reaching age
70 1/2
o tax-free returns of excess contributions to IRAs
o redemptions due to death or post-purchase disability
o exchanges, unless the shares acquired by exchange are redeemed within the
original CDSC period
o if no broker was compensated for the sale
EXCHANGES BETWEEN FUNDS (C CLASS)
You may exchange C Class shares of a fund for C Class shares of any other
American Century fund. You may not exchange from the C Class to any other class.
We will not charge a Contingent Deferred Sales Charge (CDSC) on the shares you
exchange, regardless of the length of time you have owned them. When you do
redeem shares that have been exchanged, the CDSC will be based on the date you
purchased the original shares.
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce the amount of mail you receive from us, we may deliver a single copy
of certain investor documents (such as shareholder reports and prospectuses) to
investors who share an address, even if accounts are registered under different
names. If you prefer to receive multiple copies of these documents individually
addressed, please contact your financial intermediary directly.
RIGHT TO CHANGE POLICIES
We reserve the right to change any stated investment requirement, including
those that relate to purchases, exchanges and redemptions. We also may alter,
add or discontinue any service or privilege. Changes may affect all investors or
only those in certain classes or groups. In addition, from time to time we may
waive a policy on a case-by-case basis, as the advisor deems appropriate.
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century will price the fund shares you purchase, exchange or redeem at
the net asset value (NAV) next determined after your order is received and
accepted by the fund's transfer agent, or other financial intermediary with the
authority to accept orders on the fund's behalf. We determine the NAV of each
fund as of one hour before the close of regular trading (usually 4 p.m. Eastern
time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. On
days when the NYSE is closed (including certain U.S. national holidays), we do
not calculate the NAV. A fund's NAV is the current value of the fund's assets,
minus any liabilities, divided by the number of shares outstanding.
The fund values portfolio securities for which market quotations are readily
available at their market price. As a general rule, equity securities listed on
a U.S. exchange are valued at the last current reported sale price as of the
time of valuation. Securities listed on the NASDAQ National Market System
(Nasdaq) are valued at the Nasdaq Official Closing Price (NOCP), as determined
by Nasdaq, or lacking an NOCP, at the last current reported sale price as of the
time of valuation. The fund may use pricing services to assist in the
determination of market value. Unlisted securities for which market quotations
are readily available are valued at the last quoted sale price or the last
quoted ask price, as applicable, except that debt obligations with 60 days or
less remaining until maturity may be valued at amortized cost. Exchange-traded
options, futures and options on futures are valued at the settlement price as
determined by the appropriate clearing corporation.
If the fund determines that the market price for a portfolio security is not
readily available or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined in good faith by, or in accordance with procedures adopted by, the
fund's board or its designee (a process referred to as "fair valuing" the
security). Circumstances that may cause the fund to fair value a security
include, but are not limited to:
o for funds investing in foreign securities, if, after the close of the
foreign exchange on which a portfolio security is principally traded, but
before the close of the NYSE, an event occurs that may materially affect
the value of the security;
o for funds that invest in debt securities, a debt security has been declared
in default; or
o trading in a security has been halted during the trading day.
If such circumstances occur, the fund will fair value the security if the fair
valuation would materially impact the fund's NAV. While fair value
determinations involve judgments that are inherently subjective, these
determinations are made in good faith in accordance with procedures adopted by
the fund's board.
The effect of using fair value determinations is that the fund's NAV will be
based, to some degree, on security valuations that the board or its designee
believes are fair rather than being solely determined by the market.
With respect to any portion of the fund's assets that are invested in one or
more open-end management investment companies that are registered with the SEC
(RICs), the fund's NAV will be calculated based upon the NAVs of such RICs.
These RICs are required by law to explain the circumstances under which they
will use fair value pricing and the effects of using fair value pricing in their
prospectuses.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.
Trading of securities in foreign markets may not take place every day the NYSE
is open. Also, trading in some foreign markets and on some electronic trading
networks may take place on weekends or holidays when the fund's NAV is not
calculated. So, the value of the fund's portfolio may be affected on days when
you will not be able to purchase, exchange or redeem fund shares.
DISTRIBUTIONS
Federal tax laws require each fund to make distributions to its shareholders in
order to qualify as a regulated investment company. Qualification as a regulated
investment company means the funds will not be subject to state or federal
income tax on amounts distributed. The distributions generally consist of
dividends and interest received by a fund, as well as CAPITAL GAINS realized by
a fund on the sale of its investment securities. Each fund generally pays
distributions from net income and capital gains, if any, once a year in
December. The funds may make more frequent distributions, if necessary, to
comply with Internal Revenue Code provisions.
CAPITAL GAINS ARE INCREASES IN THE VALUES OF CAPITAL ASSETS, SUCH
AS STOCK, FROM THE TIME THE ASSETS ARE PURCHASED.
You will participate in fund distributions when they are declared, starting the
next business day after your purchase is effective. For example, if you purchase
shares on a day that a distribution is declared, you will not receive that
distribution. If you redeem shares, you will receive any distribution declared
on the day you redeem. If you redeem all shares, we will include any
distributions received with your redemption proceeds.
Participants in tax-deferred retirement plans must reinvest all distributions.
For investors investing through taxable accounts, we will reinvest distributions
unless you elect to have dividends and/or capital gains sent to another American
Century account, to your bank electronically, or to your home address or to
another person or address by check.
REVERSE SHARE SPLITS
When a fund pays its distributions, the board also declares a reverse share
split for that fund that exactly offsets the per-share amount of the
distribution. If you reinvest your dividends, this reverse share split means
that you will hold exactly the same number of shares after a dividend as you did
before. This reverse share split makes changes in the funds' share prices behave
like changes in the values of zero-coupon securities.
FUND LIQUIDATION
During a fund's target maturity year, the Board of Trustees will adopt a plan of
liquidation that specifies the last day investors can open a new account, the
last day the fund will accept new investments from existing investors, and the
liquidation date of the fund. During the fund's target maturity year, you will
be asked how you want to receive the proceeds from the liquidation of your
shares. You can choose one of the following
o cash
o shares of another American Century mutual fund
TAXES
The tax consequences of owning shares of the funds will vary depending on
whether you own them through a taxable or tax-deferred account. Tax consequences
result from distributions by the funds of dividend and interest income they have
received or capital gains they have generated through their investment
activities. Tax consequences also may result when investors sell fund shares
after the net asset value has increased or decreased.
TAX-DEFERRED ACCOUNTS
If you purchase fund shares through a tax-deferred account, such as an IRA or a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions usually will not be subject to current taxation but will
accumulate in your account under the plan on a tax-deferred basis. Likewise,
moving from one fund to another fund within a plan or tax-deferred account
generally will not cause you to be taxed. For information about the tax
consequences of making purchases or withdrawals through a tax-deferred account,
please consult your plan administrator, your summary plan description or a tax
advisor.
TAXABLE ACCOUNTS
If you own fund shares through a taxable account, you may be taxed on your
investments if the fund makes distributions or if you sell your fund shares.
TAXABILITY OF DISTRIBUTIONS
Fund distributions may consist of income such as dividends and interest earned
by a fund from its investments, or capital gains generated by a fund from the
sale of its investment securities. Distributions of income are taxed as ordinary
income unless they are designated as QUALIFIED DIVIDEND INCOME and you meet a
minimum required holding period with respect to your shares of the fund, in
which case distributions of income are taxed as long-term capital gains.
QUALIFIED DIVIDEND INCOME IS A DIVIDEND RECEIVED BY A FUND FROM
THE STOCK OF A DOMESTIC OR QUALIFYING FOREIGN CORPORATION, PROVIDED
THAT THE FUND HAS HELD THE STOCK FOR A REQUIRED HOLDING PERIOD.
For capital gains and for income distributions designated as qualified dividend
income, the following rates apply:
TAX RATE FOR 10% AND TAX RATE FOR
TYPE OF DISTRIBUTION 15% BRACKETS ALL OTHER BRACKETS
Short-term capital gains Ordinary Income Ordinary Income
Long-term capital gains ( 1 year)
and Qualified Dividend Income 5% 15%
The tax status of any distributions of capital gains is determined by how long a
fund held the underlying security that was sold, not by how long you have been
invested in the fund, or whether you reinvest your distributions in additional
shares or take them in cash. For taxable accounts, American Century or your
financial intermediary will inform you of the tax status of fund distributions
for each calendar year in an annual tax mailing (Form 1099-DIV).
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, you may want to consult your tax professional about
federal, state and local tax consequences.
TAXES ON TRANSACTIONS
Your redemptions--including exchanges to other American Century funds--are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. However, you should note that loss realized upon the
sale or exchange of shares held for six months or less will be treated as a
long-term capital loss to the extent of any distribution of long-term capital
gain to you with respect to those shares. If a loss is realized on the
redemption of fund shares, the reinvestment in additional fund shares within 30
days before or after the redemption may be subject to the wash sale rules of the
Internal Revenue Code. This may result in a postponement of the recognition of
such loss for federal income tax purposes.
If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to withholding, we
are required to withhold and pay to the IRS the applicable federal withholding
tax rate on taxable dividends, capital gains distributions and redemption
proceeds.
BUYING A DIVIDEND
Purchasing fund shares in a taxable account shortly before a distribution is
sometimes known as buying a dividend. In taxable accounts, you must pay income
taxes on the distribution whether you reinvest the distribution or take it in
cash. In addition, you will have to pay taxes on the distribution whether the
value of your investment decreased, increased or remained the same after you
bought the fund shares.
The risk in buying a dividend is that the fund's portfolio may build up taxable
gains throughout the period covered by a distribution, as securities are sold at
a profit. The funds distribute those gains to you, after subtracting any losses,
even if you did not own the shares when the gains occurred.
If you buy a dividend, you incur the full tax liability of the distribution
period, but you may not enjoy the full benefit of the gains realized in the
fund's portfolio.
MULTIPLE CLASS INFORMATION
American Century offers three classes of the funds: Investor Class, Advisor
Class and C Class. The shares offered by this prospectus are Advisor Class and C
Class shares and are offered primarily through employer-sponsored retirement
plans or through institutions like banks, broker-dealers and insurance
companies. Target 2030 is the only fund offering C Class shares.
The other class has different fees, expenses and/or minimum investment
requirements from the Advisor Class and C Class. The difference in the fee
structures between the classes is the result of their separate arrangements for
shareholder and distribution services. It is not the result of any difference in
advisory or custodial fees or other expenses related to the management of the
funds' assets, which do not vary by class. Different fees and expenses will
affect performance. For additional information concerning the other class of
shares not offered by this prospectus, call us at 1-800-345-2021 for Investor
Class shares.
You also can contact a sales representative or financial intermediary who offers
that class of shares.
Except as described below, all classes of shares of the funds have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences between the classes are (a) each class may be
subject to different expenses specific to that class; (b) each class has a
different identifying designation or name; (c) each class has exclusive voting
rights with respect to matters solely affecting such class; and (d) each class
may have different exchange privileges.
SERVICE, DISTRIBUTION AND ADMINISTRATIVE FEES
Investment Company Act Rule 12b-1 permits mutual funds that adopt a written plan
to pay certain expenses associated with the distribution of their shares out of
fund assets. The funds' Advisor Class and C Class shares have 12b-1 Plans. The
plans provide for the funds to pay annual fees of 1.00% for C Class and 0.50%
for Advisor Class to the distributor for certain ongoing shareholder and
administrative services and for distribution services, including past
distribution services. Under the Advisor Class Plan, the funds' Advisor Class
pays the distributor an annual fee of 0.50% of Advisor Class average net assets,
half for certain ongoing shareholder and administrative services and half for
distribution services, including past distribution services. The distributor
pays all or a portion of such fees to the investment advisors, banks,
broker-dealers and insurance companies that make Advisor Class and C Class
shares available. Because these fees are used to pay for services that are not
related to prospective sales of the funds, each class will continue to make
payments under its plan even if it is closed to new investors. Because these
fees are paid out of the funds' assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges. For additional information about the Plans and
their terms, see MULTIPLE CLASS STRUCTURE - MASTER DISTRIBUTION AND SHAREHOLDER
SERVICES PLAN in the statement of additional information.
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, the advisor will pay such
service providers a fee for performing those services. Also, the advisor and the
funds' distributor may make payments for various additional services or other
expenses out of their profits or other available sources. Such expenses may
include distribution services, shareholder services or marketing, promotional or
related expenses. The amount of any payments described by this paragraph is
determined by the advisor or the distributor and is not paid by you.
FINANCIAL HIGHLIGHTS
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The tables on the next few pages itemize what contributed to the changes in
share price during the most recently ended fiscal year. They also show the
changes in share price for this period in comparison to changes over the last
five fiscal years or less, if the share class is not five years old. Because the
Target 2030 Advisor Class was not in operation as of the fiscal year end, it is
not included.
On a per-share basis, each table includes as appropriate
o share price at the beginning of the period
o investment income and capital gains or losses
o distributions of income and capital gains paid to investors
o reverse share split
o share price at the end of the period
Each table also includes some key statistics for the period as appropriate
o TOTAL RETURN - the overall percentage of return of the fund, assuming the
reinvestment of all distributions
o EXPENSE RATIO - the operating expenses of the fund as a percentage of
average net assets
o NET INCOME RATIO - the net investment income of the fund as a percentage of
average net assets
o PORTFOLIO TURNOVER - the percentage of the fund's investment portfolio that
is replaced during the period
The Financial Highlights have been audited by PricewaterhouseCoopers LLP,
independent registered public accounting firm. Their Report of Independent
Registered Public Accounting Firm and the financial statements are included in
the funds' Annual Report, which is available upon request.
Target 2005 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
ADVISOR CLASS
----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $97.85 $95.39 $88.02 $76.70 $72.34
----------------------------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(1) 3.36 3.37 3.95 4.01 3.91
---------------------------
Net Realized and
Unrealized Gain (Loss) (3.17) (0.91) 3.42 7.31 0.45
----------------------------------------------------------------------------------------------------
Total From
Investment Operations 0.19 2.46 7.37 11.32 4.36
----------------------------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (3.78) (3.68) (3.85) (4.51) (3.70)
---------------------------
From Net Realized Gains (1.96) -- -- -- (1.56)
----------------------------------------------------------------------------------------------------
Total Distributions (5.74) (3.68) (3.85) (4.51) (5.26)
----------------------------------------------------------------------------------------------------
Reverse Share Split 5.74 3.68 3.85 4.51 5.26
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $98.04 $97.85 $95.39 $88.02 $76.70
====================================================================================================
TOTAL RETURN(2) 0.19% 2.58% 8.37% 14.76% 6.03%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.83% 0.84% 0.84% 0.84% 0.84%
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 3.44% 3.53% 4.40% 4.87% 5.33%
---------------------------
Portfolio Turnover Rate 24% 36% 11% 49% 17%
---------------------------
Net Assets, End of Period
(in thousands) $16,927 $9,530 $5,197 $5,291 $3,765
----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
Target 2010 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
ADVISOR CLASS
----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $83.53 $80.41 $70.19 $59.67 $54.96
----------------------------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(1) 3.39 3.21 3.32 3.22 3.17
---------------------------
Net Realized and
Unrealized Gain (Loss) (1.42) (0.09) 6.90 7.30 1.54
----------------------------------------------------------------------------------------------------
Total From
Investment Operations 1.97 3.12 10.22 10.52 4.71
----------------------------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (3.72) (3.27) (3.51) (3.12) (3.07)
---------------------------
From Net Realized Gains (4.52) (2.20) (0.66) -- --
----------------------------------------------------------------------------------------------------
Total Distributions (8.24) (5.47) (4.17) (3.12) (3.07)
----------------------------------------------------------------------------------------------------
Reverse Share Split 8.24 5.47 4.17 3.12 3.07
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $85.50 $83.53 $80.41 $70.19 $59.67
====================================================================================================
TOTAL RETURN(2) 2.36% 3.88% 14.56% 17.63% 8.57%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.83% 0.84% 0.84% 0.84% 0.84%
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.07% 3.96% 4.71% 4.90% 5.65%
---------------------------
Portfolio Turnover Rate 15% 45% 46% 60% 22%
---------------------------
Net Assets, End of Period
(in thousands) $5,096 $3,591 $1,960 $2,729 $1,631
----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
Target 2015 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
ADVISOR CLASS
----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $66.89 $64.10 $55.09 $47.87 $43.02
----------------------------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(1) 3.15 2.93 2.79 2.63 2.49
---------------------------
Net Realized and
Unrealized Gain (Loss) 1.15 (0.14) 6.22 4.59 2.36
----------------------------------------------------------------------------------------------------
Total From
Investment Operations 4.30 2.79 9.01 7.22 4.85
----------------------------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (3.47) (2.69) (2.91) (2.68) (2.42)
---------------------------
From Net Realized Gains (2.19) (0.16) (0.08) -- (0.03)
----------------------------------------------------------------------------------------------------
Total Distributions (5.66) (2.85) (2.99) (2.68) (2.45)
----------------------------------------------------------------------------------------------------
Reverse Share Split 5.66 2.85 2.99 2.68 2.45
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $71.19 $66.89 $64.10 $55.09 $47.87
====================================================================================================
TOTAL RETURN(2) 6.43% 4.35% 16.36% 15.08% 11.27%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.83% 0.84% 0.84% 0.84% 0.84%
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.67% 4.47% 5.03% 5.05% 5.57%
---------------------------
Portfolio Turnover Rate 12% 17% 24% 23% 26%
---------------------------
Net Assets, End of Period
(in thousands) $876 $498 $97 $35 $22
----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
Target 2020 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
ADVISOR CLASS
----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $47.65 $45.83 $38.85 $34.66 $30.55
----------------------------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(1) 2.18 2.06 1.95 1.82 1.69
---------------------------
Net Realized and
Unrealized Gain (Loss) 1.77 (0.24) 5.03 2.37 2.42
----------------------------------------------------------------------------------------------------
Total From
Investment Operations 3.95 1.82 6.98 4.19 4.11
----------------------------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (2.35) (2.02) (2.34) (1.70) (1.79)
---------------------------
From Net Realized Gains (2.63) (3.37) (4.62) (3.19) (3.30)
----------------------------------------------------------------------------------------------------
Total Distributions (4.98) (5.39) (6.96) (4.89) (5.09)
----------------------------------------------------------------------------------------------------
Reverse Share Split 4.98 5.39 6.96 4.89 5.09
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $51.60 $47.65 $45.83 $38.85 $34.66
====================================================================================================
TOTAL RETURN(2) 8.29% 3.97% 17.97% 12.09% 13.45%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.83% 0.84% 0.84% 0.84% 0.84%
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.57% 4.43% 4.96% 4.85% 5.24%
---------------------------
Portfolio Turnover Rate 26% 45% 24% 54% 11%
---------------------------
Net Assets, End of Period
(in thousands) $4,073 $3,048 $1,389 $1,599 $773
----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
Target 2025 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
ADVISOR CLASS
----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $39.18 $38.56 $33.01 $29.17 $26.13
----------------------------------------------------------------------------------------------------
Income From
Investment Operations
---------------------------
Net Investment Income(1) 1.76 1.68 1.60 1.54 1.47
---------------------------
Net Realized and
Unrealized Gain (Loss) 2.20 (1.06) 3.95 2.30 1.57
----------------------------------------------------------------------------------------------------
Total From
Investment Operations 3.96 0.62 5.55 3.84 3.04
----------------------------------------------------------------------------------------------------
Distributions
---------------------------
From Net
Investment Income (1.97) (1.97) (2.18) (1.91) (1.05)
---------------------------
From Net Realized Gains (2.17) (2.36) (0.80) (0.42) --
----------------------------------------------------------------------------------------------------
Total Distributions (4.14) (4.33) (2.98) (2.33) (1.05)
----------------------------------------------------------------------------------------------------
Reverse Share Split 4.14 4.33 2.98 2.33 1.05
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $43.14 $39.18 $38.56 $33.01 $29.17
====================================================================================================
TOTAL RETURN(2) 10.11% 1.61% 16.81% 13.16% 11.63%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.83% 0.84% 0.84% 0.84% 0.84%
---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.49% 4.39% 4.88% 4.90% 5.39%
---------------------------
Portfolio Turnover Rate 24% 22% 23% 25% 52%
---------------------------
Net Assets, End of Period
(in thousands) $578 $595 $431 $997 $1,058
----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
Target 2030 - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
(EXCEPT AS NOTED)
--------------------------------------------------------------------------------
C CLASS
--------------------------------------------------------------------------------
2004 2003 2002(1)
--------------------------------------------------------------------------------
PER-SHARE DATA
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $33.13 $33.01 $28.50
--------------------------------------------------------------------------------
Income From Investment Operations
-------------------------------------
Net Investment Income(2) 1.30 1.28 1.21
-------------------------------------
Net Realized and
Unrealized Gain (Loss) 1.56 (1.16) 3.30
--------------------------------------------------------------------------------
Total From
Investment Operations 2.86 0.12 4.51
--------------------------------------------------------------------------------
Distributions
-------------------------------------
From Net Investment Income (1.38) (0.97) (0.58)
-------------------------------------
From Net Realized Gains (1.37) (0.04) (0.08)
--------------------------------------------------------------------------------
Total Distributions (2.75) (1.01) (0.66)
--------------------------------------------------------------------------------
Reverse Share Split 2.75 1.01 0.66
--------------------------------------------------------------------------------
Net Asset Value, End of Period $35.99 $33.13 $33.01
================================================================================
TOTAL RETURN(3) 8.63% 0.36% 15.82%
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.50% 1.34% 1.34%(4)
-------------------------------------
Ratio of Net Investment
Income to Average Net Assets 3.95% 3.97% 4.36%(4)
-------------------------------------
Portfolio Turnover Rate 39% 95% 43%(5)
-------------------------------------
Net Assets, End of Period
(in thousands) $721 $2,255 $1,326
--------------------------------------------------------------------------------
(1) October 8, 2001 (commencement of sale) through September 30, 2002.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital gains
distributions, if any, and does not reflect applicable sales charges. Total
returns for periods less than one year are not annualized. The total return
of the classes may not precisely reflect the class expense differences
because of the impact of calculating the net asset values to two decimal
places. If net asset values were calculated to three decimal places, the
total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is
made in accordance with SEC guidelines and does not result in any gain or
loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated was
calculated for the year ended September 30, 2002.
NOTES
NOTES
NOTES
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
ANNUAL AND SEMIANNUAL REPORTS
Annual and semiannual reports contain more information about the funds'
investments and the market conditions and investment strategies that
significantly affected the funds' performance during the most recent fiscal
period.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains a more detailed, legal description of the funds' operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this prospectus. This means that it is legally part of this
prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the funds or your accounts, by contacting American Century at
the address or telephone numbers listed below.
You also can get information about the funds (including the SAI) from the
Securities and Exchange Commission (SEC). The SEC charges a duplicating fee to
provide copies of this information.
IN PERSON SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for location and hours.
ON THE INTERNET o EDGAR database at sec.gov
o By email request at publicinfo@sec.gov
BY MAIL SEC Public Reference Section
Washington, D.C. 20549-0102
This prospectus shall not constitute an offer to sell securities of a fund in
any state, territory, or other jurisdiction where the fund's shares have not
been registered or qualified for sale, unless such registration or qualification
is not required, or under any circumstances in which such offer or solicitation
would be unlawful.
FUND REFERENCE FUND CODE TICKER NEWSPAPER LISTING
--------------------------------------------------------------------------------
Target 2005 Fund
Advisor Class 764 ATRGX Tg2005
--------------------------------------------------------------------------------
Target 2010 Fund
Advisor Class 765 ACTRX Tg2010
--------------------------------------------------------------------------------
Target 2015 Fund
Advisor Class 766 ACTTX Tg2015
--------------------------------------------------------------------------------
Target 2020 Fund
Advisor Class 767 ACTEX Tg2020
--------------------------------------------------------------------------------
Target 2025 Fund
Advisor Class 768 BTMTF Tg2025
--------------------------------------------------------------------------------
Target 2030 Fund
Advisor Class 769 N/A N/A
C Class 469 ATGCX N/A
Investment Company Act File No. 811-4165
AMERICAN CENTURY INVESTMENTS
P.O. Box 419786
Kansas City, Missouri 64141-6786
1-800-378-9878
0502
SH-PRS-xxxxx
AMERICAN CENTURY INVESTMENTS
STATEMENT OF
ADDITIONAL INFORMATION
FEBRUARY 1, 2005
AMERICAN CENTURY TARGET MATURITIES TRUST
Target 2005 Fund
Target 2010 Fund
Target 2015 Fund
Target 2020 Fund
Target 2025 Fund
Target 2030 Fund
This statement of additional information adds to the discussion in the funds'
prospectuses dated February 1, 2005 but is not a prospectus. The statement of
additional information should be read in conjunction with the funds' current
prospectuses. If you would like a copy of a prospectus, please contact us at the
address or telephone numbers listed on the back cover or visit American
Century's Web site at americancentury.com.
This statement of additional information incorporates by reference certain
information that appears in the funds' annual and semiannual reports, which are
delivered to all shareholders. You may obtain a free copy of the funds' annual
or semiannual reports by calling 1-800-345-2021.
American Century
Investment Services, Inc.
TABLE OF CONTENTS
THE FUNDS' HISTORY.............................................................x
FUND INVESTMENT GUIDELINES ....................................................x
FUND INVESTMENTS AND RISKS.....................................................x
Investment Strategies and Risks..........................................x
Investment Policies......................................................x
Temporary Defensive Measures.............................................x
Portfolio Turnover.......................................................x
MANAGEMENT.....................................................................x
The Board of Trustees ..................................................xx
Ownership of Fund Shares................................................xx
Code of Ethics..........................................................xx
Proxy Voting Guidelines.................................................xx
THE FUNDS' PRINCIPAL SHAREHOLDERS.............................................xx
SERVICE PROVIDERS.............................................................xx
Investment Advisor......................................................xx
Transfer Agent and Administrator........................................xx
Distributor.............................................................xx
OTHER SERVICE PROVIDERS........................................................x
Custodian Banks..........................................................x
Independent Registered Public Accounting Firm............................x
BROKERAGE ALLOCATION...........................................................x
Regular Broker-Dealers ..................................................x
INFORMATION ABOUT FUND SHARES.................................................xx
Fund Liquidations ......................................................xx
Multiple Class Structure ...............................................xx
Buying, Selling and Exchanging Fund Shares .............................xx
Valuation of a Fund's Securities .......................................xx
TAXES.........................................................................xx
Federal Income Tax .....................................................xx
FINANCIAL STATEMENTS..........................................................xx
EXPLANATION OF FIXED-INCOME SECURITIES RATINGS................................xx
THE FUNDS' HISTORY
American Century Target Maturities Trust is a registered open-end management
investment company that was organized as a Massachusetts business trust on March
25, 1985. Until January 1997, it was known as Benham Target Maturities Trust.
Throughout this statement of additional information we refer to American Century
Target Maturities Trust as the Trust.
Each fund is a separate series of the Trust and operates for many purposes as if
it were an independent company. Each fund has its own investment objective,
strategy, management team, assets, and tax identification and stock registration
number.
Fund Inception Date Ticker Symbol
--------------------------------------------------------------------------------
TARGET 2005 FUND
Investor Class 03/25/1985 BTFIX
Advisor Class 08/03/1998 ATRGX
--------------------------------------------------------------------------------
TARGET 2010 FUND
Investor Class 03/25/1985 BTTNX
Advisor Class 10/20/1998 ACTRX
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TARGET 2015 FUND
Investor Class 09/01/1986 BTFTX
Advisor Class 07/23/1999 ACTTX
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TARGET 2020 FUND
Investor Class 12/29/1989 BTTTX
Advisor Class 10/19/1998 ACTEX
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TARGET 2025 FUND
Investor Class 02/15/1996 BTTRX
Advisor Class 06/01/1998 BTMTF
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TARGET 2030 FUND
Investor Class 06/01/2001 ACTAX
C Class 10/08/2001 ATGCX
FUND INVESTMENT GUIDELINES
This section explains the extent to which the funds' advisor, American Century
Investment Management, Inc., can use various investment vehicles and strategies
in managing a fund's assets. Descriptions of the investment techniques and risks
associated with each appear in the section, Investment Strategies and Risks,
which begins on the next page. In the case of the funds' principal investment
strategies, these descriptions elaborate upon discussions contained in the
Prospectuses.
Each fund is diversified as defined in the Investment Company Act of 1940 (the
Investment Company Act). Diversified means that, with respect to 75% of its
total assets, each fund will not invest more than 5% of its total assets in the
securities of a single issuer or own more than 10% of the outstanding voting
securities of a single issuer (other than securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities).
To meet federal tax requirements for qualification as a regulated investment
company, each fund must limit its investments so that at the close of each
quarter of its taxable year
(1) no more than 25% of its total assets are invested in the securities of a
single issuer (other than the U.S. government or a regulated investment
company), and
(2) with respect to at least 50% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer.
FUND INVESTMENTS AND RISKS
INVESTMENT STRATEGIES AND RISKS
This section describes investment vehicles and strategies the fund managers can
use in managing a fund's assets. It also details the risks associated with each,
because each investment vehicle and strategy contributes to a fund's overall
risk profile.
ZERO-COUPON SECURITIES
Zero-coupon U.S. Treasury securities (or zeros) are the unmatured interest
coupons and underlying principal portions of U.S. Treasury bonds. Unlike
traditional U.S. Treasury securities, these securities are sold at a discount to
their face value and all of the interest and principal is paid when the
securities mature. Originally, these securities were created by broker-dealers
who bought Treasury bonds and deposited these securities with a custodian bank.
The broker-dealers then sold receipts representing ownership interests in the
coupons or principal portions of the bonds. Some examples of zero-coupon
securities sold through custodial receipt programs are CATS (Certificates of
Accrual on Treasury Securities), TIGRs (Treasury Investment Growth Receipts) and
generic TRs (Treasury Receipts).
The U.S. Treasury subsequently introduced a program called Separate Trading of
Registered Interest and Principal of Securities (STRIPS), through which it
exchanges eligible securities for their component parts and then allows the
component parts to trade in book-entry form. STRIPS are direct obligations of
the U.S. government and have the same credit risks as other U.S. Treasury
securities.
Zero-coupon Treasury equivalent securities are government agency debt securities
that are ultimately backed by obligations of the U.S. Treasury and are
considered by the market place to be backed by the full faith and credit of the
U.S. Treasury. These securities are created by financial institutions (like
broker-dealers) and by U.S. government agencies. For example, the Resolution
Funding Corporation (REFCORP) issues bonds whose interest payments are
guaranteed by the U.S. Treasury and whose principal amounts are secured by
zero-coupon U.S. Treasury securities held in a separate custodial account at the
Federal Reserve Bank of New York. The principal amount and maturity date of
REFCORP bonds are the same as the par amount and maturity date of the
corresponding zeros; upon maturity, REFCORP bonds are repaid from the proceeds
of the zeros. REFCORP zeros are the unmatured coupons and principal portions of
REFCORP bonds.
The U.S. government may issue securities in zero-coupon form. These securities
are referred to as original issue zero-coupon securities.
ZERO-COUPON U.S. GOVERNMENT AGENCY SECURITIES
A number of U.S. government agencies issue debt securities. These agencies
generally are created by Congress to fulfill a specific need, such as providing
credit to homebuyers or farmers. Among these agencies are the Farm Home Loan
Banks, the Federal Farm Credit Banks, and the Student Loan Marketing
Association.
Zero-coupon U.S. government agency securities operate in all respects like
zero-coupon Treasury securities and their equivalents, except that they are
created by separating a U.S. government agency bond's interest and principal
payment obligations. The final maturity value of a zero-coupon U.S. government
agency security is a debt obligation of the issuing agency. Some agency
securities are backed by the full faith and credit of the U.S. government, while
others are guaranteed only by the issuing agency. Agency securities typically
offer somewhat higher yields than U.S. Treasury securities with similar
maturities. However, these securities may involve greater risk of default than
securities backed by the U.S. Treasury. The funds will limit their purchase of
zero-coupon U.S. government agency securities to those that receive the highest
rating (AAA) by an independent rating organization.
Securities issued by U.S. government agencies in zero-coupon form are referred
to as original issue zero-coupon securities.
DERIVATIVE SECURITIES
To the extent permitted by its investment objectives and policies, each fund may
invest in securities that are commonly referred to as derivative securities.
Generally, a derivative security is a financial arrangement, the value of which
is based on, or derived from, a traditional security, asset, or market index.
Certain derivative securities may be described as structured investments. A
structured investment is a security whose value or performance is linked to an
underlying index or other security or asset class. Structured investments
include asset-backed securities (ABS), commercial and residential
mortgage-backed securities and collateralized mortgage obligations (CMO), which
are described more fully below. Structured investments also include securities
backed by other types of collateral. Structured investments involve the transfer
of specified financial assets to a special purpose entity, generally a
corporation or trust, or the deposit of financial assets with a custodian; and
the issuance of securities or depository receipts backed by, or representing
interests in, those assets.
Some structured investments are individually negotiated agreements or are traded
over the counter. Structured investments may be organized and operated to
restructure the investment characteristics of the underlying security. The cash
flow on the underlying instruments may be apportioned among the newly issued
structured securities to create securities with different investment
characteristics, such as varying maturities, payment priorities and interest
rate provisions, and the extent of such payments made with respect to structured
securities is dependent on the extent of the cash flow on the underlying
instruments. Because structured securities typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. Structured securities are subject to such risks as the
inability or unwillingness of the issuers of the underlying securities to repay
principal and interest, and requests by the issuers of the underlying securities
to reschedule or restructure outstanding debt and to extend additional loan
amounts.
Some derivative securities, such as mortgage-related and other asset-backed
securities, are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivative securities and many different ways
to use them. Futures and options are commonly used for traditional hedging
purposes to attempt to protect a fund from exposure to changing interest rates,
securities prices or currency exchange rates, and for cash management purposes
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities.
The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates.
There are a range of risks associated with investments in derivative securities,
including:
o the risk that the underlying security, interest rate, market index or other
financial asset will not move in the direction the fund managers
anticipate;
o the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a position
when desired;
o the risk that adverse price movements in an instrument can result in a loss
substantially greater than a fund's initial investment; and
o the risk that the counterparty will fail to perform its obligations.
A fund may not invest in a derivative security unless the reference index or the
instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the price of oil would
not be a permissible investment because the funds may not invest in oil and gas
leases or futures. A fund may not invest in a derivative security if its credit,
interest rate, liquidity, counterparty and other risks associated with ownership
of the security are outside acceptable limits set forth in the fund's
prospectus. The Board of Trustees has approved the advisor's policy regarding
investments in derivative securities. That policy specifies factors that must be
considered in connection with a purchase of derivative securities and provides
that a fund may not invest in a derivative security if it would be possible for
a fund to lose more money than the notional value of the investment. The policy
also establishes a committee that must review certain proposed purchases before
the purchases can be made. The advisor will report on fund activity in
derivative securities to the Board of Trustees as necessary.
SWAP AGREEMENTS
Each fund may invest in swap agreements, consistent with its investment
objective and strategies. A fund may enter into a swap agreement in order to,
for example, attempt to obtain or preserve a particular return or spread at a
lower cost than obtaining a return or spread through purchases and/or sales of
instruments in other markets; protect against currency fluctuations; attempt to
manage duration to protect against any increase in the price of securities the
fund anticipates purchasing at a later date; or gain exposure to certain markets
in the most economical way possible.
Swap agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or "swapped" between the parties are generally
calculated with respect to a "notional amount," i.e., the return on or increase
in value of a particular dollar amount invested at a particular interest rate,
in a particular foreign currency, or in a "basket" of securities representing a
particular index. Forms of swap agreements include, for example, interest rate
swaps, under which fixed- or floating-rate interest payments on a specific
principal amount are exchanged and total return swaps, under which one party
agrees to pay the other the total return of a defined underlying asset (usually
an index, stock, bond or defined portfolio of loans and mortgages) in exchange
for fee payments, often a variable stream of cashflows based on LIBOR. The funds
may enter into credit default swap agreements to hedge an existing position by
purchasing or selling credit protection. Credit default swaps enable an investor
to buy/sell protection against a credit event of a specific issuer. The seller
of credit protection against a security or basket of securities receives an
up-front or periodic payment to compensate against potential default event(s).
The fund may enhance returns by selling protection or attempt to mitigate credit
risk by buying protection. Market supply and demand factors may cause
distortions between the cash securities market and the credit default swap
market.
Whether a fund's use of swap agreements will be successful depends on the
advisor's ability to predict correctly whether certain types of investments are
likely to produce greater returns than other investments. Interest rate swaps
could result in losses if interest rate changes are not correctly anticipated by
the fund. Total return swaps could result in losses if the reference index,
security, or investments do not perform as anticipated by the fund. Credit
default swaps could result in losses if the fund does not correctly evaluate the
creditworthiness of the issuer on which the credit default swap is based.
Because they are two-party contracts and because they may have terms of greater
than seven days, swap agreements may be considered to be illiquid. Moreover, a
fund bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. The funds will enter into swap agreements only with counterparties
that meet certain standards of creditworthiness. Certain restrictions imposed on
the funds by the Internal Revenue Code may limit the funds' ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.
MORTGAGE-RELATED SECURITIES
BACKGROUND
A mortgage-backed security represents an ownership interest in a pool of
mortgage loans. The loans are made by financial institutions to finance home and
other real estate purchases. As the loans are repaid, investors receive payments
of both interest and principal.
Like fixed-income securities such as U.S. Treasury bonds, mortgage-backed
securities pay a stated rate of interest during the life of the security.
However, unlike a bond, which returns principal to the investor in one lump sum
at maturity, mortgage-backed securities return principal to the investor in
increments during the life of the security.
Because the timing and speed of principal repayments vary, the cash flow on
mortgage-backed securities is irregular. If mortgage holders sell their homes,
refinance their loans, prepay their mortgages or default on their loans, the
principal is distributed pro rata to investors.
As with other fixed-income securities, the prices of mortgage-backed securities
fluctuate in response to changing interest rates; when interest rates fall, the
prices of mortgage-backed securities rise, and vice versa. Changing interest
rates have additional significance for mortgage-backed securities investors,
however, because they influence prepayment rates (the rates at which mortgage
holders prepay their mortgages), which in turn affect the yields on
mortgage-backed securities. When interest rates decline, prepayment rates
generally increase. Mortgage holders take advantage of the opportunity to
refinance their mortgages at lower rates with lower monthly payments. When
interest rates rise, mortgage holders are less inclined to refinance their
mortgages. The effect of prepayment activity on yield depends on whether the
mortgage-backed security was purchased at a premium or at a discount.
A fund may receive principal sooner than it expected because of accelerated
prepayments. Under these circumstances, the fund might have to reinvest returned
principal at rates lower than it would have earned if principal payments were
made on schedule. Conversely, a mortgage-backed security may exceed its
anticipated life if prepayment rates decelerate unexpectedly. Under these
circumstances, a fund might miss an opportunity to earn interest at higher
prevailing rates.
GNMA CERTIFICATES
The Government National Mortgage Association (GNMA) is a wholly owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934 (Housing Act), as amended,
authorizes GNMA to guarantee the timely payment of interest and repayment of
principal on certificates that are backed by a pool of mortgage loans insured by
the Federal Housing Administration under the Housing Act, or by Title V of the
Housing Act of 1949 (FHA Loans), or guaranteed by the Veterans' Affairs under
the Servicemen's Readjustment Act of 1944 (VA Loans), as amended, or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. government is pledged to the payment of all amounts that may
be required to be paid under any guarantee. GNMA has unlimited authority to
borrow from the U.S. Treasury in order to meet its obligations under this
guarantee.
GNMA certificates represent a pro rata interest in one or more pools of the
following types of mortgage loans: (a) fixed-rate level payment mortgage loans;
(b) fixed-rate graduated payment mortgage loans (GPMs); (c) fixed-rate growing
equity mortgage loans (GEMs); (d) fixed-rate mortgage loans secured by
manufactured (mobile) homes (MHs); (e) mortgage loans on multifamily residential
properties under construction (CLCs); (f) mortgage loans on completed
multifamily projects (PLCs); (g) fixed-rate mortgage loans that use escrowed
funds to reduce the borrower's monthly payments during the early years of the
mortgage loans (buydown mortgage loans); and (h) mortgage loans that provide for
payment adjustments based on periodic changes in interest rates or in other
payment terms of the mortgage loans.
FANNIE MAE CERTIFICATES
The Federal National Mortgage Association (FNMA or Fannie Mae) is a federally
chartered and privately owned corporation established under the Federal National
Mortgage Association Charter Act. Fannie Mae was originally established in 1938
as a U.S. government agency designed to provide supplemental liquidity to the
mortgage market and was reorganized as a stockholder-owned and privately managed
corporation by legislation enacted in 1968. Fannie Mae acquires capital from
investors who would not ordinarily invest in mortgage loans directly and thereby
expands the total amount of funds available for housing. This money is used to
buy home mortgage loans from local lenders, replenishing the supply of capital
available for mortgage lending.
Fannie Mae certificates represent a pro rata interest in one or more pools of
FHA Loans, VA Loans, or, most commonly, conventional mortgage loans (i.e.,
mortgage loans that are not insured or guaranteed by a government agency) of the
following types: (a) fixed-rate level payment mortgage loans; (b) fixed-rate
growing equity mortgage loans; (c) fixed-rate graduated payment mortgage loans;
(d) adjustable-rate mortgage loans; and (e) fixed-rate mortgage loans secured by
multifamily projects.
Fannie Mae certificates entitle the registered holder to receive amounts
representing a pro rata interest in scheduled principal and interest payments
(at the certificate's pass-through rate, which is net of any servicing and
guarantee fees on the underlying mortgage loans), any principal prepayments, and
a proportionate interest in the full principal amount of any foreclosed or
otherwise liquidated mortgage loan. The full and timely payment of interest and
repayment of principal on each Fannie Mae certificate is guaranteed by Fannie
Mae; this guarantee is not backed by the full faith and credit of the U.S.
government.
FREDDIE MAC CERTIFICATES
The Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) is a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970 (FHLMC Act), as amended. Freddie Mac was established
primarily for the purpose of increasing the availability of mortgage credit. Its
principal activity consists of purchasing first-lien conventional residential
mortgage loans (and participation interests in such mortgage loans) and
reselling these loans in the form of mortgage-backed securities, primarily
Freddie Mac certificates.
Freddie Mac certificates represent a pro rata interest in a group of mortgage
loans (a Freddie Mac certificate group) purchased by Freddie Mac. The mortgage
loans underlying Freddie Mac certificates consist of fixed- or adjustable-rate
mortgage loans with original terms to maturity of between 10 and 30 years,
substantially all of which are secured by first-liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet
standards set forth in the FHLMC Act. A Freddie Mac certificate group may
include whole loans, participation interests in whole loans, undivided interests
in whole loans, and participations composing another Freddie Mac certificate
group.
Freddie Mac guarantees to each registered holder of a Freddie Mac certificate
the timely payment of interest at the rate provided for by the certificate.
Freddie Mac also guarantees ultimate collection of all principal on the related
mortgage loans, without any offset or deduction, but generally does not
guarantee the timely repayment of principal. Freddie Mac may remit principal at
any time after default on an underlying mortgage loan, but no later than 30 days
following (a) foreclosure sale, (b) payment of a claim by any mortgage insurer,
or (c) the expiration of any right of redemption, whichever occurs later, and in
any event no later than one year after demand has been made upon the mortgager
for accelerated payment of principal. Obligations guaranteed by Freddie Mac are
not backed by the full faith and credit pledge of the U.S. government.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
A CMO is a multiclass bond backed by a pool of mortgage pass-through
certificates or mortgage loans. CMOs may be collateralized by (a) GNMA, Fannie
Mae or Freddie Mac pass-through certificates; (b) unsecured mortgage loans
insured by the Federal Housing Administration or guaranteed by the Department of
Veterans' Affairs; (c) unsecuritized conventional mortgages; or (d) any
combination thereof.
In structuring a CMO, an issuer distributes cash flow from the underlying
collateral over a series of classes called tranches. Each CMO is a set of two or
more tranches, with average lives and cash flow patterns designed to meet
specific investment objectives. The average life expectancies of the different
tranches in a four-part deal, for example, might be two, five, seven and 20
years.
As payments on the underlying mortgage loans are collected, the CMO issuer pays
the coupon rate of interest to the bondholders in each tranche. At the outset,
scheduled and unscheduled principal payments go to investors in the first
tranches. Investors in later tranches do not begin receiving principal payments
until the prior tranches are paid off. This basic type of CMO is known as a
sequential pay or plain vanilla CMO.
Some CMOs are structured so that the prepayment or market risks are transferred
from one tranche to another. Prepayment stability is improved in some tranches
if other tranches absorb more prepayment variability.
The final tranche of a CMO often takes the form of a Z-bond, also known as an
accrual bond or accretion bond. Holders of these securities receive no cash
until the earlier tranches are paid in full. During the period that the other
tranches are outstanding, periodic interest payments are added to the initial
face amount of the Z-bond but are not paid to investors. When the prior tranches
are retired, the Z-bond receives coupon payments on its higher principal balance
plus any principal prepayments from the underlying mortgage loans. The existence
of a Z-bond tranche helps stabilize cash flow patterns in the other tranches. In
a changing interest rate environment, however, the value of the Z-bond tends to
be more volatile.
As CMOs have evolved, some classes of CMO bonds have become more prevalent. The
planned amortization class (PAC) and targeted amortization class (TAC), for
example, were designed to reduce prepayment risk by establishing a sinking-fund
structure. PAC and TAC bonds assure to varying degrees that investors will
receive payments over a predetermined period under various prepayment scenarios.
Although PAC and TAC bonds are similar, PAC bonds are better able to provide
stable cash flows under various prepayment scenarios than TAC bonds because of
the order in which these tranches are paid.
The existence of a PAC or TAC tranche can create higher levels of risk for other
tranches in the CMO because the stability of the PAC or TAC tranche is achieved
by creating at least one other tranche - known as a companion bond, support or
non-PAC bond - that absorbs the variability of principal cash flows. Because
companion bonds have a high degree of average life variability, they generally
pay a higher yield. A TAC bond can have some of the prepayment variability of a
companion bond if there is also a PAC bond in the CMO issue.
Floating-rate CMO tranches (floaters) pay a variable rate of interest that is
usually tied to the LIBOR. Institutional investors with short-term liabilities,
such as commercial banks, often find floating-rate CMOs attractive investments.
Super floaters (which float a certain percentage above LIBOR) and inverse
floaters (which float inversely to LIBOR) are variations on the floater
structure that have highly variable cash flows.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage-backed securities may be partially
stripped so that each investor class receives some interest and some principal.
When securities are completely stripped, however, all of the interest is
distributed to holders of one type of security, known as an interest-only
security, or IO, and all of the principal is distributed to holders of another
type of security known as a principal-only security, or PO. Strips can be
created in a pass-through structure or as tranches of a CMO.
The market values of IOs and POs are very sensitive to interest rate and
prepayment rate fluctuations. POs, for example, increase (or decrease) in value
as interest rates decline (or rise). The price behavior of these securities also
depends on whether the mortgage collateral was purchased at a premium or
discount to its par value. Prepayments on discount coupon POs generally are much
lower than prepayments on premium coupon POs. IOs may be used to hedge a fund's
other investments because prepayments cause the value of an IO strip to move in
the opposite direction from other mortgage-backed securities.
ADJUSTABLE-RATE MORTGAGE LOANS (ARMS)
ARMs eligible for inclusion in a mortgage pool generally will provide for a
fixed initial mortgage interest rate for a specified period of time, generally
for either the first three, six, 12, 24, 36, 60 or 84 scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes in an index.
ARMs have minimum and maximum rates beyond which the mortgage interest rate may
not vary over the lifetime of the loan. Certain ARMs provide for additional
limitations on the maximum amount by which the mortgage interest rate may adjust
for any single adjustment period. Negatively amortizing ARMs may provide
limitations on changes in the required monthly payment. Limitations on monthly
payments can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
There are two types of indices that provide the basis for ARM rate adjustments:
those based on market rates and those based on a calculated measure, such as a
cost-of-funds index or a moving average of mortgage rates. Commonly utilized
indices include the one-year, three-year and five-year constant maturity U.S.
Treasury rates (as reported by the Federal Reserve Board); the three-month
Treasury bill rate; the 180-day Treasury bill rate; rates on longer-term
Treasury securities; the Eleventh District Federal Home Loan Bank Cost of Funds
Index (EDCOFI); the National Median Cost of Funds Index; the one-month,
three-month, six-month or one-year London Interbank Offered Rate (LIBOR); or
six-month CD rates. Some indices, such as the one-year constant maturity
Treasury rate or three-month LIBOR, are highly correlated with changes in market
interest rates. Other indices, such as the EDCOFI, tend to lag behind changes in
market rates and be somewhat less volatile over short periods of time.
The EDCOFI reflects the monthly weighted average cost of funds of savings and
loan associations and savings banks whose home offices are located in Arizona,
California and Nevada (the Federal Home Loan Bank Eleventh District) and who are
member institutions of the Federal Home Loan Bank of San Francisco (the FHLB of
San Francisco), as computed from statistics tabulated and published by the FHLB
of San Francisco. The FHLB of San Francisco normally announces the Cost of Funds
Index on the last working day of the month following the month in which the cost
of funds was incurred.
One-year and three-year Constant Maturity Treasury (CMT) rates are calculated by
the Federal Reserve Bank of New York, based on daily closing bid yields on
actively traded Treasury securities submitted by five leading broker-dealers.
The median bid yields are used to construct a daily yield curve.
The National Median Cost of Funds Index, similar to the EDCOFI, is calculated
monthly by the Federal Home Loan Bank Board (FHLBB) and represents the average
monthly interest expenses on liabilities of member institutions. A median,
rather than an arithmetic mean, is used to reduce the effect of extreme numbers.
LIBOR is the rate at which banks in London offer Eurodollars in trades between
banks. LIBOR has become a key rate in the U.S. domestic money market because it
is perceived to reflect the true global cost of money.
The fund managers may invest in ARMs whose periodic interest rate adjustments
are based on new indices as these indices become available.
ASSET-BACKED SECURITIES (ABS)
ABS are structured like mortgage-backed securities, but instead of mortgage
loans or interest in mortgage loans, the underlying assets may include, for
example, such items as motor vehicle installment sales or installment loan
contracts, leases of various types of real and personal property, home equity
loans, student loans, small business loans, and receivables from credit card
agreements. The ability of an issuer of asset-backed securities to enforce its
security interest in the underlying assets may be limited. The value of an ABS
is affected by changes in the market's perception of the assets backing the
security, the creditworthiness of the servicing agent for the loan pool, the
originator of the loans, the financial institution providing any credit
enhancement, and subordination levels.
Payments of principal and interest passed through to holders of ABS are
typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guarantee by another entity or a priority to
certain of the borrower's other securities. The degree of credit enhancement
varies, and generally applies to only a fraction of the asset-backed security's
par value until exhausted. If the credit enhancement of an ABS held by the fund
has been exhausted, and if any required payments of principal and interest are
not made with respect to the underlying loans, the fund may experience losses or
delays in receiving payment.
Some types of ABS may be less effective than other types of securities as a
means of "locking in" attractive long-term interest rates. One reason is the
need to reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a result, these
securities may have less potential for capital appreciation during periods of
declining interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value during periods
of rising interest rates. Prepayments may also significantly shorten the
effective maturities of these securities, especially during periods of declining
interest rates. Conversely, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the fund.
The risks of investing in ABS are ultimately dependent upon the repayment of
loans by the individual or corporate borrowers. Although a fund would generally
have no recourse against the entity that originated the loans in the event of
default by a borrower, ABS typically are structured to mitigate this risk of
default.
Asset-backed securities are generally issued in more than one class, each with
different payment terms. Multiple class asset-backed securities may be used as a
method of providing credit support through creation of one or more classes whose
right to payments is made subordinate to the right to such payments of the
remaining class or classes. Multiple classes also may permit the issuance of
securities with payment terms, interest rates or other characteristics differing
both from those of each other and from those of the underlying assets. Examples
include so-called strips (asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with classes
having characteristics such as floating interest rates or scheduled amortization
of principal.
FUTURES AND OPTIONS
Each non-money market fund may enter into futures contracts, options or options
on futures contracts. Futures contracts provide for the sale by one party and
purchase by another party of a specific security at a specified future time and
price. Some futures and options strategies, such as selling futures, buying puts
and writing calls, hedge a fund's investments against price fluctuations. Other
strategies, such as buying futures, writing puts and buying calls, tend to
increase market exposure. The funds do not use futures and options transactions
for speculative purposes.
Although other techniques may be used to control a fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
Futures contracts are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission (CFTC), a U.S. government agency. The funds may
engage in futures and options transactions based on securities indices, such as
the Bond Buyer Municipal Bond Index that are consistent with the funds'
investment objectives. The funds also may engage in futures and options
transactions based on specific securities such as U.S. Treasury bonds or notes.
Bond Buyer Municipal Bond Index futures contracts differ from traditional
futures contracts in that when delivery takes place, no bonds change hands.
Instead, these contracts settle in cash at the spot market value of the Bond
Buyer Municipal Bond Index.
Although other types of futures contracts by their terms call for actual
delivery or acceptance of the underlying securities, in most cases the contracts
are closed out before the settlement date. A futures position may be closed by
taking an opposite position in an identical contract (i.e., buying a contract
that has previously been sold or selling a contract that has previously been
bought).
To initiate and maintain open positions in a futures contract, a fund would be
required to make a good faith margin deposit in cash or government securities
with a futures broker or custodian. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimum initial
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish margin deposit requirements that are higher
than the exchange minimums.
Once a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, the contract holder is
required to pay additional variation margin. Conversely, changes in the contract
value may reduce the required margin, resulting in a repayment of excess margin
to the contract holder. Variation margin payments are made to or from the
futures broker for as long as the contract remains open and do not constitute
margin transactions for purposes of the funds' investment restrictions.
RISKS RELATED TO FUTURES AND OPTIONS TRANSACTIONS
Futures and options prices can be volatile, and trading in these markets
involves certain risks. If the advisor applies a hedge at an inappropriate time
or judges interest rate trends incorrectly, futures and options strategies may
lower a fund's return.
A fund could suffer losses if it were unable to close out its position because
of an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when the fund managers consider it appropriate or desirable to
do so. In the event of adverse price movements, a fund would be required to
continue making daily cash payments to maintain its required margin. If the fund
had insufficient cash, it might have to sell portfolio securities to meet daily
margin requirements at a time when the advisor would not otherwise elect to do
so. In addition, a fund may be required to deliver or take delivery of
instruments underlying futures contracts it holds. The fund managers will seek
to minimize these risks by limiting the contracts entered into on behalf of the
funds to those traded on national futures exchanges and for which there appears
to be a liquid secondary market.
A fund could suffer losses if the prices of its futures and options positions
were poorly correlated with its other investments, or if securities underlying
futures contracts purchased by a fund had different maturities than those of the
portfolio securities being hedged. Such imperfect correlation may give rise to
circumstances in which a fund loses money on a futures contract at the same time
that it experiences a decline in the value of its "hedged" portfolio securities.
A fund also could lose margin payments it has deposited with a margin broker,
if, for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond the limit. However, the daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses. In addition, the daily limit may prevent liquidation
of unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
OPTIONS ON FUTURES
By purchasing an option on a futures contract, a fund obtains the right, but not
the obligation, to sell the futures contract (a put option) or to buy the
contract (a call option) at a fixed strike price. A fund can terminate its
position in a put option by allowing it to expire or by exercising the option.
If the option is exercised, the fund completes the sale of the underlying
security at the strike price. Purchasing an option on a futures contract does
not require a fund to make margin payments unless the option is exercised.
Although they do not currently intend to do so, the funds may write (or sell)
call options that obligate it to sell (or deliver) the option's underlying
instrument upon exercise of the option. While the receipt of option premiums
would mitigate the effects of price declines, the funds would give up some
ability to participate in a price increase on the underlying security. If a fund
were to engage in options transactions, it would own the futures contract at the
time a call were written and would keep the contract open until the obligation
to deliver it pursuant to the call expired.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS
Under the Commodity Exchange Act, a fund may enter into futures and options
transactions (a) for hedging purposes without regard to the percentage of assets
committed to initial margin and option premiums, or (b) for other-than-hedging
purposes, provided that assets committed to initial margin and option premiums
do not exceed 5% of the fund's total assets. To the extent required by law, each
fund will segregate cash, cash equivalents or other appropriate liquid assets on
its records in an amount sufficient to cover its obligations under the futures
contracts and options.
MANAGING TO THE TARGET YEAR
ANTICIPATED VALUE AT MATURITY
The maturity values of zero-coupon bonds are specified at the time the bonds are
issued, and this feature, combined with the ability to calculate yield to
maturity, has made these instruments popular investment vehicles for investors
seeking reliable investments to meet long-term financial goals.
To provide a comparable investment opportunity while allowing investors the
flexibility to purchase or redeem shares each day the funds are open for
business, each fund consists primarily of zero-coupon bonds but is actively
managed to accommodate shareholder activity and to take advantage of perceived
market opportunities. Because of this active management approach, the fund
managers do not guarantee that a certain price per share will be attained by the
time a fund is liquidated. Instead, the fund managers attempt to track the price
behavior of a directly held zero-coupon U.S. Treasury security by:
(1) Maintaining a weighted average maturity within the fund's target maturity
year;
(2) Investing at least 90% of assets in securities that mature within one year
of the fund's target maturity year;
(3) Investing a substantial portion of assets in Treasury STRIPS (the most
liquid Treasury zero and in their equivalents);
(4) Under normal conditions, maintaining a cash balance of less than 1%;
(5) Executing portfolio transactions necessary to accommodate net shareholder
purchases or redemptions on a daily basis; and
(6) Whenever feasible, contacting several U.S. government securities dealers
for each intended transaction in an effort to obtain the best price on each
transaction.
These measures enable the fund managers to calculate an anticipated value at
maturity (AVM) for each fund that approximates the price per share the fund will
achieve by its weighted average maturity date. The AVM calculation is as
follows:
AVM = NAV(1+AGR)2T
--------------------------------------------------------------------------------
2
where NAV = the fund's current price per share, T = the fund's weighted average
term to maturity in years, and AGR = the fund's anticipated growth rate.
This calculation assumes that the shareholder will reinvest all dividend and
capital gain distributions (if any). It also assumes an expense ratio and a
portfolio composition that remain constant for the life of the fund. Because
fund expenses and composition do not remain constant, the fund managers
calculate AVM for each fund each day the funds are open for business.
In addition to the measures described above, which the advisor believes are
adequate to ensure close correspondence between the price behavior of each fund
and the price behavior of directly held zero-coupon bonds with comparable
maturities, each fund has made an undertaking to the Securities and Exchange
Commission (SEC) that each fund will invest at least 90% of its net assets in
zero-coupon bonds until it is within four years of its target maturity year and
at least 80% of its net assets in zero-coupon securities while the fund is
within two to four years of its target maturity year. This undertaking may be
revoked if the market supply of zero-coupon securities diminishes unexpectedly,
although it will not be revoked without prior consultation with the SEC. In
addition, the advisor has undertaken that any coupon-bearing bond purchased on
behalf of a fund will have a duration that falls within the fund's target
maturity year.
ANTICIPATED GROWTH RATE
The fund managers also calculate an anticipated growth rate (AGR) for each fund
each day the funds are open for business. AGR calculated on the date of purchase
is the annualized rate of growth an investor may expect from that purchase date
to the fund's target maturity date. As is the case with calculations of AVM, the
AGR calculation assumes that the investor will reinvest all dividends and
capital gain distributions (if any) and that the fund's expense ratio and
portfolio composition will remain constant. Each fund's AGR changes from day to
day primarily because of changes in interest rates and, to a lesser extent, to
changes in portfolio composition and other factors that affect the value of the
fund's investments.
The advisor expects that shareholders who hold their shares until a fund's
weighted average maturity date and who reinvest all dividends and capital gain
distributions, if any, will realize an investment return and maturity value that
do not differ substantially from the AGR and AVM calculated on the day his or
her shares were purchased.
As a demonstration of how the funds have behaved over time, the following tables
show the AGR and AVM for the Investor Class of each fund as of September 30 for
each of the past five years.
The AVM for the Advisor and C Classes of each fund will differ from that of the
Investor Class, depending on the expenses of these classes.
The funds' share prices and growth rates are not guaranteed by the Trust or any
of its affiliates. There is no guarantee that the funds' AVMs and AGRs will
fluctuate in the same manner in the future as they have in the past.
Anticipated Growth Rate 9/30/2000 9/30/2001 9/30/2002 9/30/2003 9/30/2004
Target 2005 5.61% 3.38% 1.67% 1.07% 1.77%
Target 2010 5.68% 4.42% 3.24% 3.15% 3.30%
Target 2015 5.77% 5.14% 4.28% 4.30% 4.13%
Target 2020 5.76% 5.43% 4.76% 4.82% 4.62%
Target 2025 5.55% 5.30% 4.86% 5.01% 4.79%
Target 2030 N/A 5.31% 4.72% 4.90% 4.78%
Anticipated Value
at Maturity 9/30/2000 9/30/2001 9/30/2002 9/30/2003 9/30/2004
Target 2005 $101.94 $101.32 $101.25 $101.04 $101.20
Target 2010 $105.14 $104.90 $105.04 $105.22 $105.59
Target 2015 $113.36 $113.56 $112.26 $112.88 $113.35
Target 2020 $108.05 $108.24 $107.26 $107.48 $108.07
Target 2025 $113.99 $116.77 $117.07 $117.43 $118.37
Target 2030 N/A $105.87 $103.58 $105.70 $105.52
COUPON-BEARING U.S. TREASURY SECURITIES
U.S. Treasury bills, notes and bonds are direct obligations of the U.S.
Treasury. Historically, they have involved no risk of loss of principal if held
to maturity. Between issuance and maturity, however, the prices of these
securities change in response to changes in market interest rates.
Coupon-bearing securities generate current interest payments, and part of a
fund's return may come from reinvesting interest earned on these securities.
CASH MANAGEMENT
Each fund may invest in U.S. government agency overnight discount notes or up to
5% of its total assets in any money market fund, including those managed by the
advisor, provided that the investment is consistent with the fund's investment
policies and restrictions.
In order to meet anticipated redemptions, anticipated purchases of additional
securities for a fund's portfolio, or, in some cases, for temporary defensive
purposes, the funds may invest a portion of their assets in money market and
other short-term securities issued or guaranteed by the U.S. government and its
agencies and instrumentalities.
OTHER INVESTMENT COMPANIES
Each of the funds may invest up to 10% of its total assets in other investment
companies, such as mutual funds, provided that the investment is consistent with
the fund's investment policies and restrictions. These investments may include
investments in money market funds managed by the advisor. Under the Investment
Company Act, a fund's investment in such securities, subject to certain
exceptions, currently is limited to
o 3% of the total voting stock of any one investment company;
o 5% of the fund's total assets with respect to any one investment company;
and
o 10% of a fund's total assets in the aggregate.
Such purchases will be made in the open market where no commission or profit to
a sponsor or dealer results from the purchase other than the customary brokers'
commissions. As a shareholder of another investment company, a fund would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in addition
to the management fee that each fund bears directly in connection with its own
operations.
Each fund may invest in exchange traded funds (ETFs), such as Standard & Poor's
Depository Receipts (SPDRs) and the NASDAQ-100 index-tracking ETF (CUBES or
QQQs), with the same percentage limitations as investments in registered
investment companies. ETFs are a type of index fund bought and sold on a
securities exchange. An ETF trades like common stock and represents a fixed
portfolio of securities designed to track the performance and dividend yield of
a particular domestic or foreign market index. A fund may purchase an ETF to
temporarily gain exposure to a portion of the U.S. or a foreign market while
awaiting purchase of underlying securities. The risks of owning an ETF generally
reflect the risks of owning the underlying securities they are designed to
track, although the lack of liquidity on an ETF could result in it being more
volatile. Additionally, ETFs have management fees, which increase their cost.
LOANS OF PORTFOLIO SECURITIES
Each fund may lend its portfolio securities to earn additional income. If a
borrower defaults on a securities loan, the lending fund could experience delays
in recovering the securities it loaned; if the value of the loaned securities
increased over the value of the collateral, the fund could suffer a loss. To
minimize the risk of default on securities loans, the advisor, American Century
Investment Management, Inc., adheres to the following guidelines prescribed by
the Board of Trustees governing lending of securities. These guidelines strictly
govern
(1) the type and amount of collateral that must be received by the fund;
(2) the circumstances under which additions to that collateral must be made by
borrowers;
(3) the return received by the fund on the loaned securities;
(4) the limitations on the percentage of fund assets on loan; and
(5) the credit standards applied in evaluating potential borrowers of portfolio
securities.
In addition, the guidelines require that the fund have the option to terminate
any loan of a portfolio security at any time and set requirements for recovery
of securities from borrowers.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the restrictions described below apply at the time a fund enters into
a transaction. Accordingly, any later increase or decrease beyond the specified
limitation resulting from a change in a fund's net assets will not be considered
in determining whether it has complied with its investment restrictions.
FUNDAMENTAL INVESTMENT POLICIES
The funds' fundamental investment policies are set forth below. These investment
policies and the funds' investment objectives set forth in their prospectuses
may not be changed without approval of a majority of the outstanding votes of
shareholders of a fund, as determined in accordance with the Investment Company
Act.
Subject Policy
Senior Securities A fund may not issue senior securities, except as permitted
under the Investment Company Act.
Borrowing A fund may not borrow money, except for temporary or
emergency purposes (not for leveraging or investment) in an
amount not exceeding 33 1/3% of the fund's total assets.
Lending A fund may not lend any security or make any other loan if,
as a result, more than 33 1/3% of the fund's total assets
would be lent to other parties, except (i) through the
purchase of debt securities in accordance with its
investment objective, policies and limitations or (ii) by
engaging in repurchase agreements with respect to portfolio
securities.
Real Estate A fund may not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments.
This policy shall not prevent a fund from investing in
securities or other instruments backed by real estate or
securities of companies that deal in real estate or are
engaged in the real estate business.
Concentration A 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).
Underwriting A fund may not act as an underwriter of securities issued by
others, except to the extent that the fund may be considered
an underwriter within the meaning of the Securities Act of
1933 in the disposition of restricted securities.
Commodities A fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments, provided that this limitation shall not
prohibit the fund from purchasing or selling options and
futures contracts or from investing in securities or other
instruments backed by physical commodities.
Control A fund may not invest for purposes of exercising control
over management.
For purposes of the investment policies relating to lending and borrowing, the
funds have received an exemptive order from the SEC regarding an interfund
lending program. Under the terms of the exemptive order, the funds may borrow
money from or lend money to other ACIM-advised funds, that permit such
transactions. All such transactions will be subject to the limits on borrowing
and lending set forth above. The funds will borrow money through the program
only when the costs are equal to or lower than the cost of short-term bank
loans. Interfund loans and borrowings normally extend only overnight, but can
have a maximum duration of seven days. The funds will lend through the program
only when the returns are higher than those available from other short-term
instruments (such as repurchase agreements). The funds may have to borrow from a
bank at a higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost investment
opportunity or additional borrowing costs.
For purposes of the investment policy relating to concentration, a fund shall
not purchase any securities that would cause 25% or more of the value of the
fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry, provided that
(a) there is no limitation with respect to obligations issued or guaranteed by
the U.S. government, any state, territory or possession of the United
States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and repurchase agreements
secured by such instruments,
(b) wholly owned finance companies will be considered to be in the industries
of their parents if their activities are primarily related to financing the
activities of the parents,
(c) utilities will be divided according to their services, for example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry, and
(d) personal credit and business credit businesses will be considered separate
industries.
NONFUNDAMENTAL INVESTMENT POLICIES
In addition, the funds are subject to the following investment policies that are
not fundamental and may be changed by the Board of Trustees.
Subject Policy
Leveraging A fund may not purchase additional investment securities at
any time during which outstanding borrowings exceed 5% of
the total assets of the fund.
Liquidity A fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 15% of its
net assets would be invested in repurchase agreements not
entitling the holder to payment of principal and interest
within seven days and in securities that are illiquid by
virtue of legal or contractual restrictions on resale or the
absence of a readily available market.
Short Sales A fund may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions
in futures contracts and options are not deemed to
constitute selling securities short.
Margin A fund may not purchase securities on margin, except to
obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments
in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on
margin.
The Investment Company Act imposes certain additional restrictions upon the
funds' ability to acquire securities issued by insurance companies,
broker-dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership. Neither the SEC nor any other agency of the
federal or state government participates in or supervises the management of the
funds or their investment practices or policies.
TEMPORARY DEFENSIVE MEASURES
For temporary defensive purposes, a fund may invest in securities that may not
fit its investment objectives or its stated market. During a temporary defensive
period, a fund may direct its assets to the following investment vehicles:
o interest-bearing bank accounts or certificates of deposit
o U.S. government securities and repurchase agreements collateralized by U.S.
government securities
o other money market funds
To the extent a fund assumes a defensive position, it will not be pursuing its
investment objective.
PORTFOLIO TURNOVER
Under normal conditions, the funds' annual portfolio turnover rates are not
expected to exceed 100%. Because a higher turnover rate increases transaction
costs and may increase taxable capital gains, the funds' managers carefully
weigh the potential benefits of short-term investing against these
considerations. The funds' portfolio turnover rates are listed in the Financial
Highlights tables in the prospectuses.
MANAGEMENT
The individuals listed below serve as trustees or officers of the funds. Each
trustee serves until his or her successor is duly elected and qualified or until
he or she retires. Effective March 2004, mandatory retirement age for
independent trustees is 73. However, the mandatory retirement age may be
extended for a period not to exceed two years with the approval of the remaining
independent trustees. The independent trustees have extended the mandatory
retirement age of Mr. Eisenstat to 75. Mr. Scott may serve until age 77 based on
an extension granted under retirement guidelines in effect prior to March 2004.
Those listed as interested trustees are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the funds' investment advisor, American
Century Investment Management, Inc. (ACIM or the advisor); the funds' principal
underwriter, American Century Investment Services, Inc. (ACIS); and the funds'
transfer agent, American Century Services Corporation (ACSC).
The other trustees (more than three-fourths of the total number) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned subsidiaries, including
ACIM, ACIS and ACSC. The trustees serve in this capacity for eight registered
investment companies in the American Century family of funds.
All persons named as officers of the funds also serve in similar capacities for
the other 13 investment companies advised by ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated for
his or her service as an officer of the funds. The listed officers are
interested persons of the funds and are appointed or re-appointed on an annual
basis.
Number of
Portfolios
in Fund
Length Complex Other
Position(s) of Time Overseen Directorships
Name, Address Held with Served Principal Occupation(s) by Held by
(Year of Birth) Funds (years) During Past 5 Years Trustee Trustee
-----------------------------------------------------------------------------------------------------------------------
Interested Trustees
-----------------------------------------------------------------------------------------------------------------------
William M. Lyons Trustee, 7 Chief Executive Officer, ACC 33 None
4500 Main Street Chairman and other ACC subsidiaries
Kansas City, MO 64111 of the (September 2000 to present)
(1955) Board President, ACC
(June 1997 to present)
President, ACIM
(September 2002 to present)
President, ACIS
(July 2003 to present)
Chief Operating Officer, ACC
(June 1996 to September 2000)
Also serves as: Executive
Vice President, ACSC and other
ACC subsidiaries
-----------------------------------------------------------------------------------------------------------------------
Independent Trustees
-----------------------------------------------------------------------------------------------------------------------
Albert Eisenstat Trustee 9 Retired, General Partner, 33 Independent Director,
1665 Charleston Road Discovery Ventures Sungard Data Systems
Mountain View, CA 94043 (Venture capital firm, (1991 to present)
(1930) 1996 to 1998) Independent Director,
Business Objects S/A
(1994 to present)
Independent Director
Commercial Metals
(1983-2001)
----------------------------------------------------------------------------------------------------------------------
Number of
Portfolios
in Fund
Length Complex Other
Position(s) of Time Overseen Directorships
Name, Address Held with Served Principal Occupation(s) by Held by
(Year of Birth) Funds (years) During Past 5 Years Trustee Trustee
-----------------------------------------------------------------------------------------------------------------------
Independent Trustees
-----------------------------------------------------------------------------------------------------------------------
Ronald J. Gilson Lead 9 Charles J. Meyers Professor 33 None
1665 Charleston Road Trustee of Law and Business,
Mountain View, CA 94043 Stanford Law School
(1946) (1979 to present)
Mark and Eva Stern
Professor of Law and
Business, Columbia
University School of Law
(1992 to present)
Counsel, Marron, Reid &
Sheehy (a San Francisco
law firm, 1984 to present)
-----------------------------------------------------------------------------------------------------------------------
Kathryn A. Hall Trustee 3 President and Chief 33 Director, Princeton
1665 Charleston Road Investment Officer, University
Mountain View, CA 94043 Offit Hall Capital Investment Company
(1957) Management, LLC (1997 to present)
(April 2002 to present) Director, Stanford
President and Managing Management Company
Director, Laurel Management (2001 to present)
Company, L.L.C. Director, UCSF
(1996 to April 2002) Foundation
(2000 to present)
Director, San Francisco
Day School
(1999 to present)
-----------------------------------------------------------------------------------------------------------------------
Myron S. Scholes Trustee 24 Partner, Oak Hill Capital 33 Director, Dimensional
1665 Charleston Road Management, (1999 to present) Fund Advisors
Mountain View, CA 94043 Frank E. Buck Professor (investment advisor,
(1941) of Finance, Stanford 1982 to present)
Graduate School of Business Director, Smith
(1981 to present) Breeden Family
of Funds
(1992 to present)
-----------------------------------------------------------------------------------------------------------------------
Kenneth E. Scott Trustee 33 Ralph M. Parsons Professor 33 None
1665 Charleston Road of Law and Business,
Mountain View, CA 94043 Stanford Law School
(1928) (1972 to present)
-----------------------------------------------------------------------------------------------------------------------
John B. Shoven Trustee 2 Professor of Economics, 33 Director, Cadence
1665 Charleston Road Stanford University Design Systems
Mountain View, CA 94043 (1977 to present) (1992 to present)
(1947) Director, Watson
Wyatt Worldwide
(2002 to present)
Director, Palmsource
Inc.
(2002 to present)
-----------------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers Trustee 20 Retired, Director and Partner, 33 Director, Indus
1665 Charleston Road Windy Hill Productions, LP International
Mountain View, CA 94043 (educational software, (software solutions,
(1945) 1994 to 1998) January 1999
to present)
Director, Quintus
Corporation
(automation solutions,
1995 to present)
-----------------------------------------------------------------------------------------------------------------------
Number of
Portfolios
in Fund
Length Complex Other
Position(s) of Time Overseen Directorships
Name, Address Held with Served Principal Occupation(s) by Held by
(Year of Birth) Funds (years) During Past 5 Years Trustee Trustee
-----------------------------------------------------------------------------------------------------------------------
Officers
-----------------------------------------------------------------------------------------------------------------------
William M. Lyons President 4 See entry above under Not See entry above
4500 Main Street "Interested Trustees." applicable under "Interested
Kansas City, MO 64111 Chief Administrative Officer, Trustees."
(1955) ACC (August 1997 to present)
Robert T. Jackson Executive
4500 Main St. Vice 4 Chief Financial Officer, Not Not
Kansas City, MO 64111 President ACC (May 1995 to October 2002) applicable applicable
(1946) President, ACSC
(January 1999 to present)
Executive Vice President,
ACC (May 1995 to present)
Also serves as: Executive
Vice President and Chief
Financial Officer, ACIM, ACIS
and other ACC subsidiaries,
and Treasurer, ACIM
-----------------------------------------------------------------------------------------------------------------------
Maryanne Roepke Senior Vice 4 Senior Vice President Not Not
4500 Main St. President, (April 1998 to present) applicable applicable
Kansas City, MO 64111 Treasurer and Assistant Treasurer, ACSC
(1956) and Chief (September 1985 to present)
Accounting
Officer
-----------------------------------------------------------------------------------------------------------------------
David C. Tucker Senior Vice 6 Senior Vice President Not Not
4500 Main St. President and General Counsel, applicable applicable
Kansas City, MO 64111 and ACIM, ACIS, ACSC and
(1958) General other ACC subsidiaries
Counsel (June 1998 to present)
Vice President and
General Counsel, ACC
(June 1998 to present)
-----------------------------------------------------------------------------------------------------------------------
David H. Reinmiller Vice 3 Chief Compliance Officer, ACSC Not Not
4500 Main St. President and ACIM (March 2001 to present) Applicable Applicable
Kansas City, MO 64111 and Chief less than Vice President, ACSC
(1963) Compliance 1 year (March 2000 to present)
Officer Vice President, ACIM
(March 2002 to present)
Vice President, ACIS
(March 2003 to present)
Assistant General Counsel, ACSC
(December 1996 to January 2001)
Associate General Counsel, ACSC
(July 2001 to present)
-----------------------------------------------------------------------------------------------------------------------
C. Jean Wade Controller(1) 8 Vice President, ACSC Not Not
4500 Main St. (February 2000 to present) applicable applicable
Kansas City, MO 64111 Controller-Investment Accounting,
(1964) ACSC (June 1997 to present)
-----------------------------------------------------------------------------------------------------------------------
Robert Leach Controller 8 Vice President, ACSC Not Not
4500 Main St. (February 2000 to present) applicable applicable
Kansas City, MO 64111 Controller-Investment Accounting,
(1966) ACSC (June 1997 to present)
-----------------------------------------------------------------------------------------------------------------------
Jon Zindel Tax Officer 7 Vice President, Corporate Tax, Not Not
4500 Main St. ACSC (April 1998 to present) applicable applicable
Kansas City, MO 64111 Vice President, ACIM, ACIS
(1967) and other ACC subsidiaries
(April 1999 to present)
President, American Century
Employee Benefit Services, Inc.
(January 2000 to December 2000)
Director, American Century
Employee Benefit Services, Inc.
(February 2000 to December 2003)
Treasurer, American Century
Employee Benefit Services, Inc.
(December 2000 to December 2003)
Treasurer, American
Century Ventures, Inc.
(December 1999 to April 2001)
-----------------------------------------------------------------------------------------------------------------------
(1) Ms. Wade serves in a similar capacity for seven other investment companies
advised by ACIM.
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the funds, it has hired the advisor to do so. The
trustees, in carrying out their fiduciary duty under the Investment Company Act
of 1940, are responsible for approving new and existing management contracts
with the funds' advisor. In carrying out these responsibilities, the board
reviews material factors to evaluate such contracts, including (but not limited
to) assessment of information related to the advisor's performance and expense
ratios, estimates of income and indirect benefits (if any) accruing to the
advisor, the advisor's overall management and projected profitability, and
services provided to the funds and their investors.
The board has the authority to manage the business of the funds on behalf of
their investors, and it has all powers necessary or convenient to carry out that
responsibility. Consequently, the trustees may adopt Bylaws providing for the
regulation and management of the affairs of the funds and may amend and repeal
them to the extent that such Bylaws do not reserve that right to the funds'
investors. They may fill vacancies in or reduce the number of board members, and
may elect and remove such officers and appoint and terminate such agents as they
consider appropriate. They may appoint from their own number and establish and
terminate one or more committees consisting of two or more trustees who may
exercise the powers and authority of the board to the extent that the trustees
determine. They may, in general, delegate such authority as they consider
desirable to any officer of the funds, to any committee of the board and to any
agent or employee of the funds or to any custodian, transfer or investor
servicing agent, or principal underwriter. Any determination as to what is in
the interests of the funds made by the trustees in good faith shall be
conclusive.
BOARD REVIEW OF INVESTMENT MANAGEMENT CONTRACTS
The Board of Trustees oversees each fund's management and performance on a
continuous basis, and the board determines annually whether to approve and renew
the fund's investment management agreement. ACIM provides the board with
monthly, quarterly, and annual analyses of ACIM's performance in the following
areas:
o Investment performance of the funds (short-, medium- and long-term);
o Shareholder services provided;
o Compliance with investment restrictions; and
o Fund accounting services provided (including the valuation of portfolio
securities).
Leaders of each fund's portfolio management team meet with the board
periodically to discuss the management and performance of the fund.
When considering whether to renew an investment advisory contract, the board
examines several factors, but does not identify any particular factor as
controlling their decision. Some of the factors considered by the board include:
the nature, extent, and quality of the advisory services provided as well as
other material facts, such as the investment performance of the fund's assets
managed by the advisor and the fair market value of the services provided. To
assess these factors, the board reviews both ACIM's performance and that of its
peers, as reported by independent gathering services such as Lipper Analytical
Services (for fund performance and expenses) and National Quality Review (for
shareholder services).
Additional information is provided to the board detailing other sources of
revenue to ACIM or its affiliates from its relationship with the fund and
intangible or "fall-out" benefits that accrue to the advisor and its affiliates,
if relevant, and the advisor's control of the investment expenses of the fund,
such as transaction costs, including ways in which portfolio transactions for
the fund are conducted and brokers are selected.
The board also reviews the investment performance of each fund compared with a
peer group of funds and an appropriate index or combination of indexes, in
addition to a comparative analysis of the total expense ratios of, and advisory
fees paid by, similar funds.
The board considered the level of ACIM's profits in respect to the management of
the American Century family of funds, including the profitability of managing
each fund. The board conducted an extensive review of ACIM's methodology in
allocating costs to the management of each fund. The board concluded that the
cost allocation methodology employed by ACIM has a reasonable basis and is
appropriate in light of all of the circumstances. They considered the profits
realized by ACIM in connection with the operation of each fund and whether the
amount of profit is a fair entrepreneurial profit for the management of each
fund. The board also considered ACIM's profit margins in comparison with
available industry data, both accounting for and excluding marketing expenses.
Based on their evaluation of all material factors assisted by the advice of
independent legal counsel, the board, including the independent trustees,
concluded that the existing management fee structures are fair and reasonable
and that the existing investment management contracts should be continued.
COMMITTEES
The board has five standing committees to oversee specific functions of the
funds' operations. Information about these committees appears in the table
below. The trustee first named serves as chairman of the committee.
Number of
Meetings Held During
Committee Members Function Last Fiscal Year
---------------------------------------------------------------------------------------------------------------
Audit Kenneth E. Scott The Audit Committee approves the 4
Albert A. Eisenstat engagement of the funds' independent
Jeanne D. Wohlers registered public accounting firm, recommends
approval of such engagement to the independent
trustees, and oversees the activities of the funds'
independent registered public accounting firm.
The Committee receives reports from the
advisor's Internal Audit Department, which is
accountable to the Committee. The
Committee also receives reporting about
compliance matters affecting the funds.
---------------------------------------------------------------------------------------------------------------
Governance Kenneth E. Scott The Governance Committee reviews Board 2
Myron S. Scholes procedures and committee structures. It may
Jeanne D. Wohlers recommend the creation of new committees,
evaluate the membership structure of new and
existing committees, consider the frequency
and duration of Board and committee meetings
and otherwise evaluate the responsibilities,
compensation and resources of the Board.
---------------------------------------------------------------------------------------------------------------
Nominating Jeanne D. Wohlers The Nominating Committee primarily 1
Kenneth E. Scott considers and recommends individuals
Ronald J. Gilson for nomination as trustees. The names of
Albert Eisenstat potential trustee candidates are drawn
Myron S. Scholes from a number of sources, including
Kathryn A. Hall recommendations from members of the
John B. Shoven board, management and shareholders.
The Nominating Committee does not
currently have a policy governing the
circumstances under which it will or
will not consider nominees
recommended by shareholders.
---------------------------------------------------------------------------------------------------------------
Portfolio Myron S. Scholes The Portfolio Committee reviews quarterly 5
Kathryn A. Hall the investment activities and strategies
William M. Lyons (ad hoc) used to manage fund assets. The committee
regularly receives reports from portfolio
managers, credit analysts and other
investment personnel concerning the funds'
investments.
---------------------------------------------------------------------------------------------------------------
Quality Ronald J. Gilson The Quality of Service Committee reviews 4
of John B. Shoven the level and quality of transfer agent and
Service William M. Lyons (ad hoc) administrative services provided to the funds
and their shareholders. It receives and reviews
reports comparing those services to those of
fund competitors and seeks to improve such
services where feasible and appropriate.
---------------------------------------------------------------------------------------------------------------
COMPENSATION OF TRUSTEES
The trustees serve as trustees for eight American Century investment companies.
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
eight companies based on a schedule that takes into account the number of
meetings attended and the assets of the funds for which the meetings are held.
These fees and expenses are divided among the eight investment companies based,
in part, upon their relative net assets. Under the terms of the management
agreement with the advisor, the funds are responsible for paying such fees and
expenses.
The following table shows the aggregate compensation paid by the funds for the
periods indicated and by the eight investment companies served by the board to
each trustee who is not an interested person as defined in the Investment
Company Act.
AGGREGATE TRUSTEE COMPENSATION FOR FISCAL YEAR ENDED SEPTEMBER 30, 2004
Total Compensation Total Compensation from the
Name of Trustee from the Funds(1) American Century Family of Funds(2)
Albert Eisenstat $6,872 $86,500
Ronald J. Gilson $8,567 $126,500
Kathryn A. Hall $6,815 $85,000
Myron S. Scholes $6,715 $82,500
Kenneth E. Scott $7,077 $91,250
John B. Shoven $6,774 $84,250
Jeanne D. Wohlers $6,776 $84,250
(1) Includes compensation paid to the trustees during the fiscal year ended
September 30, 2004, and also includes amounts deferred at the election of
the trustees under the American Century Mutual Funds' Independent
Directors' Deferred Compensation Plan.
(2) Includes compensation paid by the eight investment company members of the
American Century family of funds served by this board. The total amount of
deferred compensation included in the preceding table is as follows: Mr.
Eisenstat, $86,500; Mr. Gilson, $126,500; Ms. Hall, $42,500; Mr. Scholes,
$78,250; Mr. Scott, $91,250; and Mr. Shoven, $84,250.
The funds have adopted the American Century Mutual Funds' Independent Directors'
Deferred Compensation Plan. 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 funds.
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 funds have no obligation to
segregate assets to secure or fund the deferred fees. To date, the funds have
voluntarily funded their obligations. The rights of trustees to receive their
deferred fee account balances are the same as the rights of a general unsecured
creditor of the funds. The plan may be terminated at any time by the
administrative committee of the plan. If terminated, all deferred fee account
balances will be paid in a lump sum.
No deferred fees were paid to any trustee under the plan during the fiscal year
ended September 30, 2004.
OWNERSHIP OF FUND SHARES
The trustees owned shares in the funds as of December 31, 2004, as shown in the
table below:
NAME OF TRUSTEES
William M. Albert Ronald J. Kathryn A.
Lyons Eisenstat Gilson Hall
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUNDS:
Target 2005 A A A A
Target 2010 A A A A
Target 2015 A A A A
Target 2020 A A A A
Target 2025 A A B A
Target 2030 A A A A
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
COMPANIES OVERSEEN BY TRUSTEES IN
FAMILY OF INVESTMENT COMPANIES E E E C
NAME OF TRUSTEES
Myron S. Kenneth E. Jeanne D. John B.
Scholes Scott Wohlers Shoven
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUNDS:
Target 2005 A A A A
Target 2010 A A A A
Target 2015 A A A A
Target 2020 A A A A
Target 2025 A A A A
Target 2030 A A A A
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
COMPANIES OVERSEEN BY TRUSTEES IN
FAMILY OF INVESTMENT COMPANIES E E E D
RANGES: A-NONE, B-$1-$10,000, C-$10,001-$50,000, D-$50,001-$100,000, E-MORE THAN
$100,000
CODE OF ETHICS
The funds, their investment advisor and principal underwriter have adopted a
code of ethics under Rule 17j-1 of the Investment Company Act and the code of
ethics permits personnel subject to the code to invest in securities, including
securities that may be purchased or held by the funds, provided that they first
obtain approval from the compliance department before making such investments.
PROXY VOTING GUIDELINES
The advisor is responsible for exercising the voting rights associated with the
securities purchased and/or held by the funds. In exercising its voting
obligations, the advisor is guided by general fiduciary principles. It must act
prudently, solely in the interest of the funds, and for the exclusive purpose of
providing benefits to them. The advisor attempts to consider all factors of its
vote that could affect the value of the investment. The funds' Board of Trustees
has approved the advisor's Proxy Voting Guidelines to govern the advisor's proxy
voting activities.
The advisor and the board have agreed on certain significant contributors to
shareholder value with respect to a number of matters that are often the subject
of proxy solicitations for shareholder meetings. The Proxy Voting Guidelines
specifically address these considerations and establish a framework for the
advisor's consideration of the vote that would be appropriate for the funds. In
particular, the Proxy Voting Guidelines outline principles and factors to be
considered in the exercise of voting authority for proposals addressing:
o Election of Directors
o Ratification of Selection of Auditors
o Equity-Based Compensation Plans
o Anti-Takeover Proposals
= Cumulative Voting
= Staggered Boards
= "Blank Check" Preferred Stock
= Elimination of Preemptive Rights
= Non-targeted Share Repurchase
= Increase in Authorized Common Stock
= "Supermajority" Voting Provisions or Super Voting Share Classes
= "Fair Price" Amendments
= Limiting the Right to Call Special Shareholder Meetings
= Poison Pills or Shareholder Rights Plans
= Golden Parachutes
= Reincorporation
= Confidential Voting
= Opting In or Out of State Takeover Laws
o Shareholder Proposals Involving Social, Moral or Ethical Matters
o Anti-Greenmail Proposals
o Changes to Indemnification Provisions
o Non-Stock Incentive Plans
o Director Tenure
o Directors' Stock Options Plans
o Director Share Ownership
Finally, the Proxy Voting Guidelines establish procedures for voting of proxies
in cases in which the advisor may have a potential conflict of interest.
Companies with which the advisor has direct business relationships could
theoretically use these relationships to attempt to unduly influence the manner
in which American Century votes on matters for the funds. To ensure that such a
conflict of interest does not affect proxy votes cast for the funds, all
discretionary (including case-by-case) voting for these companies will be voted
in direct consultation with a committee of the independent trustees of the
funds.
A copy of the advisor's Proxy Voting Guidelines and information regarding how
the advisor voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 are available on the "About Us" page at
americancentury.com. The advisor's proxy voting record also is available on the
SEC's website at sec.gov.
DISCLOSURE OF PORTFOLIO HOLDINGS
In order to ensure appropriate access to portfolio holdings information about
American Century funds, and to ensure that disclosure of such information is
consistent with the best interests of fund shareholders, ACIM has adopted a
policy for the disclosure of fund portfolio holdings and characteristics to
non-affiliates including individual investors, institutional investors,
intermediaries that distribute the Funds' shares, third party service providers,
and rating and ranking organizations as follows:
DISTRIBUTION TO THE PUBLIC
Full portfolio holdings will be made available for distribution to the public
quarterly with a lag time of 30 days, in addition to the portfolio disclosure in
annual and semi-annual reports. Full holdings are posted on americancentury.com
quarterly on the 31st day after the end of the fiscal quarter for each issuer.
Top 10 holdings will be made available for distribution monthly with a lag time
of 30 days. Certain portfolio characteristics (as determined by the advisor from
time to time) will be made available for distribution monthly with a lag time of
30 days. These holdings will be posted monthly on americancentury.com.
DISTRIBUTION TO SERVICE PROVIDERS
ACIM recognizes that certain parties (generally investment consultants who
provide regular analysis of fund portfolios for their clients, or intermediaries
who pass through information to fund shareholders) may have legitimate needs for
holdings information prior to the times prescribed above. These needs include
preparing reports for customers who invest in the funds, creating analyses of
fund characteristics for intermediary or consultant clients, reformatting the
information for distribution to the intermediary's clients, and reviewing fund
performance for ERISA fiduciary purposes. Therefore, for these service
providers, portfolio holdings and characteristics may be provided prior to the
lapse of 30 days as long as the service provider enters a non-disclosure
agreement with ACIM in which it represents that the information will be used
only for the services provided to its clients and agrees to treat the
information confidentially until the general disclosure release date.
Those service providers who have entered such non-disclosure agreements as of
October 18, 2004 are as follows:
Aetna Inc.
American Express Financial Corporation
American Fidelity Assurance Co.
Ameritas Life Insurance Corporation
AUL/American United Life Insurance Company
Bell Globemedia Publishing
Bellwether Consulting, LLC
Bidart & Ross
Business Men's Assurance Co. of America
Callen Associates, Inc.
Commerce Bank, N.A.
Connecticut General Life Insurance Company
Defined Contribution Advisors, Inc.
EquiTrust Life Insurance Company
Farm Bureau Life Insurance Company
First MetLife Investors Insurance Company
Frank Russell Company
Fund Evaluation Group, LLC
Gartmore Mutual Fund Capital Trust (GMFCT)
Hewitt Associates LLC
ICMA Retirement Corporation
ING
ING Life Insurance & Annuity Co.
Investors Securities Services, Inc.
Iron Capital Advisors
J.P. Morgan Retirement Plan Services LLC
Jefferson National Life Insurance Company
Jefferson Pilot Financial
Kansas City Life Insurance Company
Kmotion, Inc
Manulife Financial
Massachusetts Mutual Life Insurance Company
MetLife Investors Insurance Company
MetLife Investors Insurance Company of California
Midland National Life Insurance Company
Minnesota Life Insurance Companay
Morgan Stanley DW, Inc.
Morningstar Associates LLC
Morningstar Investment Services, Inc.
Mutual of America Life Insurance Company
National Life Insurance Company
Nationwide Financial
NYLife Distributors, LLC
Principal Life Insurance Company
Prudential Financial
S&P Financial Communications
SAFECO Life
Scotia McLeod
Scudder Distributors, Inc.
Security Benefit Life Insurance Co.
Skandia
Smith Barney
State Street Global Markets
SunTrust Bank
The Guardian Life Insurance & Annuity Company, Inc.
The Lincoln National Life Insurance Company
The Union Central Life Insurance Company
Trusco Capital Management
Union Bank of California, n.a.
VALIC Financial Advisors
VALIC Retirement Services Company
Wachovia Bank, n.a.
Wells Fargo Bank, n.a.
DISTRIBUTION IN ONE-ON-ONE PRESENTATIONS
ACIM recognizes that from time to time it may receive requests for proposals
(RFPs) from consultants or potential clients that request holdings information
as of a certain date and for certain periods that may be more frequent than the
parameters set out above. As long as such requests are on a one-time basis, and
do not result in continued receipt of data, such information may be provided in
the RFP. Such information will be provided with a confidentiality legend and
only in cases where the recipient has indicated that the data will be used only
for legitimate purposes.
Distribution of portfolio holdings information, including compliance with this
policy and the resolution of any potential conflicts that may arise, is
monitored quarterly. Any distribution of holdings information other than in
compliance with this policy would have to be authorized by the funds' chief
investment officer and ACIM's Legal Department. The funds' board of trustees has
received and reviewed a summary of ACIM's policy and will be informed of any
changes to or material violations of such policy on a quarterly basis.
ACIM does not receive any compensation from any party for the distribution of
portfolio holdings information.
ACIM reserves the right to change part or all of this policy at any time.
THE FUNDS' PRINCIPAL SHAREHOLDERS
As of January XX, 2005, the following companies were the record owners of more
than 5% of the outstanding shares of any class of a fund.
Percentage of Percentage of
Outstanding Outstanding
Fund/ Shares Owned Shares Owned
Class Shareholder Of Record Beneficially (1)
Target 2005
Investor Class
Charles Schwab & Co. x% x%
San Francisco, CA
National Financial Services Corp. x% x%
New York, NY
Pershing LLC x% x%
Jersey City, NJ
Advisor Class
Charles Schwab & Co. x% x%
San Francisco, CA
National Financial Services LLC x% x%
New York, NY
Pershing LLC x% x%
Jersey City, NJ
Target 2010
Investor Class
Charles Schwab & Co. x% x%
San Francisco, CA
National Financial Services Corp. x% x%
New York, NY
Pershing LLC x% x%
Jersey City, NJ
Advisor Class
Charles Schwab & Co. x% x%
San Francisco, CA
National Financial Services LLC x% x%
New York, NY
Pershing LLC x% x%
Jersey City, NJ
Target 2015
Investor Class
Charles Schwab & Co. x% x%
San Francisco, CA
National Financial Services Corp. x% x%
New York, NY
Pershing LLC x% x%
Jersey City, NJ
Advisor Class
National Financial Services LLC x% x%
New York, NY
Pershing LLC x% x%
Jersey City, NJ
A G Edwards & Sons Inc. x% x%
St. Louis, MO
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(1) If shares are registered in an individual's name or in the name of an
intermediary for the benefit of a named individual, we report those shares
as being beneficially owned. Otherwise, American Century has no information
concerning beneficial ownership of fund shares.
Percentage of Percentage of
Outstanding Outstanding
Fund/ Shares Owned Shares Owned
Class Shareholder Of Record Beneficially (1)
Target 2020
Investor Class
Charles Schwab & Co. x% x%
San Francisco, CA
National Financial Services Corp. x% x%
New York, NY
Advisor Class
Charles Schwab & Co. x% x%
San Francisco, CA
National Financial Services LLC x% x%
New York, NY
Pershing LLC x% x%
Jersey City, NJ
Mitra & Co. x% x%
Milwaukee, WI
Ameritrade Inc x% x%
Omaha, NE
Target 2025
Investor Class
Charles Schwab & Co. x% x%
San Francisco, CA
National Investment Services Corp. x% x%
New York, NY
Trust Co of America FBOTCA x% x%
Englewood, CO
National Financial Services Corp. x% x%
New York, NY
Advisor Class
Suntrust Bank TR x% x%
Hopping Green Sams & Smith
PA 401K PSP Trust
Englewood, CO
Charles Schwab & Co. x% x%
San Francisco CA
Raymond James & Assoc., Inc. x% x%
FBO Brown L-IRA
St. Petersburg, FL
Raymond James & Assoc., Inc. x% x%
FBO Brown P-IRA
St. Petersburg, FL
------------------------------------------------------------------------------------
(1) If shares are registered in an individual's name or in the name of an
intermediary for the benefit of a named individual, we report those shares
as being beneficially owned. Otherwise, American Century has no information
concerning beneficial ownership of fund shares.
Percentage of Percentage of
Outstanding Outstanding
Fund/ Shares Owned Shares Owned
Class Shareholder Of Record Beneficially (1)
Target 2030
Investor Class
Charles Schwab & Co. x% x%
San Francisco, CA
National Investment Services Corp. x% x%
New York, NY
Pershing LLC x% x%
Jersey City, NJ
National Financial Services Corp. x% x%
New York, NY
C Class
National Financial Services Corp. x% x%
FBO Walter Schmitt x% x%
Racine, WI
FBO Barbara R. Tonkyn x% x%
Lake Geneva, WI
FBO Mark T. Legue x% x%
Racine, WI
------------------------------------------------------------------------------------
(1) If shares are registered in an individual's name or in the name of an
intermediary for the benefit of a named individual, we report those shares
as being beneficially owned. Otherwise, American Century has no information
concerning beneficial ownership of fund shares.
The funds are unaware of any other shareholders, beneficial or of record, who
own more than 5% of any class of a fund's outstanding shares. The funds are
unaware of any other shareholders, beneficial or of record, who own more than
25% of the voting securities of American Century Target Maturities Trust. As of
January X, 2005 the officers and trustees of the funds, as a group, owned less
than 1% of any class of a fund's outstanding shares.
SERVICE PROVIDERS
The funds have no employees. To conduct the funds' 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 that is described below.
ACIM, ACSC and ACIS are wholly owned by ACC. James E. Stowers Jr., Chairman of
ACC, controls ACC by virtue of his ownership of a majority of its common stock.
INVESTMENT ADVISOR
American Century Investment Management, Inc. (ACIM) serves as the investment
advisor for each of the funds. A description of the responsibilities of the
advisor appears in the Prospectuses under the heading, Management.
For the services provided to the funds, the advisor receives a daily fee based
on a percentage of the net assets of a fund. The annual rate at which this fee
is assessed is determined daily in a multi-step process. First, each of the
trust's funds is categorized according to the broad asset class in which it
invests (e.g., money market, bond or equity), and the assets of the funds in
each category are totaled ("Fund Category Assets"). Second, the assets are
totaled for certain other accounts managed by the advisor ("Other Account
Category Assets"). To be included, these accounts must have the same management
team and investment objective as a fund in the same category with the same board
of trustees as the trust. Together, the Fund Category Assets and the Other
Account Category Assets comprise the "Investment Category Assets." The
Investment Category Fee Rate is then calculated by applying a fund's Investment
Category Fee Schedule to the Investment Category Assets and dividing the result
by the Investment Category Assets.
Finally, a separate Complex Fee Schedule is applied to the assets of all of the
funds in the American Century family of funds (the "Complex Assets"), and the
Complex Fee Rate is calculated based on the resulting total. The Investment
Category Fee Rate and the Complex Fee Rate are then added to determine the
Management Fee Rate payable by a class of the fund to the advisor.
For purposes of determining the assets that comprise the Fund Category Assets,
Other Account Category Assets and Complex Assets, the assets of registered
investment companies managed by the advisor that invest primarily in the shares
of other registered investment companies shall not be included.
The schedules by which the unified management fee is determined are shown below.
INVESTMENT CATEGORY FEE SCHEDULE FOR
TARGET 2005, TARGET 2010, TARGET 2015, TARGET 2020, TARGET 2025 AND TARGET 2030
Category Assets Fee Rate
First $1 billion 0.3600%
Next $1 billion 0.3080%
Next $3 billion 0.2780%
Next $5 billion 0.2580%
Next $15 billion 0.2450%
Next $25 billion 0.2430%
Thereafter 0.2425%
The Complex Fee is determined according to the schedule below.
Complex Fee Schedule
Fee Rate Fee Rate
Complex Assets Investor Class, Advisor Class
C Class
First $2.5 billion 0.3100% 0.0600%
Next $7.5 billion 0.3000% 0.0500%
Next $15 billion 0.2985% 0.0485%
Next $25 billion 0.2970% 0.0470%
Next $25 billion 0.2870% 0.0370%
Next $25 billion 0.2800% 0.0300%
Next $25 billion 0.2700% 0.0200%
Next $25 billion 0.2650% 0.0150%
Next $25 billion 0.2600% 0.0100%
Next $25 billion 0.2550% 0.0050%
Thereafter 0.2500% 0.0000%
On each calendar day, each class of each fund accrues a management fee that is
equal to the class's Management Fee Rate times the net assets of the class
divided by 365 (366 in leap years). On the first business day of each month, the
funds pay a management fee to the advisor for the previous month. The fee for
the previous month is the sum of the calculated daily fees for each class of a
fund during the previous month.
The management agreement between the Trust and the advisor 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
o the funds' Board of Trustees, or a majority of outstanding shareholder
votes (as defined in the Investment Company Act) and
o the vote of a majority of the trustees of the funds who are not parties to
the agreement or interested persons of the advisor, cast in person at a
meeting called for the purpose of voting on such approval.
The management agreement states that the funds' Board of Trustees or a majority
of outstanding shareholder votes may terminate the management agreement at any
time without payment of any penalty on 60 days' written notice to the advisor.
The management agreement shall be automatically terminated if it is assigned.
The management agreement provides that the advisor shall not be liable to the
funds or their shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties. The
management agreement also provides that the advisor and its officers, 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 funds and also for other clients
advised by the advisor. Investment decisions for the funds and other clients are
made with a view to achieving their respective investment objectives after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investment generally. A particular security
may be bought or sold for only one client or fund, or in different amounts and
at different times for more than one but less than all clients or funds. In
addition, purchases or sales of the same security may be made for two or more
clients or funds on the same date. Such transactions will be allocated among
clients in a manner believed by the advisor to be equitable to each. In some
cases this procedure could have an adverse effect on the price or amount of the
securities purchased or sold by a fund.
The advisor may aggregate purchase and sale orders of the funds with purchase
and sale orders of its other clients when the advisor believes that such
aggregation provides the best execution for the funds. The 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 funds
participate at the average share price for all transactions in that security on
a given day and allocate transaction costs on a pro rata basis. The advisor will
not aggregate portfolio transactions of the funds unless it believes such
aggregation is consistent with its duty to seek best execution on behalf of the
funds and the terms of the management agreement. The advisor receives no
additional compensation or remuneration as a result of such aggregation.
Unified management fees incurred by each fund by class for the fiscal periods
ended September 30, 2004, 2003, and 2002, are indicated in the following table.
UNIFIED MANAGEMENT FEES
Fund 2004 2003 2002
--------------------------------------------------------------------------------
TARGET 2005
Investor $1,955,758 $2,419,530 $2,093,128
Advisor $44,839 $24,960 $16,795
--------------------------------------------------------------------------------
TARGET 2010
Investor $1,311,488 $1,699,266 $1,527,995
Advisor $14,173 $8,804 $5,930
--------------------------------------------------------------------------------
TARGET 2015
Investor $829,143 $963,544 $780,910
Advisor $1,999 $1,277 $138
--------------------------------------------------------------------------------
TARGET 2020
Investor $934,315 $1,142,808 $1,128,370
Advisor $14,017 $9,077 $4,163
--------------------------------------------------------------------------------
TARGET 2025
Investor $682,805 $1,022,941 $1,351,864
Advisor $2,020 $1,516 $2,226
--------------------------------------------------------------------------------
TARGET 2030
Investor $65,691 $87,986 $59,265
C $7,973 $10,958 $2,919(1)
(1) October 8, 2001(inception) through September 30, 2002.
TRANSFER AGENT AND ADMINISTRATOR
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri
64111, serves as transfer agent and dividend-paying agent for the funds. It
provides physical facilities, computer hardware and software, and personnel for
the day-to-day administration of the funds and the advisor. The advisor pays
ACSC's costs for serving as transfer agent and dividend-paying agent for the
funds out of the advisor's unified management fee. For a description of this fee
and the terms of its payment, see the above discussion under the caption
Investment Advisor.
From time to time, special services may be offered to shareholders who maintain
higher share balances in our family of funds. These services may include the
waiver of minimum investment requirements, expedited confirmation of shareholder
transactions, newsletters and a team of personal representatives. Any expenses
associated with these special services will be paid by the advisor.
DISTRIBUTOR
The funds' shares are distributed by American Century Investment Services, Inc.
(ACIS), a registered broker-dealer. The distributor is a wholly owned subsidiary
of ACC and its principal business address is 4500 Main Street, Kansas City,
Missouri 64111.
The distributor is the principal underwriter of the funds' shares. The
distributor makes a continuous, best-efforts underwriting of the funds' shares.
This means the distributor has no liability for unsold shares. The advisor pays
ACIS's costs for serving as principal underwriter of the funds' shares out of
the advisor's unified management fee. For a description of this fee and the
terms of its payments, see the above discussion under the caption Investment
Advisor. ACIS does not earn commissions for distributing the funds' shares.
Certain financial intermediaries unaffiliated with the distributor or the funds
may perform various administrative and shareholder services for their clients
who are invested in the funds. These services may include assisting with fund
purchases, redemptions and exchanges, distributing information about the funds
and their performance, preparing and distributing client account statements, and
other administrative and shareholder services, and would otherwise be provided
by the distributor or its affiliates. The distributor may pay fees out of its
own resources to such financial intermediaries for providing these services.
OTHER SERVICE PROVIDERS
CUSTODIAN BANKS
JPMorgan Chase Bank, 4 Metro Tech Center, Brooklyn, New York, 11245, and
Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105, each serves as
custodian of the funds' assets. The custodians take no part in determining the
investment policies of the funds or in deciding which securities are purchased
or sold by the funds. The funds, however, may invest in certain obligations of
the custodians and may purchase or sell certain securities from or to the
custodians.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP serves as the independent registered public
accounting firm of the funds. The address of PricewaterhouseCoopers LLP is 1055
Broadway, 10th floor, Kansas City, Missouri 64105. As the independent registered
public accounting firm of the funds, PricewaterhouseCoopers LLP provides
services including
(1) auditing the annual financial statements for each fund,
(2) assisting and consulting in connection with SEC filings, and
(3) reviewing the annual federal income tax return filed for each fund.
BROKERAGE ALLOCATION
The funds generally purchase and sell debt securities through principal
transactions, meaning the funds normally purchase securities on a net basis
directly from the issuer or a primary market-maker acting as principal for the
securities. The funds do not pay brokerage commissions on these transactions,
although the purchase price for debt securities usually includes an undisclosed
compensation. Purchases of securities from underwriters typically include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market-makers typically include a dealer's mark-up
(i.e., a spread between the bid and asked prices). During the fiscal years ended
September 30, 2004, 2003 and 2002, the funds did not pay any brokerage
commissions.
REGULAR BROKER-DEALERS
As of the end of the most recently completed fiscal year, each of the funds
listed below owned securities of its regular brokers or dealers (as defined by
Rule 10b-1 under the Investment Company Act of 1940) or of their parent
companies.
Fund Broker, Dealer or Parent Value of Securities Owned as of September 30, 2004
-----------------------------------------------------------------------------------------
INFORMATION ABOUT FUND SHARES
The Declaration of Trust permits the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest without par value,
which may be issued in a series (or funds). Each of the funds named on the front
of this statement of additional information is a series of shares issued by the
Trust, and shares of each fund have equal voting rights. In addition, each
series (or fund) may be divided into separate classes. See Multiple Class
Structure, 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 (all funds') 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.
Each shareholder has rights to dividends and distributions declared by the fund
he or she owns and to the net assets of such fund upon its liquidation or
dissolution proportionate to his or her share ownership interest in the fund.
Shares of each fund have equal voting rights, although each fund votes
separately on matters affecting that fund exclusively.
The Trust shall continue unless terminated by (1) approval of at least
two-thirds of the shares of each fund entitled to vote or (2) by the trustees by
written notice to shareholders of each fund. Any fund may be terminated by (1)
approval of at least two-thirds of the shares of that fund or (2) by the
trustees by written notice to shareholders of that fund.
Upon termination of the Trust or a fund, as the case may be, the Trust shall pay
or otherwise provide for all charges, taxes, expenses and liabilities belonging
to the Trust or the fund. Thereafter, the Trust shall reduce the remaining
assets belonging to each fund (or the particular fund) to cash, shares of other
securities or any combination thereof, and distribute the proceeds belonging to
each fund (or the particular fund) to the shareholders of that fund ratably
according to the number of shares of that fund held by each shareholder on the
termination date.
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 series are held separately by the custodian and the shares of
each series represent a beneficial interest in the principal, earnings and
profit (or losses) of investments and other assets held for each series. Your
rights as a shareholder are the same for all series 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.
FUND LIQUIDATIONS
Near the end of each fund's target maturity year, its investments will be sold
or allowed to mature; its liabilities will be discharged or a provision will be
made for their discharge; and its accounts will be closed. A shareholder may
choose to redeem his or her shares in one of the following ways: (1) by
receiving redemption proceeds or (2) by exchanging shares for shares of another
American Century fund. The estimated expenses of terminating and liquidating a
fund's portfolio securities will be accrued ratably over its target maturity
year. These expenses, which are charged to income (as are all expenses), are not
expected to exceed significantly the ordinary annual expenses incurred by a fund
and, therefore, should have little or no effect on the maturity value of that
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 funds may
issue up to three classes of shares: an Investor Class, an Advisor Class and a C
Class. Not all funds offer all three classes.
The Investor Class is made available to investors directly without any load or
commission, for a single unified management fee. The Advisor Class is made
available 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 this class a lower
total management fee. In addition to the management fee, however, the Advisor
Class shares are subject to a Master Distribution and Shareholder Services Plan
(the Advisor Class Plan)(described below). The C Class also is made available
through financial intermediaries, for purchase by individual investors using
"wrap account" style advisory and personal services from the intermediary. The
unified management fee for the C Class is the same as for Investor Class, but
the C Class shares are subject to a Master Distribution and Individual
Shareholder Services Plan (the C Class Plan and collectively with the Advisor
Class Plan, the Plans) described below. The Advisor Class Plan and the C Class
Plan have been adopted by the funds' 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 its Board of
Trustees and approved by its shareholders. Pursuant to such rule, the Board of
Trustees and initial shareholder of the funds' Advisor and C Classes have
approved and entered into the Advisor Class Plan and the C Class Plan. The Plans
are described below.
In adopting the Plans, 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 that
there was a reasonable likelihood that the Plans would benefit the funds and the
shareholders of the affected class. Some of the anticipated benefits include
improved name recognition for the funds generally; and growing assets in
existing funds, which helps retain and attract investment management talent,
provides a better environment for improving fund performance, and can lower the
total expense ratio for funds with stepped-fee schedules. Pursuant to Rule
12b-1, information with respect to revenues and expenses under the Plans is
presented to the Board of Trustees quarterly for its consideration in connection
with its deliberations as to the continuance of the Plans. Continuance of the
Plans must be approved by the Board of Trustees (including a majority of the
independent trustees) annually. The Plans may be amended by a vote of the Board
of Trustees (including a majority of the independent trustees), except that the
Plans may not be amended to materially increase the amount to be spent for
distribution without majority approval of the shareholders of the affected
class. The Plans terminate automatically in the event of an assignment and may
be terminated upon a vote of a majority of the independent trustees or by vote
of a majority of outstanding shareholder votes of the affected class.
All fees paid under the Plans will be made in accordance with Section 26 of the
Conduct Rules of the National Association of Securities Dealers (NASD).
MASTER DISTRIBUTION AND SHAREHOLDER SERVICES PLAN (ADVISOR CLASS PLAN)
As described in the prospectus, the funds' Advisor Class shares are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for Advisor Class
investors. In addition to such services, the financial intermediaries provide
various distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
advisor has reduced its management fee by 0.25% per annum with respect to the
Advisor Class shares, and the funds' Board of Trustees has adopted the Advisor
Class Plan. Pursuant to the Advisor Class Plan, the Advisor Class pays the
funds' distributor 0.50% annually of the aggregate average daily net assets of
the funds' Advisor Class shares, 0.25% of which is paid for certain ongoing
shareholder and administrative services (as described below) and 0.25% of which
is paid for distribution services including past distribution services (as
described below). This payment is fixed at 0.50%, and is not based on expenses
incurred by the distributor. During the fiscal year ended September 30, 2004,
the aggregate amount of fees paid under the Advisor Class Plan were as follows.
Target 2030 Advisor Class was not in operation during the fiscal year ended
September 30, 2004.
Target 2005 $68,144
Target 2010 $21,530
Target 2015 $3,038
Target 2020 $21,266
Target 2025 $3,068
Target 2030 N/A
The distributor then makes these payments to the financial intermediaries who
offer the Advisor Class shares for the services described below. No portion of
these payments is used by the distributor to pay for advertising, printing costs
or interest expenses.
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 funds as underlying investment media) of shares
and placing purchase, exchange and redemption orders with the funds'
distributor;
(b) providing shareholders with a service that invests the assets of their
accounts in shares pursuant to specific or pre-authorized instructions;
(c) processing dividend payments from a fund on behalf of shareholders and
assisting shareholders in changing dividend options, account designations
and addresses;
(d) providing and maintaining elective services such as check writing and wire
transfer services;
(e) acting as shareholder of record and nominee for beneficial owners;
(f) maintaining account records for shareholders and/or other beneficial
owners;
(g) issuing confirmations of transactions;
(h) providing subaccounting with respect to shares beneficially owned by
customers of third parties or providing the information to a fund as
necessary for such subaccounting;
(i) preparing and forwarding investor communications from the funds (such as
proxies, shareholder reports, annual and semi-annual financial statements
and dividend, distribution and tax notices) to shareholders and/or other
beneficial owners; and
(j) providing other similar administrative and sub-transfer agency services
Shareholder services do not include those activities and expenses that are
primarily intended to result in the sale of additional shares of the funds.
During the fiscal year ended September 30, 2003 the amount of fees paid under
the Advisor Class Plan for shareholder services were as follows. Target 2030
Advisor Class was not in operation during the fiscal year ended September 30,
2004.
Target 2005 $34,072
Target 2010 $10,765
Target 2015 $1,519
Target 2020 $10,633
Target 2025 $1,534
Target 2030 N/A
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of Advisor Class shares, which
services may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other payments
to brokers, dealers, financial institutions or others who sell Advisor
Class shares pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' Advisor
Class shares;
(c) compensation to, and expenses (including overhead and telephone expenses)
of, the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e) preparing, printing and distributing of sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective
shareholders,including distributing prospectuses, statements of additional
information, and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution
of fund shares;
(k) organizing and conducting sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Rules of Fair Practice of the NASD; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the funds pursuant to the terms of the agreement between
the corporation and the fund's distributor and in accordance with Rule
12b-1 of the Investment Company Act.
During the fiscal year ended September 30, 2004, the amount of fees paid under
the Advisor Class Plan for distribution services were as follows. Target 2030
Advisor Class was not in operation during the fiscal year ended September 30,
2004.
Target 2005 $34,072
Target 2010 $10,765
Target 2015 $1,519
Target 2020 $10,633
Target 2025 $1,534
Target 2030 N/A
MASTER DISTRIBUTION AND INDIVIDUAL SHAREHOLDER SERVICES PLAN (C CLASS PLAN)
As described in the Prospectus, the C Class shares of Target 2030 are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The fund's 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 C Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and 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
Board of Trustees has adopted the C Class Plan. Pursuant to the C Class Plan,
the C Class pays the funds' distributor 1.00% annually of the average daily net
asset value of the fund's C Class shares, 0.25% of which is paid for ongoing
individual shareholder and administrative services (as described below) and
0.75% of which is paid for distribution services, including past distribution
services (as described below). This payment is fixed at 1.00% and is not based
on expenses incurred by the distributor. During the fiscal year ended September
30, 2004, the aggregate amount of fees paid under the C Class Plan by Target
2030 Fund was $12,562. The distributor then makes these payments to the
financial intermediaries who offer the C Class shares for the services described
below. No portion of these payments is used by the distributor to pay for
advertising, printing costs or interest expenses.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the market in
general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with the
selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
funds.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of C Class shares, which services
may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other payments
to brokers, dealers, financial institutions or others who sell C Class
shares pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the fund's C Class
shares;
(c) compensation to, and expenses (including overhead and telephone expenses)
of, the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e) preparing, printing and distributing 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) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution
of fund shares;
(k) organizing and conducting of sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing 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 the agreement between
the corporation and the fund's distributor and in accordance with Rule
12b-1 of the Investment Company Act.
SALES CHARGES
Shares of the C Class are subject to a contingent deferred sales charge upon
redemption of the shares in certain circumstances. The specific charges and when
they apply are described in the prospectus. The contingent deferred sales charge
may be waived for certain redemptions by some shareholders, as described in the
prospectus.
The aggregate contingent deferred sales charges paid to the distributor for the
C Class shares in the fiscal year ended September 30, 2004, were:
Target 2030 $432
DEALER CONCESSIONS
The fund's distributor expects to pay sales commissions to certain financial
intermediaries who sell C Class shares of the fund at the time of such sales.
Payments will equal 1.00% of the purchase price of the C Class shares sold by
the intermediary. The distributor will retain the distribution fee paid by the
fund for the first 12 months after the shares are purchased by any financial
intermediary that received the concession. This fee is intended in part to
permit the distributor to recoup a portion of on-going sales commissions to
dealers plus financing costs, if any. Beginning with the first day of the 13th
month, the distributor will make the C Class distribution and individual
shareholder services fee payments described above to the financial
intermediaries involved on a quarterly basis. In addition, C Class purchases are
subject to a contingent deferred sales charge as described in the prospectus.
From time to time, the distributor may provide additional concessions to
dealers, including but not limited to payment assistance for conferences and
seminars, provision of sales or training programs for dealer employees and/or
the public (including, in some cases, payment for travel expenses for registered
representatives and other dealer employees who participate), advertising and
sales campaigns about a fund or funds, and assistance in financing
dealer-sponsored events. Other concessions may be offered as well, and all such
concessions will be consistent with applicable law, including the then-current
rules of the National Association of Securities Dealers, Inc. Such concessions
will not change the price paid by investors for shares of the funds.
BUYING AND SELLING FUND SHARES
Information about buying, selling, exchanging and, if applicable, converting
fund shares is contained in the funds' prospectuses. The prospectuses are
available to investors without charge and may be obtained by calling us.
VALUATION OF A FUND'S SECURITIES
All classes of the funds are offered at their net asset value (NAV). Each fund's
NAV is calculated as of one hour before the close of regular trading on the New
York Stock Exchange (NYSE) on each day the NYSE is open. The NYSE usually closes
at 4 p.m. Eastern time. The NYSE 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 and Christmas Day. Although
the funds expect the same holidays to be observed in the future, the NYSE may
modify its holiday schedule at any time.
A fund's NAV is the current value of a fund's assets, minus any liabilities,
divided by the number of shares outstanding. Expenses and interest earned on
portfolio securities are accrued daily.
Securities held by the funds normally are priced using data supplied by an
independent pricing service, provided that such prices are believed by the
advisor to reflect the fair market value of portfolio securities.
Securities maturing within 60 days of the valuation date may be valued at cost,
plus or minus any amortized discount or premium, unless the trustees determine
that this would not result in fair valuation of a given security. Other assets
and securities for which quotations are not readily available are valued in good
faith at their fair value using methods approved by the Board of Trustees.
TAXES
FEDERAL INCOME TAX
Each fund intends to qualify annually as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By so
qualifying, a fund will be exempt from federal income taxes to the extent that
it distributes substantially all of its net investment income and net realized
capital gains (if any) to shareholders. If a fund fails to qualify as a
regulated investment company, it will be liable for taxes, significantly
reducing its distributions to shareholders and eliminating shareholders' ability
to treat distributions received from the funds in the same manner in which they
were realized by the funds.
Certain bonds purchased by the funds may be treated as bonds that were
originally issued at a discount. Original issue discount represents interest for
federal income tax purposes and can generally be defined as the difference
between the price at which a security was issued and its stated redemption price
at maturity. Although no cash is actually received by a fund until the maturity
of the bond, original issue discount is treated for federal income tax purposes
as income earned by a fund over the term of the bond, and therefore is subject
to the distribution requirements of the Code. The annual amount of income earned
on such a bond by a fund generally is determined on the basis of a constant
yield to maturity that takes into account the semiannual compounding of accrued
interest. Original issue discount on an obligation with interest exempt from
federal income tax will constitute tax-exempt interest income to the fund.
In addition, some of the bonds may be purchased by a fund at a discount that
exceeds the original issue discount on such bonds, if any. This additional
discount represents market discount for federal income tax purposes. The gain
realized on the disposition of any bond having market discount generally will be
treated as taxable ordinary income to the extent it does not exceed the accrued
market discount on such bond (unless a fund elects to include market discount in
income in tax years to which it is attributable or if the amount is considered
de minimis). Generally, if the fund elects to include the discount in income,
market discount accrues on a daily basis for each day the bond is held by a fund
on a constant yield to maturity basis. In the case of any debt security having a
fixed maturity date of not more than one year from date of issue, the gain
realized on disposition generally will be treated as a short-term capital gain.
If fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income, unless they are designated as qualified dividend income and you
meet a minimum required holding period with respect to your shares of the fund,
in which case they are taxed as long-term capital gains. Qualified dividend
income is a dividend received by the fund from the stock of a domestic or
qualifying foreign corporation, provided that the fund has held the stock for a
required holding period. Distributions from gains on assets held by a fund
longer than 12 months are taxable as long-term gains regardless of the length of
time you have held your shares in the fund. If you purchase shares in a fund and
sell them at a loss within six months, your loss on the sale of those shares
will be treated as a long-term capital loss to the extent of any long-term
capital gains dividend you received on those shares.
Under the Code, any distribution of a fund's net realized long-term capital
gains that is designated by the fund as a capital gains dividend is taxable to
you as long-term capital gains, regardless of the length of time you have held
your shares in the fund. If you purchase shares in the fund and sell them at a
loss within six months, your loss on the sale of those shares will be treated as
a long-term capital loss to the extent of any long-term capital gains dividend
you received on those shares.
If you have not complied with certain provisions of the Internal Revenue Code
and Regulations, either American Century or your financial intermediary is
required by federal law to withhold and remit to the IRS the applicable federal
withholding rate on reportable payments (which may include taxable dividends,
capital gains distributions and redemption proceeds). Those regulations require
you to certify that the Social Security number or tax identification number you
provide is correct and that you are not subject to withholding for previous
under-reporting to the IRS. You will be asked to make the appropriate
certification on your account application. Payments reported by us to the IRS
that omit your Social Security number or tax identification number will subject
us to a non-refundable penalty of $50, which will be charged against your
account if you fail to provide the certification by the time the report is
filed.
A redemption of shares of a fund (including a redemption made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
you generally will recognize gain or loss in an amount equal to the difference
between the basis of the shares and the amount received. If a loss is realized
on the redemption of fund shares, the reinvestment in additional fund shares
within 30 days before or after the redemption may be subject to the "wash sale"
rules of the Code, resulting in a postponement of the recognition of such loss
for federal income tax purposes.
The information above is only a summary of some of the tax considerations
affecting the funds and their shareholders. No attempt has been made to discuss
individual tax consequences. A prospective investor should consult with his or
her tax advisor or state or local tax authorities to determine whether the funds
are suitable investments.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended September 30, 2004 have been
audited by PricewaterhouseCoopers LLP, independent registered public accounting
firm. Their Report of Independent Registered Public Accounting Firm and the
financial statements included in the funds' Annual Report for the fiscal year
ended September 30, 2004 are incorporated herein by reference.
EXPLANATION OF FIXED-INCOME
SECURITIES RATINGS
As described in the prospectuses, the funds may invest in fixed-income
securities. Those investments, however, are subject to certain credit quality
restrictions, as noted in the prospectuses. The following is a summary of the
rating categories referenced in the prospectus disclosure.
RATINGS OF CORPORATE DEBT SECURITIES
STANDARD & POOR'S
AAA This is the highest rating assigned by S&P to a debt
obligation. It indicates an extremely strong capacity to pay
interest and repay principal.
AA Debt rated in this category is considered to have a very strong
capacity to pay interest and repay principal. It differs from the
highest-rated obligations only in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
BBB Debt rated in this category is regarded as having an adequate
capacity to pay interest and repay principal. While 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. Debt rated below
BBB is regarded as having significant speculative
characteristics.
BB Debt rated in this category 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 also
is used for debt subordinated to senior debt that is assigned an
actual or implied BBB rating.
B Debt rated in this category is more vulnerable to nonpayment than
obligations rated 'BB', but currently has the capacity to pay
interest and repay principal. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to pay interest and repay principal.
CCC Debt rated in this category is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating.
CC Debt rated in this category is currently highly vulnerable to
nonpayment. This rating category is also applied to debt
subordinated to senior debt that is assigned an actual or implied
CCC rating.
C The rating C typically is applied to debt subordinated to senior
debt, and is currently highly vulnerable to nonpayment of
interest and principal. This rating may be used to cover a
situation where a bankruptcy petition has been filed or similar
action taken, but debt service payments are being continued.
D Debt rated in this category is in default. This rating is used
when interest payments or principal repayments 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. It also will be used upon the filing of a
bankruptcy petition for the taking of a similar action if debt
service payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC.
Aaa This is the highest rating assigned by Moody's to a debt
obligation. It indicates an extremely strong capacity to pay
interest and repay principal.
Aa Debt rated in this category is considered to have a very strong
capacity to pay interest and repay principal and differs from Aaa
issues only in a small degree. Together with Aaa debt, it
comprises what are generally known as high-grade bonds.
A Debt rated in this category possesses many favorable investment
attributes and is to be considered as upper-medium-grade debt.
Although capacity to pay interest and repay principal are
considered adequate, it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
Baa Debt rated in this category is considered as medium-grade debt
having an adequate capacity to pay interest and repay principal.
While 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. Debt rated below Baa is regarded as having
significant speculative characteristics.
Ba Debt rated 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. Often the protection
of interest and principal payments may be very moderate.
B Debt rated B has a greater vulnerability to default, but
currently has the capacity to meet financial commitments.
Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be
small. The B rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied Ba or Ba3
rating.
Caa Debt rated Caa is of poor standing, 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.
Such issues may be in default or there may be present elements of
danger with respect to principal or interest. The Caa rating is
also used for debt subordinated to senior debt that is assigned
an actual or implies B or B3 rating.
Ca Debt rated in this category represent obligations that are
speculative in a high degree. Such debt is often in default or
has other marked shortcomings.
C This is the lowest rating assigned by Moody's, and debt rated C
can be regarded as having extremely poor prospects of attaining
investment standing.
FITCH, INC.
AAA Debt rated in this category has the lowest expectation of credit
risk. Capacity for timely payment of financial commitments is
exceptionally strong and highly unlikely to be adversely affected
by foreseeable events.
AA Debt rated in this category has a very low expectation of credit
risk. Capacity for timely payment of financial commitments is
very strong and not significantly vulnerable to foreseeable
events.
A Debt rated in this category has a low expectation of credit risk.
Capacity for timely payment of financial commitments is strong,
but may be more vulnerable to changes in circumstances or in
economic conditions than debt rated in higher categories.
BBB Debt rated in this category currently has a low expectation of
credit risk and an adequate capacity for timely payment of
financial commitments. However, adverse changes in circumstances
and in economic conditions are more likely to impair this
capacity. This is the lowest investment grade category.
FITCH, INC.
BB Debt rated in this category has a possibility of developing
credit risk, particularly as the result of adverse economic
change over time. However, business or financial alternatives may
be available to allow financial commitments to be met. Securities
rated in this category are not investment grade.
B Debt rated in this category has significant credit risk, but a
limited margin of safety remains. Financial commitments currently
are being met, but capacity for continued debt service payments
is contingent upon a sustained, favorable business and economic
environment.
CCC, CC, C Debt rated in these categories has a real possibility for
default. Capacity for meeting financial commitments depends
solely upon sustained, favorable business or economic
developments. A CC rating indicates that default of some kind
appears probable; a C rating signals imminent default.
DDD, DD, D The ratings of obligations in this category are based on their
prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated
with any precision, the following serve as general guidelines.
'DDD' obligations have the highest potential for recovery, around
90%- 100% of outstanding amounts and accrued interest. 'DD'
indicates potential recoveries in the range of 50%-90% and 'D'
the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of
their obligations. Entities rated 'DDD' have the highest prospect
for resumption of performance or continued operation with or
without a formal reorganization process. Entities rated 'DD' and
'D' are generally undergoing a formal reorganization or
liquidation process; those rated 'DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities
rated 'D' have a poor prospect of repaying all obligations.
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. Commercial Paper Ratings
S&P Moody's Description
A-1 Prime-1 This indicates that the degree of safety regarding timely
(P-1) 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 Satisfactory capacity for timely repayment. Issues that
(P-3) 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.
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
Annual and Semiannual Reports
Annual and Semiannual Reports contain more information about the funds'
investments and the market conditions and investment strategies that
significantly affected the funds' performance during the most recent fiscal
period.
You can receive a free copy of the annual and semiannual reports, and ask
questions about the funds and your accounts, by contacting American Century at
the address or telephone numbers listed below.
If you own or are considering purchasing fund shares through
o an employer-sponsored retirement plan
o a bank
o a broker-dealer
o an insurance company
o another financial intermediary
you can receive the annual and semiannual reports directly from them.
You also can get information about the funds from the Securities and Exchange
Commission (SEC). The SEC charges a duplicating fee to provide copies of this
information.
In person SEC Public Reference Room
Washington, D.C.
Call 1-202-942-8090 for location and hours.
On the Internet o EDGAR database at sec.gov
o By email request at publicinfo@sec.gov
By Mail SEC Public Reference Section
Washington, D.C. 20549-0102
Investment Company Act File No. 811-4165
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
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-xxxxx 0502
AMERICAN CENTURY TARGET MATURITIES TRUST
PART C OTHER INFORMATION
ITEM 22. Exhibits
(a) Amended and Restated Agreement and Declaration of Trust, dated March
26, 2004, is included herein.
(b) Amended and Restated Bylaws, dated August 26, 2004, is included herein.
(c) Registrant hereby incorporates by reference, as though set forth fully
herein, Article III, Article IV, Article V, Article VI and Article VIII of
Registrant's Amended and Restated Agreement and Declaration of Trust, appearing
as Exhibit a herein, and Article II, Article VII, Article VIII and Article IX of
Registrant's Amended and Restated Bylaws, incorporated by reference as Exhibit b
herein.
(d) Amended and Restated Management Agreement with American Century
Investment Management, Inc., dated August 1, 2004, is included herein.
(e) Amended and Restated Distribution Agreement with American Century
Investment Services, Inc., dated November 17, 2004 (filed electronically as
Exhibit e to Post-Effective Amendment No. 106 to the Registration Statement of
American Century Mutual Funds, Inc. on November 29, 2004, File No. 2-14213, and
incorporated herein by reference).
(f) Not applicable.
(g) (1) Master Agreement with Commerce Bank, N.A. dated January 22, 1997
(filed electronically as Exhibit b8e to Post-Effective Amendment No. 76 to the
Registration Statement of American Century Mutual Funds, Inc., on February 28,
1997, File No. 2-14213, and incorporated herein by reference).
(2) Global Custody Agreement with The Chase Manhattan Bank, dated
August 9, 1996 (filed electronically as Exhibit b8 to Post-Effective Amendment
No. 31 to the Registration Statement of American Century Government Income
Trust, on February 7, 1997, File No. 2-99222, and incorporated herein by
reference).
(3) Amendment to Global Custody Agreement with The Chase Manhattan
Bank, dated December 9, 2000 (filed electronically as Exhibit g2 to
Pre-Effective Amendment No. 2 to the Registration Statement of American Century
Variable Portfolios II, Inc., on January 9, 2001, File No. 333-46922, and
incorporated herein by reference).
(4) Amendment No. 2 to the Global Custody Agreement between American
Century Investments and the JPMorgan Chase Bank, dated as of May 1, 2004 (filed
electronically as Exhibit g4 to Post-Effective Amendment No. 35 to the
Registration Statement of American Century Quantitative Equity Funds, Inc. on
April 29, 2004, File No. 33-19589, and incorporated herein by reference).
(5) Chase Manhattan Bank Custody Fee Schedule, dated October 19, 2000
(filed electronically as Exhibit g5 to Post-Effective Amendment No. 35 to the
Registration Statement of American Century Quantitative Equity Funds, Inc. on
April 29, 2004, File No. 33-19589, and incorporated herein by reference).
(h) (1) Transfer Agency Agreement with American Century Services
Corporation, dated August 1, 1997 (filed electronically as Exhibit 9 to
Post-Effective Amendment No. 33 to the Registration Statement of American
Century Government Income Trust, on July 31, 1997, File No. 2-99222, and
incorporated herein by reference).
(2) Amendment No. 1 to Transfer Agency Agreement with American Century
Services Corporation, dated June 29, 1998 (filed electronically as Exhibit 9b to
Post-Effective Amendment No. 23 to the Registration Statement of American
Century Quantitative Equity Funds on June 29, 1998, File No. 33-19589, and
incorporated herein by reference).
(3) Amendment No. 2 to the Transfer Agency Agreement with American
Century Services Corporation, dated November 20, 2000 (filed electronically as
Exhibit h4 to Post-Effective Amendment No. 30 to the Registration Statement of
American Century California Tax-Free and Municipal Funds on December 29, 2000,
File No. 2-82734, and incorporated herein by reference).
(4) Amendment No. 3 to the Transfer Agency Agreement with American
Century Services Corporation, dated August 1, 2001 (filed electronically as
Exhibit h5 to Post-Effective Amendment No. 44 to the Registration Statement of
American Century Government Income Trust on July 31, 2001, File No. 2-99222, and
incorporated herein by reference).
(5) Amendment No. 4 to the Transfer Agency Agreement with American
Century Services Corporation, dated December 3, 2001 (filed electronically as
Exhibit h6 to Post-Effective Amendment No. 16 to the Registration Statement of
American Century Investment Trust on November 30, 2001, File No. 33-65170, and
incorporated herein by reference).
(6) Amendment No. 5 to the Transfer Agency Agreement with American
Century Services Corporation, dated July 1, 2002 (filed electronically as
Exhibit h6 to Post-Effective Amendment No. 17 to the Registration Statement of
American Century Investment Trust on June 28, 2002, File No. 33-65170, and
incorporated herein by reference).
(7) Amendment No. 6 to the Transfer Agency Agreement with American
Century Services Corporation, dated September 3, 2002 (filed electronically as
Exhibit h8 to Post-Effective Amendment No. 35 to the Registration Statement of
American Century Municipal Trust on September 30, 2002, File No. 2-91229, and
incorporated herein by reference).
(8) Amendment No. 7 to the Transfer Agency Agreement with American
Century Services Corporation, dated December 31, 2002 (filed electronically as
Exhibit h7 to Post-Effective Amendment No. 4 to the Registration Statement of
American Century Variable Portfolios II, Inc. on December 23, 2002, File No.
333-46922, and incorporated herein by reference).
(9) Credit Agreement with JPMorgan Chase Bank, as Administrative
Agent, dated December 17, 2003 (filed electronically as Exhibit h9 to
Post-Effective Amendment No. 39 to the Registration Statement of the Registrant
on January 30, 2004, File No. 2-94608, and incorporated herein by reference).
(10) Customer Identification Program Reliance Agreement, dated August
26, 2004 (filed electronically as Exhibit h2 to Pre-Effective Amendment No. 1 to
the Registration Statement of American Century Asset Allocation Portfolios,
Inc., on September 1, 2004, File No. 333-116351, and incorporated herein by
reference).
(i) Opinion and Consent of Counsel to be filed by amendment.
(j) (1) Consent of PricewaterhouseCoopers, LLP, independent registered
public accounting firm, to be filed by amendment.
(2) Power of Attorney, dated March 1, 2004 (filed electronically as
Exhibit j2 to Post-Effective Amendment No. 34 to the Registration Statement of
American Century Quantitative Equity Funds, Inc., on March 1, 2004, File No.
33-19589, and incorporated herein by reference).
(3) Secretary's Certificate, dated March 1, 2004 (filed electronically
as Exhibit j3 to Post-Effective Amendment No. 34 to the Registration Statement
of American Century Quantitative Equity Funds, Inc., on March 1, 2004, File No.
33-19589, and incorporated herein by reference).
(k) Not applicable.
(l) Not applicable.
(m) (1) Master Distribution and Shareholder Services Plan (Advisor Class),
dated August 1, 1997 (filed electronically as Exhibit m1 to Post-Effective
Amendment No. 32 to the Registration Statement of the Registrant on January 31,
2000, File No. 2-94608, and incorporated herein by reference).
(2) Amendment to Master Distribution and Shareholder Services Plan
(Advisor Class), dated June 29, 1998 (filed electronically as Exhibit m1 to
Post-Effective Amendment No. 32 to the Registration Statement of the Registrant
on January 31, 2000, File No. 2-94608, and incorporated herein by reference).
(3) Amendment No. 1 to Master Distribution and Shareholder Services
Plan (Advisor Class), dated August 1, 2001 (filed electronically as Exhibit m3
to Post-Effective Amendment No. 44 to the Registration Statement of the
Registrant, filed on July 31, 2001, File No. 2-99222, and incorporated herein by
reference).
(4) Amendment No. 2 to Master Distribution and Shareholder Services
Plan (Advisor Class), dated December 3, 2001 (filed electronically as Exhibit m4
to Post-Effective Amendment No. 16 to the Registration Statement of American
Century Investment Trust on November 30, 2001, File No. 33-65170, and
incorporated herein by reference).
(5) Amendment No. 3 to Master Distribution and Shareholder Services
Plan (Advisor Class), dated July 1, 2002, (filed electronically as Exhibit m5 to
Post-Effective Amendment No. 38 to the Registration Statement of the Registrant
on January 31, 2003, File No. 2-94608, and incorporated herein by reference).
(6) Master Distribution and Individual Shareholder Services Plan (C
Class), dated September 16, 2000 (filed electronically as Exhibit m3 to
Post-Effective Amendment No. 35 to the Registration Statement of the Registrant
on April 17, 2001, File No. 2-94608, and incorporated herein by reference).
(7) Amendment No. 1 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated August 1, 2001 (filed electronically
as Exhibit m5 to Post-Effective Amendment No. 44 to the Registration Statement
of American Century Government Income Trust on July 31, 2001, File No. 2-99222,
and incorporated herein by reference).
(8) Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated December 3, 2001 (filed
electronically as Exhibit m7 to Post-Effective Amendment No. 16 to the
Registration Statement of American Century Investment Trust on November 30,
2001, File No. 33-65170, and incorporated herein by reference).
(9) Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated July 1, 2002 (filed electronically as
Exhibit m9 to Post-Effective Amendment No. 17 to the Registration Statement of
American Century Investment Trust on June 28, 2002, File No. 33-65170, and
incorporated herein by reference).
(10) Amendment No. 4 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated September 3, 2002 (filed
electronically as Exhibit m5 to Post-Effective Amendment No. 35 to the
Registration Statement of American Century Municipal Trust on September 30,
2002, File No. 2-91229, and incorporated herein by reference).
(11) Amendment No. 5 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated January 2, 2004 (filed electronically
as Exhibit m6 to Post-Effective Amendment No. 42 to the Registration Statement
of American Century California Tax-Free and Municipal Funds on February 26,
2004, File No. 2-82734, and incorporated herein by reference).
(12) Amendment No. 6 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated May 1, 2004 (filed electronically as
Exhibit m13 to Post-Effective Amendment No. 35 to the Registration Statement of
American Century Quantitative Equity Funds, Inc. on April 29, 2004, File No.
33-19589, and incorporated herein by reference).
(n) (1) Amended and Restated Multiple Class Plan, dated September 3, 2002
(filed electronically as Exhibit n1 to Post-Effective Amendment No. 35 to the
Registration Statement of American Century California Tax-Free and Municipal
Funds on December 17, 2002, File No. 2-82734, and incorporated herein by
reference).
(2) Amendment No. 1 to the Amended and Restated Multiple Class Plan,
dated December 31, 2002 (filed electronically as Exhibit n2 to Post-Effective
Amendment No. 39 to the Registration Statement of American Century Municipal
Trust on December 23, 2002, File No. 2-91229, and incorporated herein by
reference).
(3) Amendment No. 2 to the Amended and Restated Multiple Class Plan,
dated August 29, 2003 (filed electronically as Exhibit n3 to Post-Effective
Amendment No. 17 to the Registration Statement of American Century Strategic
Asset Allocations, Inc. on August 28, 2003, File No. 33-79482, and incorporated
herein by reference).
(o) Reserved.
(p) (1) American Century Investments Code of Ethics (filed electronically
as Exhibit p to Pre-Effective Amendment No. 1 to the Registration Statement of
American Century Asset Allocation Portfolios, Inc., on August 30, 2004, File No.
333-116351, and incorporated herein by reference).
(2) Independent Directors' Code of Ethics amended February 28, 2000,
is included herein.
Item 23. Persons Controlled by or Under Common Control with Fund
The persons who serve as the trustees or directors of the Registrant also serve,
in substantially identical capacities, of the following investment companies:
American Century California Tax-Free and Municipal Funds
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Quantitative Equity Funds, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios II, Inc.
Because the boards of each of the above-named investment companies are
identical, these companies may be deemed to be under common control.
Item 24. Indemnification.
As stated in Article VII, Section 3 of the Amended and Restated Declaration
of Trust, incorporated herein by reference to Exhibit 1a to the Registration
Statement, "The Trustees shall be entitled and empowered to the fullest extent
permitted by law to purchase insurance for and to provide by resolution or in
the Bylaws for indemnification out of Trust assets for liability and for all
expenses reasonably incurred or paid or expected to be paid by a Trustee or
officer in connection with any claim, action, suit, or proceeding in which he or
she becomes involved by virtue of his or her capacity or former capacity with
the Trust. The provisions, including any exceptions and limitations concerning
indemnification, may be set forth in detail in the Bylaws or in a resolution
adopted by the Board of Trustees."
Registrant hereby incorporates by reference, as though set forth fully
herein, Article VI of the Registrant's Amended and Restated Bylaws, amended on
August 26, 2004, incorporated herein by reference as Exhibit b hereto.
The Registrant has purchased an insurance policy insuring its officers and
directors against certain liabilities which such officers and trustees may incur
while acting in such capacities and providing reimbursement to the Registrant
for sums which it may be permitted or required to pay to its officers and
trustees by way of indemnification against such liabilities, subject in either
case to clauses respecting deductibility and participation.
Item 25. Business and Other Connections of the Investment Advisor
None.
Item 26. Principal Underwriters
I. (a) American Century Investment Services, Inc. (ACIS) acts as principal
underwriter for the following investment companies:
American Century Asset Allocation Portfolios, Inc.
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century Variable Portfolios II, Inc.
American Century World Mutual Funds, Inc.
ACIS is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers.
ACIS is located at 4500 Main Street, Kansas City, Missouri 64111. ACIS is a
wholly-owned subsidiary of American Century Companies, Inc.
(b) The following is a list of the directors, executive officers and
partners of ACIS:
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
--------------------------------------------------------------------------------
James E. Stowers, Jr. Chairman and Director none
James E. Stowers III Co-Chairman and Director none
William M. Lyons President, Chief Executive President, Chairman
Officer and Director and Trustee
Robert T. Jackson Executive Vice President, Executive Vice
Chief Financial Officer President
and Chief Accounting Officer
Donna Byers Senior Vice President none
Brian Jeter Senior Vice President none
Mark Killen Senior Vice President none
Dave Larrabee Senior Vice President none
Barry Mayhew Senior Vice President none
David C. Tucker Senior Vice President Senior Vice President
and General Counsel and General Counsel
* All addresses are 4500 Main Street, Kansas City, Missouri 64111
(c) Not applicable.
Item 27. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act, and the rules promulgated thereunder, are in the
possession of Registrant, American Century Services Corporation and American
Century Investment Management, Inc., all located at 4500 Main Street, Kansas
City, Missouri 64111.
Item 29. Management Services - Not applicable.
Item 30. Undertakings - Not applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement amendment to be signed on
its behalf by the undersigned, duly authorized, in the City of Kansas City, and
State of Missouri, on the 30th day of November, 2004.
AMERICAN CENTURY TARGET MATURITIES TRUST
(Registrant)
By: /*/ William M. Lyons
---------------------------------
William M. Lyons
President and Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement amendment has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
President, Chairman of
*William M. Lyons the Board, Trustee and November 30, 2004
------------------------- Principal Executive
William M. Lyons Officer
*Maryanne Roepke Senior Vice President, November 30, 2004
------------------------- Treasurer and Chief
Maryanne Roepke Accounting Officer
*Albert A. Eisenstat Trustee November 30, 2004
-------------------------
Albert A. Eisenstat
*Ronald J. Gilson Trustee November 30, 2004
-------------------------
Ronald J. Gilson
*Kathryn A. Hall Trustee November 30, 2004
-------------------------
Kathryn A. Hall
*Myron S. Scholes Trustee November 30, 2004
-------------------------
Myron S. Scholes
*Kenneth E. Scott Trustee November 30, 2004
-------------------------
Kenneth E. Scott
*John B. Shoven Trustee November 30, 2004
-------------------------
John B. Shoven
*Jeanne D. Wohlers Trustee November 30, 2004
-------------------------
Jeanne D. Wohlers
/s/ Brian L. Brogan
---------------------------------------
*by Brian L. Brogan, Attorney in Fact
(pursuant to a Power of Attorney
dated March 1, 2004).
EXHIBIT 99.a
AMERICAN CENTURY TARGET MATURITIES TRUST
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
AS AMENDED THROUGH MARCH 26, 2004
TABLE OF CONTENTS
ARTICLE I NAME AND DEFINITIONS.................................................1
Section 1. Name..........................................................1
Section 2. Definitions...................................................1
ARTICLE II PURPOSE OF TRUST....................................................2
ARTICLE III SHARES.............................................................2
Section 1. Division of Beneficial Interest...............................2
Section 2. Ownership of Shares...........................................2
Section 3. Investments in the Trust......................................3
Section 4. Status of Shares and Limitation of Personal Liability.........3
Section 5. Power of Trustees to Change Provisions Relating to Shares.....3
Section 6. Establishment and Designation of Series.......................4
Section 7. Indemnification of Shareholders...............................6
ARTICLE IV THE TRUSTEES........................................................6
Section 1. Number, Election and Tenure...................................6
Section 2. Effect of Death, Resignation, etc. of a Trustee...............7
Section 3. Powers........................................................6
Section 4. Payment of Expenses by the Trust.............................10
Section 5. Payment of Expenses by Shareholders..........................10
Section 6. Ownership of Assets of the Trust.............................10
Section 7. Service Contracts............................................10
ARTICLE V SHAREHOLDERS' VOTING POWERS AND MEETINGS............................12
Section 1. Voting Powers................................................12
Section 2. Voting Power and Meetings....................................12
Section 3. Quorum and Required Vote.....................................13
Section 4. Action by Written Consent....................................13
Section 5. Record Dates.................................................13
Section 6. Additional Provisions........................................13
ARTICLE VI NET ASSET VALUE, DISTRIBUTIONS, AND REDEMPTIONS....................14
Section 1. Determination of Net Asset Value,
Net Income, and Distributions...............................14
Section 2. Redemptions and Repurchases..................................14
Section 3. Redemptions at the Option of the Trust.......................14
ARTICLE VII COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES..............15
Section 1. Compensation.................................................15
Section 2. Limitation of Liability......................................15
Section 3. Indemnification..............................................15
ARTICLE VIII MISCELLANEOUS....................................................16
Section 1. Trustees, Shareholders, etc. Not
Personally Liable; Notice...................................16
Section 2. Trustee's Good Faith Action, Expert Advice,
No Bond or Surety...........................................16
Section 3. Liability of Third Persons Dealing with Trustees.............16
Section 4. Termination of Trust or Series...............................17
Section 5. Merger and Consolidation.....................................17
Section 6. Filing of Copies, References, Headings.......................17
Section 7. Applicable Law...............................................17
Section 8. Amendments...................................................18
Section 9. Trust Only...................................................18
Section 10. Use of the Name "Benham" and "American Century".............18
AMERICAN CENTURY TARGET MATURITIES TRUST
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
(AS AMENDED THROUGH MARCH 26, 2004)
AGREEMENT AND DECLARATION OF TRUST made at Palo Alto, California on the 8th
day of November, 1984, as amended and restated, is further amended and restated
in its entirety by the Trustees hereunder.
WHEREAS the Trustees desire and have agreed to manage all property coming
into their hands as trustees of a Massachusetts business trust in accordance
with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby direct that this Agreement and
Declaration of Trust be filed with the Secretary of The Commonwealth of
Massachusetts and do hereby declare that they will hold all cash, securities and
other assets, which they may from time to time acquire in any manner as Trustees
0hereunder, IN TRUST, and manage and dispose of the same upon the following terms
and conditions for the pro rata benefit of the holders of Shares in this Trust.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1. NAME
This Trust shall be known as the "American Century Target Maturities Trust" and
the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
SECTION 2. DEFINITIONS
Whenever used herein, unless otherwise required by the context or specifically
provided:
(a) The "1940 Act" shall mean the Investment Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time;
(b) "Bylaws" shall mean the Bylaws of the Trust as amended from time to time;
(c) "Class" shall mean any class of Shares of any Series established and
designated under or in accordance with the provisions of Article III,
Section 6.
(d) "Commission" shall mean the United States Securities and Exchange
Commission;
(e) "Declaration of Trust" shall mean this Amended and Restated Agreement and
Declaration of Trust, as further amended or restated from time to time;
(f) "Independent Trustee" shall mean a Trustee who is not an "interested
person" as defined in the 1940 Act.
(g) "Series" shall mean each series of Shares established and designated under
or in accordance with the provisions of Article III. Present and future
separate "Series" in the Trust may be referred to as "Portfolios" and these
terms may be used alternatively in future publications and communications
sent to investors.
(h) "Shareholder" shall mean a record owner of Shares;
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(i) "Shares" shall mean the equal proportionate units of interest into which
the beneficial interest in the Trust property belonging to any Series of
the Trust and/or any Class of any Series (as the context may require) shall
be divided from time to time;
(j) "Trust" shall mean the Massachusetts business trust established by this
Agreement and Declaration of Trust, as amended from time to time; and
(k) "Trustees" shall mean the Trustees of the Trust named in Article IV hereof
or elected or appointed in accordance with such Article;
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to provide investors a managed investment company
registered under the 1940 Act and investing one or more portfolios primarily in
securities and debt instruments.
ARTICLE III
SHARES
SECTION 1. DIVISION OF BENEFICIAL INTERES
The beneficial interest in the Trust shall at all times be divided into an
unlimited number of Shares, without par value, but the Trustees shall have the
authority from time to time to issue Shares in one or more Series as they deem
necessary or desirable (each of which Series of Shares shall represent the
beneficial interest in a separate and distinct sub-trust of the Trust). Subject
to the provisions of Section 6 of this Article III, each Share shall have voting
rights as provided in Article V hereof, and holders of the Shares of any Series
shall be entitled to receive dividends, when and as declared with respect
thereto in the manner provided in Article VI, Section 1 hereof. No Shares shall
have any priority or preference over any other Share of the same Series with
respect to dividends or distributions upon termination of the Trust or of such
Series made pursuant to Article VIII, Section 4 hereof. All dividends and
distributions shall be made ratably among all Shareholders of a particular
Series from the assets belonging to such Series according to the number of
Shares of such Series held of record by each Shareholder on the record date for
any dividend or on the date of termination, as the case may be. Shareholders
shall have no preemptive or other right to subscribe to any additional Shares or
other securities issued by the Trust or any Series. The Trustees may from time
to time divide or combine the Shares of any particular Series into a greater or
lesser number of Shares of that Series without thereby changing the
proportionate beneficial interest of the Shares of that Series in the assets
belonging to that Series or in any way affecting the rights of Shares of any
other Series. Shareholders shall have no right to demand payment for their
shares or to any other rights of dissenting shareholders in the event the Trust
participates in any transaction which would give rise to appraisal or
dissenter's rights by a shareholder of a corporation organized under Chapter
156B of the General Laws of the Commonwealth of Massachusetts, or otherwise.
SECTION 2. OWNERSHIP OF SHARES
The ownership of Shares shall be recorded on the books of the Trust or a
transfer or similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series. No
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certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may, from time
to time, make such rules as they consider appropriate for the transfer of Shares
of each Series and similar matters. The record books of the Trust as kept by the
Trust or any transfer or similar agent, as the case may be, shall be conclusive
as to who are the Shareholders of each Series and as to the number of Shares of
each Series held from time to time by each Shareholder.
SECTION 3. INVESTMENTS IN THE TRUST
The Trustees may accept or reject investments in the Trust and in each Series
from such persons, at such times, and on such terms and for such consideration,
not inconsistent with the 1940 Act, as they from time to time authorize or
determine. The Trustees may authorize any distributor, principal underwriter,
custodian, transfer agent, or other person to accept orders for the purchase of
Shares that conform to such authorized terms and to reject any purchase orders
for Shares whether or not conforming to such authorized terms.
SECTION 4. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the existence of
the Trust shall not operate to terminate the Trust, nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but entitles
such representative only to the rights of said deceased Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in or
to the whole or any part of the Trust property or right to call for a partition
or division of the same or for an accounting , nor shall the ownership of Shares
constitute the Shareholders as partners. Neither the Trust nor the Trustees, nor
any officer, employee nor agent of the Trust shall have any power to bind
personally any Shareholders, nor, except as specifically provided herein, to
call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.
SECTION 5. POWER OF TRUSTEES TO CHANGE PROVISIONS RELATING TO SHARES
Notwithstanding any other provision of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust, provided that before adopting any
such amendment without Shareholder approval the Trustees shall determine that it
is consistent with the fair and equitable treatment of all Shareholders or that
Shareholder approval is not otherwise required by the 1940 Act or other
applicable law.
Without limiting the generality of the foregoing, the Trustees may, for the
above-stated purposes, amend the Declaration of Trust to:
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(a) create one or more Series of Shares or Classes thereof (in addition to any
Series or Classes already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment therein as the
Trustees shall determine and reclassify any or all outstanding Shares as
shares of particular Series or Classes in accordance with such eligibility
requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (i) of
Section 6 of this Article III;
(c) combine one or more Series of Shares into a single Series, or one or more
Classes of a Series into a single Class, on such terms and conditions as
the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment in Shares
of any Series or Classes thereof, including without limitation, to provide
for the issue of Shares of any Series in connection with any merger or
consolidation of the Trust with another trust or company or any acquisition
by the Trust of part or all of the assets of another trust or investment
company;
(e) change the designation of any Series of Shares or Classes;
(f) change the method of allocating dividends among the various Series of
Shares;
(g) allocate any specific assets or liabilities of the Trust or any specific
items of income or expense of the Trust to one or more Series of Shares;
and
(h) specifically allocate assets to any or all Series of Shares or create one
or more additional Series of Shares which are preferred over all other
Series of Shares in respect of assets specifically allocated thereto or any
dividends paid by the Trust with respect to any net income, however
determined, earned from the investment and reinvestment of any assets so
allocated or otherwise and provide for any special voting or other rights
with respect to such Series.
SECTION 6. ESTABLISHMENT AND DESIGNATION OF SERIES AND CLASSES
The establishment and designation of any Series of Shares, or Classes thereof,
shall be effective upon resolution by a majority of the then Trustees, setting
forth such establishment and designation and the relative rights and preferences
of such Series, or as otherwise provided in such resolution or as provided by
reference to, or approval of, another document that sets forth such relative
rights and preferences of the Shares of such Series or Class. Such establishment
and designation shall be set forth in an amendment to this Declaration of Trust
by execution of a new Schedule A to this Declaration of Trust.
Shares of each Series, or Classes thereof, established pursuant to this Section
6, unless otherwise provided in the resolution establishing such Series or as
modified by the Multiple Class Plan adopted by the Trustees in accordance with
applicable law, as amended or replaced from time to time, shall have the
following rights and preferences:
(a) ASSETS BELONGING TO SERIES. All consideration received by the Trust for the
issue or sale of Shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof from whatever source derived, including,
without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
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reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the
rights of creditors, shall be so recorded upon the books of account of the
Trust, and are herein referred to as "assets belonging to" that Series. In
the event that there are any assets, income, earnings, profits and proceeds
thereof, funds or payments which are not readily identifiable as belonging
to any particular Series (collectively "General Assets"), the Trustees
shall allocate such General Assets to, between or among any one or more of
the Series in such manner and on such basis as they, in their sole
discretion, deem fair and equitable, and any General Asset so allocated to
a particular Series shall belong to that Series. Each such allocation by
the Trustees shall be conclusive and binding upon the Shareholders of all
Series for all purposes.
(b) LIABILITIES BELONGING TO SERIES. The assets belonging to each particular
Series shall be charged with the liabilities of the Trust in respect to
that Series and all expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series in such
manner and on such basis as the Trustees in their sole discretion deem fair
and equitable. The liabilities, expenses, costs, charges, and reserves so
charged to a Series are herein referred to as "liabilities belonging to"
that Series. Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustee shall be conclusive and binding upon the
Shareholders of all Series for all purposes. Under no circumstances shall
the assets allocated or belonging to any particular Series be charged with
liabilities attributable to any other Series. All persons who have extended
credit which has been allocated to particular Series, or who have a claim
or contract which has been allocated to any particular Series, shall look
only to the assets of that particular Series for payment of such credit,
claim, or contract.
(c) INCOME, DISTRIBUTIONS, AND REDEMPTIONS. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to determine
which items shall be treated as income and which items as capital; and each
such determination and allocation shall be conclusive and binding upon the
Shareholders. Notwithstanding any other provision of this Declaration,
including, without limitation, Article VI, no dividend or distribution
(including, without limitation, any distribution paid upon termination of
the Trust or of any Series) with respect to, nor any redemption or
repurchase of, the Shares of any Series shall be effected by the Trust
other than from the assets belonging to such Series, nor, except as
specifically provided in Section 7 of this Article III, shall any
Shareholder of any particular Series otherwise have any right or claim
against the assets belonging to any other Series except to the extent that
such Shareholder has such a right or claim hereunder as a Shareholder of
such other Series.
(d) VOTING. All Shares of the Trust entitled to vote on a matter shall vote
separately by Series. That is, the Shareholders of each Series shall have
the right to approve or disapprove matters affecting the Trust and each
respective Series as if the Series were separate companies. There are,
however, two exceptions to voting by separate Series. First, if the 1940
Act requires all Shares of the Trust to be voted in the aggregate without
differentiation between the separate Series, then all Series shall vote
together. Second, if
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any matter affects only the interests of some but not all Series, then only
such affected Series shall be entitled to vote on the matter.
(e) EQUALITY. All the Shares of each particular Series shall represent an equal
proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Series), and each Share of any particular
Series shall be equal to each other Share of that Series.
(f) FRACTIONS. Any fractional Share of a Series shall carry proportionately all
the rights and obligations of a whole share of that Series, including
rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the authority to provide that
the holders of Shares of any Series shall have the right to exchange said
Shares for Shares of one or more other Series of Shares in accordance with
such requirements and procedures as may be established by the Trustees.
(h) COMBINATION OF SERIES. The Trustees shall have the authority, without the
approval of the Shareholders of any Series unless otherwise required by
applicable law, to combine the assets and liabilities belonging to any two
or more Series into assets and liabilities belonging to a single Series.
(i) ELIMINATION OF SERIES. At any time that there are no Shares outstanding of
any particular Series previously established and designated, the Trustees
may amend this Declaration of Trust to abolish that Series and to rescind
the establishment and designation thereof, such amendment to be effected in
the manner provided pursuant to Section 5 of this Article III.
SECTION 7. INDEMNIFICATION OF SHAREHOLDERS
In case any Shareholder or former Shareholder shall be held to be personally
liable solely by reason of his or her being or having been a Shareholder and not
because of his or her acts or omissions or for some other reasons, the
Shareholder or former Shareholder (or his or her heirs, executors,
administrators, or other legal representatives or in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled out
of the assets of the Trust to be held harmless from and indemnified against all
loss and expense arising from such liability.
ARTICLE IV
THE TRUSTEES
SECTION 1. NUMBER, ELECTION AND TENURE
(a) Number. Immediately following adoption of this Amended and Restated
Declaration of the Trust, the eight (8) Trustees of the Trust and or each
Series hereunder shall remain the Trustees in office upon its adoption:
Albert A. Eisenstat, Ronald J. Gilson, Kathryn A. Hall, William M. Lyons,
Myron S. Scholes, Kenneth E. Scott, John B. Shoven, and Jeanne D. Wohlers.
Hereafter, the number of Trustees may be changed from time to time by a
written instrument signed by a majority of the Trustees, provided, however,
that the number of Trustees shall in no event be less than three (3) nor
more than fifteen (15).
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(b) Removal and Vacancies. Subject to the 1940 Act, the Trustees may (i) by
vote of a majority of the remaining Trustees fill vacancies in the Trustees
or (ii) remove Trustees with or without cause by vote of a majority of the
Independent Trustees if the Trustee to be removed is an Independent
Trustee, or by vote of the Trustees who are "interested persons" (as
defined in the 1940 Act) if the Trustee to be removed is an "interested"
Trustee. The selection and nomination of Independent Trustees is committed
solely to the discretion of a Nominating Committee consisting of all
sitting Independent Trustees, except where the remaining Trustee or
Trustees are "interested persons".
(c) Term. Each Trustee shall serve during the continued lifetime of the Trust
until such Trustee dies, resigns, reaches retirement age or is removed, or,
if sooner, until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his
successor.
(d) Resignation. Any Trustee may resign at any time by written instrument
signed by him and delivered to any officer of the Trust or to a meeting of
the Trustees. Such resignation shall be effective upon receipt unless
specified to be effective at some other time. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee
resigning and no Trustee removed shall have any right to any compensation
for any period following his resignation or removal, or any right to
damages on account of such removal.
(e) Election by Shareholders. At the discretion of the Trustees, the
Shareholders may fix the number of Trustees and elect Trustees at any
meeting of Shareholders called by a majority of the Trustees for that
purpose.
SECTION 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
The death, declination, resignation, retirement, removal, or incapacity of the
Trustees, or any of them, shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the number of Trustees shall occur, until such vacancy is
filled as provided in Article IV, Section 1, the Trustees in office, regardless
of their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration of Trust.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees shall be conclusive evidence of such vacancy.
SECTION 3. POWERS
Subject to the provisions of this Declaration of Trust, the business of the
Trust shall be managed by the Trustees, and they shall have all powers necessary
or convenient to carry out that responsibility including the power to engage in
securities transactions of all kinds on behalf of the Trust. Without limiting
the foregoing, the Trustees may adopt Bylaws not inconsistent with this
Declaration of Trust providing for the regulation and management of the affairs
of the Trust and may amend and repeal them to the extent that such Bylaws do not
reserve that right to the Shareholders; in accordance with Section 1 of this
Article they may fill vacancies in and increase or reduce the number of
Trustees, they may elect and remove such officers and appoint and
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terminate such agents as they consider appropriate; they may appoint from their
own number and establish and terminate one or more committees consisting of two
or more Trustees which may exercise the powers and authority of the Trustees to
the extent that the Trustees determine; they may employ one or more custodians
of the assets of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a system or
systems for the central handling of securities or with a Federal Reserve Bank,
retain a transfer agent or a shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian, transfer or Shareholder servicing agent, or principal
underwriter. Any determination as to what is in the interests of the Trust made
by the Trustees in good faith shall be conclusive. In construing the provisions
of this Declaration of Trust, the presumption shall be in favor of a grant of
power to the Trustees.
Without limiting the foregoing and to the extent not inconsistent with the 1940
Act or other applicable law, the Trustees shall have power and authority for and
on behalf of the Trust and each separate Series established hereunder:
(a) to invest and reinvest cash, to hold cash uninvested, and to subscribe for,
invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge,
sell, assign, transfer, exchange, distribute, lend or otherwise deal in or
dispose of contracts for the future acquisition or delivery of fixed income
or other securities, and securities of every nature and kind, including
without limitation, all types of bonds, debentures, stocks, negotiable or
non-negotiable instruments, obligations, evidences of indebtedness,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, bankers acceptances, and other securities of any kind, issued,
created, guaranteed, or sponsored by any and all persons, including,
without limitation, states, territories, and possessions of the United
States and the District of Columbia and any political subdivision, agency,
or instrumentality of the U.S. Government, any foreign government or any
political subdivision of the U.S. Government or any foreign government, or
any international instrumentality, or by any bank or savings institution,
or by any corporation or organization organized under the laws of the
United States or of any state, territory, or possession thereof, or by any
corporation or organization organized under any foreign law, or in "when
issued" contracts for any such securities, to change the investments of the
assets of the Trust; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such
investments of every kind and description, including, without limitation,
the right to consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations, or corporations to
exercise any of said rights, powers, and privileges in respect of any of
said instruments;
(b) to sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write
options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Trust;
(c) to vote or give assent, or exercise any rights of ownership, with respect
to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees
shall deem proper, granting to such person or persons
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such power and discretion with relation to securities or property as the
Trustees shall deem proper;
(d) to exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities;
(e) to hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees
or otherwise;
(f) to consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which
is held in the Trust; to consent to any contract, lease, mortgage, purchase
or sale of property by such corporation or issuer; and to pay calls or
subscriptions with respect to any security held in the Trust;
(g) to join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or transferred)
as the Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(h) to compromise, arbitrate or otherwise adjust claims in favor of or against
the Trust or any matter in controversy, including but not limited to claims
for taxes;
(i) to enter into joint ventures, general or limited partnerships and any other
combinations or associations;
(j) to borrow funds or other property;
(k) to endorse or guarantee the payment of any notes or other obligations of
any person; to make contracts of guaranty or suretyship, or otherwise
assume liability for payment thereof;
(l) to purchase and pay for entirely out of Trust property such insurance as
they may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of
the Trust or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisors, principal underwriters,
or independent contractors of the Trust, individually against all claims
and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged
to have been taken or omitted by any such person as Trustee, officer,
employee, agent, investment advisor, principal underwriter, or independent
contractor, including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the power to
indemnify such person against liability;
(m) to pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and benefit
plans, trusts and provisions, including the purchasing of
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life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust; and
(n) in general, to carry on any other business in connection with or incidental
to any of the foregoing powers, to do everything necessary, suitable or
proper for the accomplishment of any purpose or the attainment of any
object or the furtherance of any power hereinbefore set forth, either alone
or in association with others, and to do every other act or thing
incidental or appurtenant to or growing out of or connected with the
aforesaid business or purposes, objects or powers.
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust or any Series or Class thereof. The
Trustees shall not in any way be bound or limited by any present or future law
or custom in regard to investment by fiduciaries. The Trustees shall not be
required to obtain any court order to deal with any assets of the Trust or take
any other action hereunder.
SECTION 4. PAYMENT OF EXPENSES BY THE TRUST
The Trustees are authorized to pay or cause to be paid out of the principal or
income of the Trust, or partly out of the principal and partly out of income, as
they deem fair, all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the Trust, or in connection with the management
thereof, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees,
investment advisor or manager, principal underwriter, auditors, counsel,
custodian, transfer agent, shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur.
SECTION 5. PAYMENT OF EXPENSES BY SHAREHOLDERS
The Trustees shall have the power, as frequently as they may determine, to cause
each Shareholder, or each Shareholder of any particular Series, to pay directly,
in advance or arrears, for charges of the Trust's custodian or transfer,
shareholder servicing or similar agent, an amount fixed from time to time by the
Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
SECTION 6. OWNERSHIP OF ASSETS OF THE TRUST
Title to all of the assets of the Trust shall at all times be considered as
vested in the Trustees.
SECTION 7. SERVICE CONTRACTS
(a) Subject to such requirements and restrictions as may be set forth in the
1940 Act, or any rules or regulations adopted thereunder, or the Bylaws,
the Trustees may, at any time and from time to time, contract for exclusive
or nonexclusive advisory and/or management services for the Trust or for
any Series with American Century Investment Management, Inc. or any other
corporation, trust, association or other organization (the "Advisor"); and
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any such contract may contain such other terms as the Trustees may
determine, including without limitation, authority for the Advisor to
determine from time to time without prior consultation with the Trustees
what investments shall be purchased, held, sold or exchanged and what
portion, if any, of the assets of the Trust shall be held uninvested and to
make changes in the Trust's investments. The Trustees may authorize the
Advisor to employ one or more sub-advisors from time to time to perform
such of the acts and services of the Advisor, and upon such terms and
conditions, as may be agreed upon between the Advisor and such sub-advisor.
(b) The Trustees may also, at any time and from time to time, contract with any
corporation, trust, association, or other organization, appointing it
exclusive or nonexclusive distributor or principal underwriter for the
Shares of any, some, or all of the Series. Every such contract shall comply
with such requirements and restrictions as may be set forth in the Bylaws;
and any such contract may contain such other terms as the Trustees may
determine.
(c) The Trustees are also empowered, at any time and from time to time, to
contract with any corporations, trust, associations, or other
organizations, appointing it or them the transfer agent(s) and/or
shareholders servicing agent(s) for the Trust or one or more of the Series.
Specifically, the Trustees are empowered to contract or join with other
investment companies managed by the Trust's investment advisor to have
transfer agency and/or shareholder servicing activities performed jointly
by such investment companies and their employees with an appropriate
allocation between the investment companies of the costs and expenses of
providing such services. Every such contract shall comply with such
requirements and restrictions as may be set forth in the Bylaws or
stipulated by resolution of the Trustees.
(d) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
advisor, principal underwriter, distributor or affiliate or agent of
or for any corporation, trust, association, or other organization, or
for any parent or affiliate of any organization with which an advisory
or management contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other agency contract
may have been or may hereafter be made, or that any such organization,
or any parent or affiliate thereof, is a Shareholder or has an
interest in the Trust, or that
(ii) any corporation, trust, association or other organization with which
an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other
agency contract may have been or may hereafter be made also has an
advisory or management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other
agency contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing
the same or create any liability or accountability to the Trust or its
Shareholders.
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ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 1. VOTING POWERS
Subject to the provisions of Article III, Section 6(d), the Shareholders shall
have power to vote only (i) for the election of Trustees as provided in Article
IV, Section 1, (ii) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders, (iii) with respect to the
termination of the Trust or any Series to the extent and as provided in Article
VIII, Section 4, and (iv) with respect to such additional matters relating to
the Trust as may be required by this Declaration of Trust, the Bylaws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as the Trustees may consider necessary or desirable. A Shareholder of
each Series shall be entitled to one vote for each dollar of net asset value per
Share of such Series, on any matter on which such Shareholder is entitled to
vote and each fractional dollar amount shall be entitled to a proportionate
fractional vote. All references in this Declaration of Trust or the Bylaws to a
vote of, or the holders of, a percentage of Shares shall mean a vote of or the
holders of that percentage of total votes representing dollars of net asset
value of a Series or of the Trust, as the case may be. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. At any time when no
Shares of a Series are outstanding, the Trustees may exercise all rights of
Shareholders of that Series with respect to matters affecting that Series, take
any action required or permitted by law, this Declaration of Trust or the Bylaws
to be taken by the Shareholders.
SECTION 2. VOTING POWER AND MEETINGS
No annual or regular meetings of Shareholders are required. Special meetings of
the Shareholders may be called by the Trustees for the purpose of electing
Trustees as provided in Article IV, Section 1 and for such other purposes as may
be prescribed by law, by this Declaration of Trust or by the Bylaws. Special
meetings of the Shareholders may also be called by the Trustees from time to
time for the purpose of taking action upon any other matter deemed by the
Trustees to be necessary or desirable. A meeting of Shareholders may be held at
any place designated by the Trustees. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees as provided in
the Bylaws. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the Bylaws, a written waiver
thereof, executed before or after the meeting by such Shareholder or his
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice.
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SECTION 3. QUORUM AND REQUIRED VOTE
Except when a larger quorum is required by applicable law, by the Bylaws or by
this Declaration of Trust, forty percent (40%) of the Shares entitled to vote
shall constitute a quorum at a Shareholders' meeting. When any one or more
Series is to vote as a single class separate from any other Shares which are to
vote on the same matters as a separate class or classes, forty percent (40%) of
the Shares of each such Series entitled to vote shall constitute a quorum at a
Shareholders' meeting of that Series. Any meeting of Shareholders may be
adjourned from time to time by a majority of the votes properly cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned within a reasonable time after the date set for the original meeting
without further notice. Subject to the provisions of Article III, Section 6(d),
when a quorum is present at any meeting, a majority of the Shares voted shall
decide any questions and a plurality shall elect a Trustee, except when a larger
vote is required by any provision of this Declaration of Trust or the Bylaws or
by applicable law.
SECTION 4. ACTION BY WRITTEN CONSENT
Subject to the provisions of the 1940 Act, any action taken by Shareholders may
be taken without a meeting in accordance with the provisions of the Bylaws. Such
consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
SECTION 5. RECORD DATES
For the purpose of determining the Shareholders of any Series who are entitled
to vote or act at any meeting or any adjournment thereof, the Trustees may from
time to time fix a time, in accordance with the provisions of the Bylaws, as the
record date for determining the Shareholders of such Series having the right to
notice of and to vote at such meeting and any adjournment thereof, and in such
case only Shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares on the books of the Trust after the
record date. For the purpose of determining the Shareholders of any Series who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a date, which shall be before the date
for the payment of such dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to receive such
dividend or distribution. Without fixing a record date the Trustees may for
voting and/or distribution purposes close the register or transfer books for one
or more Series for all or any part of the period between a record date and a
meeting of Shareholders or the payment of a distribution. Nothing in this
section shall be construed as precluding the Trustees from setting different
record dates for different Series.
SECTION 6. ADDITIONAL PROVISIONS
The Bylaws may include further provisions for Shareholders' votes and meetings
and related matters.
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ARTICLE VI
NET ASSET VALUE, DISTRIBUTIONS, AND REDEMPTIONS
SECTION 1. DETERMINATION OF NET ASSET VALUE, NET INCOME, AND DISTRIBUTIONS
(a) The net asset value of each outstanding Share of each Series of the Trust
shall be determined on such days and at such time or times as the Trustees
may determine. The method of determination of net asset value shall be
determined by the Trustees and shall be as set forth in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of the Trust under the Securities Act of 1933 as such Prospectus
and Statement of Additional Information may be amended and supplemented and
filed with the Commission from time to time. The power and duty to make the
daily calculations may be delegated by the Trustees to any Advisor or such
other person as the Trustees by resolution may determine. The Trustees may
suspend the daily determination of net asset value to the extent permitted
by the 1940 Act.
(b) Subject to Article III, Section 6 hereof, the Trustees, in their absolute
discretion, may prescribe and shall set forth in the Bylaws or in a duly
adopted resolution of the Shares of any Series the net income attributable
to the Shares of any Series, or the declaration and payment of dividends
and distributions on the Shares of any Series, as they may deem necessary
or desirable.
SECTION 2. REDEMPTIONS AND REPURCHASES
The Trust shall purchase such Shares as are offered by any Shareholder for
redemption, upon the presentation of a proper instrument of transfer together
with a request directed to the Trust or a person designated by the Trust that
the Trust purchase such Shares or in accordance with such other procedures for
redemption as the Trustees may from time to time authorize; and the Trust will
pay therefor the net asset value thereof, as determined in accordance with the
Bylaws and applicable law, next determined under the 1940 Act, less any
applicable deferred sales charges and/or fees. Payment for said Shares shall be
made by the Trust to the Shareholder within seven days after the date on which
the request is made in proper form. The obligation set forth in this Section 2
is subject to the provision that in the event that any time the New York Stock
Exchange is closed for other than weekends or holidays, or if permitted by the
rules of the Commission, during periods when trading on the Exchange is
restricted or during any emergency which makes it impracticable for the Trust to
dispose of the investments of the applicable Series or to determine fairly the
value of the net assets belonging to such Series or during any other period
permitted by order of the Commission for the protection of investors, such
obligation may be suspended or postponed by the Trustees.
SECTION 3. REDEMPTIONS AT THE OPTION OF THE TRUST
The Trust shall have the right at its option and at any time to redeem Shares of
any Shareholder at the net asset value thereof as described in Section 1 of this
Article VI if: (i) the value of such shares in the account of such Shareholder
is less than minimum investment amounts applicable to that account as set forth
in the Trust's then-current registration statement under the 1940 Act, or (ii)
the Shareholder fails to furnish the Trust with the holder's correct taxpayer
identification number or social security number and to make such certifications
with respect thereto as the
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Trust may require; provided, however, that any such redemptions shall be subject
to such further terms and conditions as the Trustees may from time to time
adopt.
SECTION 4. SUSPENSION OF THE RIGHT OF REDEMPTION
The Trustees may declare a suspension of the right of redemption or postpone the
date of payment as permitted under the 1940 Act. Such suspension shall take
effect at such time as the Trustees shall specify, but not later than the close
of business on the business day following the declaration of suspension, and
thereafter there shall be no right of redemption of payment until the Trustees
shall declare the suspension at an end. In the case of a suspension of the right
of redemption, a Shareholder may either withdraw the request for redemption or
receive payment based on the net asset value per Share existing after the
termination of the suspension. In the event that any Series is divided into
Classes, the provisions of this Section, to the extent applicable as determined
in the discretion of the Trustees and consistent with applicable laws, may be
equally applied to each such Class.
ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
SECTION 1. COMPENSATION
The Independent Trustees as such shall be entitled to reasonable compensation
from the Trust, and they may fix the amount of such compensation. Nothing herein
shall in any way prevent the employment of any Trustee for advisory, management,
legal, accounting, investment banking or other services and payment for the same
by the Trust.
SECTION 2. LIMITATION OF LIABILITY
The Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, manager or Principal Underwriter of
the Trust, nor shall any Trustee be responsible for the act or omission of any
other Trustee, but nothing herein contained shall protect any Trustee against
any liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Every note, bond, contract, instrument, certificate or undertaking and every
other act or thing whatsoever issued, executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
SECTION 3. INDEMNIFICATION
The Trustees shall be entitled and empowered to the fullest extent permitted by
law to purchase insurance for and to provide by resolution or in the Bylaws for
indemnification out of Trust assets for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee or officer in
connection with any claim, action, suit or proceeding in which he becomes
involved by virtue of his capacity or former capacity with the Trust. The
provisions, including any
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exceptions and limitations concerning indemnification, may be set forth in
detail in the Bylaws or in a resolution of the Trustees.
ARTICLE VIII
MISCELLANEOUS
SECTION 1. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE
All persons extending credit to, contracting with or having any claim against
the Trust or any Series shall look only to the assets of the Trust, or, to the
extent that the liability of the Trust may have been expressly limited by
contract to the assets of a particular Series, only to the assets belonging to
the relevant Series, for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any Trustee against
any liability to which such Trustee would otherwise be subject by reason or
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued on behalf of the Trust by the Trustees, by an officer or officers or
otherwise may include a notice that this Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts and may recite that the note,
bond, contract, instrument, certificate, or undertaking was executed or made by
or on behalf of the Trust or by them as Trustee or Trustees or as officer or
officers or otherwise and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust or upon the assets
belonging to the Series for the benefit of which the Trustees have caused the
note, bond, contract instrument, certificate or undertaking to be made or
issued, and may contain such further recital as he or they may deem appropriate,
but the omission of any such recital shall not operate to bind any Trustee or
Trustees or officer or officers or Shareholders or any other person
individually.
SECTION 2. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing else, and
shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
SECTION 3. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES
No person dealing with the Trustees shall be bound to make any inquiry
concerning the validity of any transaction made or to be made by the Trustees or
to see to the application of any payments made or property transferred to the
Trust or upon its order.
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SECTION 4. TERMINATION OF TRUST OR SERIES
Unless terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by vote of at least
two-thirds (66-2/3%) of the Shares of each Series entitled to vote, voting
separately by Series, or by the Trustees by written notice to the Shareholders.
Any Series may be terminated at any time by vote of at least two-thirds
(66-2/3%) of the Shares of that Series or by the Trustees by written notice to
the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be), after paying
or otherwise providing for all charges, taxes, expenses and liabilities
belonging, severally, to each Series (or the applicable Series, as the case may
be), whether due or accrued or anticipated as may be determined by the Trustees,
the Trust shall, in accordance with such procedures as the Trustees consider
appropriate, reduce the remaining assets belonging, severally, to each Series
(or the applicable Series, as the case may be), to distributable form in cash or
shares or other securities, or any combination thereof, and distribute the
proceeds belonging to each Series or the applicable Series, as the case may be),
to the Shareholders of that Series, as a Series, ratably according to the number
of Shares of that Series held by the several Shareholders on the date of
termination.
SECTION 5. MERGER AND CONSOLIDATION
The Trustees may cause the Trust or one or more of its Series to be merged into
or consolidated with another Trust or company or the Shares exchanged under or
pursuant to any state or Federal statute, if any, or otherwise to the extent
permitted by law. Such merger or consolidation or share exchange must be
authorized by vote of a majority of the outstanding Shares of the Trust as a
whole or any affected Series, as may be applicable; provided that in all
respects not governed by statute or applicable law, the Trustees shall have
power to prescribe the procedure necessary or appropriate to accomplish a sale
of assets, merger or consolidation.
SECTION 6. FILING OF COPIES, REFERENCES, HEADINGS
The original or a copy of this instrument and of each amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder. A
copy of this instrument and of each amendment hereto shall be filed by the Trust
with the Secretary of the Commonwealth of Massachusetts and with any other
governmental office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may relay on a copy certified by an officer of the Trust to be a copy
of this instrument, or of any such amendments. In this instrument and in any
such amendment, references to this instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this instrument
as amended or affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original.
SECTION 7. APPLICABLE LAW
This Agreement and Declaration of Trust is created under and is to be governed
by and construed and administered according to the laws of the Commonwealth of
Massachusetts. The Trust shall
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be of the type commonly called a Massachusetts business trust, and without
limiting the provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a trust.
SECTION 8. AMENDMENTS
This Declaration of Trust may be amended at any time by an instrument in writing
signed by a majority of the then Trustees.
SECTION 9. TRUST ONLY
It is the intention of the Trustees to create only the relationship of Trustee
and beneficiary between the Trustees and each Shareholder from time to time. It
is not the intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a trust. Nothing in this Agreement and Declaration
of Trust shall be construed to make the Shareholders, either by themselves or
with the Trustees, partners or members of a joint stock association.
SECTION 10. USE OF THE NAME "BENHAM" AND "AMERICAN CENTURY"
American Century Services Corporation ("ACSC") has consented to the use by the
Trust of the identifying words or names "Benham" and "American Century" in the
names of the Trust and/or its various Series. Such consent is conditioned upon
the employment of ACSC, its successors or any affiliate thereof, as the
Advisor/Investment Manager of the Trust. As between the Trust and itself, ACSC
controls the use of the name of the Trust insofar as such name contains "Benham"
and/or "American Century". The name or identifying words "Benham" and/or
"American Century" may be used from time to time in other connections and for
other purposes by ACSC or its affiliated entities. ACSC may require the Trust to
cease using "Benham" or "American Century" in the name of the Trust if the Trust
ceases to employ, for any reason, ACSC, an affiliate, or any successor as
Advisor/Investment Manager of the Trust.
SECTION 11. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS
(a) The provisions of this Amended and Restated Declaration of Trust are
severable, and, if the Trustees shall determine, with the advice of
counsel, that any of such provisions are in conflict with the 1940 Act, the
regulated investment company provisions of the Internal Revenue Code or
with other applicable laws and regulations, the conflicting provisions
shall be deemed never to have constituted a part of this Declaration of
Trust; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration of Trust or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Amended and Restated Declaration of Trust shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall pertain only to such provision in such jurisdiction
and shall not in any manner affect such provision in any other jurisdiction
or any other provision of this Declaration of Trust in any jurisdiction.
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IN WITNESS WHEREOF, a majority of the Trustees as aforesaid do hereto set
their hands this 26th day of March, 2004, as an amendment and restatement of
that Agreement and Declaration of Trust originally executed on the 8th day of
November, 1984.
TRUSTEES OF THE AMERICAN CENTURY TARGET MATURITIES TRUST
/s/ Albert A. Eisenstat /s/ Kenneth E. Scott
--------------------------------- ---------------------------------
Albert A. Eisenstat Kenneth E. Scott
/s/ Ronald J. Gilson /s/ John B. Shoven
--------------------------------- ---------------------------------
Ronald J. Gilson John B. Shoven
/s/ William M. Lyons /s/ Kathryn A. Hall
--------------------------------- ---------------------------------
William M. Lyons Kathryn A. Hall
/s/ Myron S. Scholes /s/ Jeanne D. Wohlers
--------------------------------- ---------------------------------
Myron S. Scholes Jeanne D. Wohlers
AMERICAN CENTURY TARGET MATURITIES TRUST
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
(RESTATED AS OF MARCH 26, 2004)
SCHEDULE A
Pursuant to Article III, Section 6, the Trustees hereby establish and designate
the following Series as Series of the Trust (and the Classes thereof) with the
relative rights and preferences as described in Section 6:
Series Class Date of Establishment
Target 2005 Fund Investor 11/8/1984
Advisor 8/1/1997
Target 2010 Fund Investor 11/8/1984
Advisor 8/1/1997
Target 2015 Fund Investor 9/1/1986
Advisor 8/1/1997
Target 2020 Fund Investor 12/29/1989
Advisor 8/1/1997
Target 2025 Fund Investor 2/16/1996
Advisor 8/1/1997
Target 2030 Fund Investor 12/18/2000
Advisor 12/18/2000
C 05/01/2001
This Schedule A shall supersede any previously adopted Schedule A to the
Declaration of Trust.
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