As Filed with the U.S. Securities and Exchange Commission on November 26, 2008
1933 Act File No. 333-132114
1940 Act File No. 811-21861
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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__________________
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FORM N-1A
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__________________
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 3
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and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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Amendment No. 4
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(Check appropriate box or boxes.)
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__________________
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AMERICAN CENTURY GROWTH FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
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__________________
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4500 MAIN STREET, KANSAS CITY, MISSOURI 64111
(Address of Principal Executive Offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (816) 531-5575
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CHARLES A. ETHERINGTON
4500 MAIN STREET, KANSAS CITY, MISSOURI 64111
(
Name and Address of Agent for Service)
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Approximate Date of Proposed Public Offering: December 1, 2008
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It is proposed that this filing will become effective (check appropriate box)
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immediately upon filing pursuant to paragraph (b)
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on December 1, 2008 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of rule 485.
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If appropriate, check the following box:
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this post-effective amendment designates a new effective date for a previously filed post-effective amendment.
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December 1, 2008
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American Century Investments
Prospectus
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Legacy Focused Large Cap Fund
Legacy Large Cap Fund
Legacy Multi Cap Fund
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The Securities and Exchange Commission
has not approved or disapproved these
securities or passed upon the
adequacy of this prospectus.
Any representation to
the contrary is a
criminal offense.
American Century Investment
Services, Inc., Distributor
Table of Contents
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u
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This symbol is used throughout the book to highlight
definitions
of key investment terms and to provide other helpful information.
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American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
An Overview of the Funds
Legacy Focused Large Cap Fund
Legacy Large Cap Fund
Legacy Multi Cap Fund
What are the funds’ investment objectives?
Each fund seeks long-term capital growth.
What are the funds’ primary investment strategies
and principal risks?
Each fund uses a quantitative investment process designed to identify common stocks of companies that currently have, or are expected to have, earnings and revenues that are not only growing, but growing at an accelerating rate, and that also have strong price momentum. This process is based on a proprietary multi-factor model that scores
the securities in each fund’s investment universe. The portfolio manager then selects from among the highest scored securities when making purchase decisions for the fund. These securities may be categorized as “growth” or “value” stocks and may be selected regardless of their weighting in any index or other benchmark and regardless of geographic location.
The table below highlights some key differences among the funds’ investment strategies.
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Fund
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Investment Universe
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Approximate
Number of
Portfolio Holdings
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Diversification
Status
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Legacy Focused Large Cap
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Large-Cap Stocks
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30
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Nondiversified
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Legacy Large Cap
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Large-Cap Stocks
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50
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Diversified
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Legacy Multi Cap
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Small-, Mid- and
Large-Cap Stocks
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75
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Diversified
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Under normal market conditions, Legacy Focused Large Cap and Legacy Large Cap will invest at least 80% of their respective assets in stocks of companies that, at the time of purchase, are large cap companies as defined by Morningstar. Typically, those funds intend to exceed this 80% requirement and be fully invested in large cap stocks.
The funds’ principal risks include:
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Investment Process
– The funds’ investment models were developed by American Century Investments to analyze investment opportunities. This analysis is based on historical data. To the extent that this data is inaccurate or the investment models are not effective, the funds’
performance may suffer.
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Nondiversification (Legacy Focused Large Cap)
– The fund is classified as
nondiversified
.
This gives the portfolio
manager the flexibility to hold large positions in a small number of securities. If so, a price change in any one of those securities may have a greater impact on the fund’s share price than would be the case in a diversified fund.
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A
nondiversified
fund may invest a greater percentage of its assets in a smaller number of securities than a diversified fund.
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Small- and Mid-Cap Risks (Legacy Multi Cap)
– Stocks of smaller companies can be more volatile than larger-company stocks.
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High Turnover
– The funds’
portfolio turnover
may be high when compared to a “buy and hold” fund strategy. This could result in relatively high commission costs, which could hurt the funds’
performance, and create tax liabilities for the funds’ shareholders.
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Portfolio turnover
is a measure of how frequently a fund buys and sells portfolio securities.
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Foreign Securities
– The funds may invest in foreign securities, which can be riskier than investing in U.S. securities. Foreign investments may be significant at times.
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Market Risk
– The value of the funds’ shares will go up and down based on the performance of the companies whose securities the funds own and other factors generally affecting the securities market.
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Price Volatility
– The value of the funds’ shares may fluctuate significantly in the
short term.
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Principal Loss
– At any given time your shares may be worth less than the price you paid for them. In other words, it is possible to lose money by investing in the funds.
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A more detailed description of the funds’ investment strategies and risks may be found under the heading
Objectives, Strategies and Risks,
which begins on page 11.
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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.
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Fund Performance History
Annual Total Returns
The following bar charts show the performance of the funds’ Investor 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. Account fees and sales charges, if applicable, are not reflected in the chart below. If they had been included, returns would be lower than those shown. The returns of
the funds’ other classes will differ from those shown in the chart, depending on the expenses of those classes.
Legacy Focused Large Cap - Investor Class
The highest and lowest quarterly returns for the period reflected in the bar chart are:
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Highest
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Lowest
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Legacy Focused Large Cap
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18.32% (3Q 2007)
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2.61% (1Q 2007)
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As of September 30, 2008, the end of the most recent calendar quarter, the fund’s Investor Class year-to-date return was -32.27%.
Legacy Large Cap - Investor Class
The highest and lowest quarterly returns for the period reflected in the bar chart are:
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Highest
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Lowest
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Legacy Large Cap
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10.05% (2Q 2007)
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1.66% (1Q 2007)
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As of September 30, 2008, the end of the most recent calendar quarter, the fund’s Investor Class year-to-date return was -25.69%.
Legacy Multi Cap - Investor Class
The highest and lowest quarterly returns for the period reflected in the bar chart are:
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Highest
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Lowest
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Legacy Multi Cap
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10.55% (2Q 2007)
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0.49% (4Q 2007)
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As of September 30, 2008, the end of the most recent calendar quarter, the fund’s Investor Class year-to-date return was -31.99%.
Average Annual Total Returns
The following tables show the average annual total returns of the funds’ Investor Class shares calculated three different ways. Additional tables show the average annual total returns of the funds’ other share classes calculated before the impact of taxes. Returns assume the deduction of all sales loads, charges and other fees associated with a particular class. Your actual returns
may vary depending on the circumstances of your investment.
Return Before Taxes shows the actual change in the value of fund shares over the 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. After-tax
returns are shown only for Investor Class shares. After-tax returns for the other share classes will vary.
The benchmarks are unmanaged indices that have no operating costs and are included in each table for performance comparison. The S&P 500 Index is a market value-weighted index of the stocks of 500 publicly traded U.S. companies chosen for market size, liquidity, and industry group representation that are considered to be leading firms in dominant industries. Each stock's weight in the
index is proportionate to its market value. Created by Standard & Poor's, it is considered to be a broad measure of U.S. stock market performance. The Russell 1000
Ò
Growth Index measures the performance of those Russell 1000 Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S. companies, based on total market capitalization) with higher price-to-book ratios and higher forecasted
growth values. The Russell 3000
â
Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The Russell 3000
â
Growth Index measures the performance of those Russell 3000 Index
companies (the 3,000 largest U.S. companies based on total market capitalization) with higher price-to-book ratios and higher forecasted growth values.
Investor Class
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For the calendar year ended December 31, 2007
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1 year
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Life of Class
(1)
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Legacy Focused Large Cap
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Return Before Taxes
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46.81%
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33.57%
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Return After Taxes on Distributions
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45.39%
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32.68%
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Return After Taxes on Distributions and Sale of Fund Shares
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31.15%
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28.53%
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S&P 500
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.49%
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11.67%
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Russell 1000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.81%
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13.74%
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Legacy Large Cap
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Return Before Taxes
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27.23%
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23.07%
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Return After Taxes on Distributions
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25.59%
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22.01%
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Return After Taxes on Distributions and Sale of Fund Shares
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18.41%
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19.35%
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S&P 500
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.49%
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11.67%
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Russell 1000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.81%
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13.74%
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1
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The inception date for the Investor Class is May 31, 2006.
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Investor Class
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For the calendar year ended December 31, 2007
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1 year
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Life of Class
(1)
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Legacy Multi Cap
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Return Before Taxes
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27.25%
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22.82%
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Return After Taxes on Distributions
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26.76%
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22.48%
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Return After Taxes on Distributions and Sale of Fund Shares
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17.78%
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19.40%
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Russell 3000
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.14%
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11.06%
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Russell 3000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.40%
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13.32%
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1
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The inception date for the Investor Class is May 31, 2006.
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Institutional Class
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For the calendar year ended December 31, 2007
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1 year
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Life of Class
(1)
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Legacy Focused Large Cap
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Return Before Taxes
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47.10%
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33.83%
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S&P 500
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.49%
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11.67%
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Russell 1000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.81%
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13.74%
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Legacy Large Cap
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Return Before Taxes
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27.48%
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23.31%
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S&P 500
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.49%
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11.67%
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Russell 1000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.81%
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13.74%
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Legacy Multi Cap
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Return Before Taxes
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27.44%
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23.02%
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Russell 3000
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.14%
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11.06%
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Russell 3000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.40%
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13.32%
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1
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The inception date for the Institutional Class is May 31, 2006.
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R Class
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For the calendar year ended December 31, 2007
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1 year
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Life of Class
(1)
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Legacy Focused Large Cap
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Return Before Taxes
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46.13%
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32.87%
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S&P 500
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.49%
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11.67%
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Russell 1000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.81%
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13.74%
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1
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The inception date for the R Class is May 31, 2006.
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R Class
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For the calendar year ended December 31, 2007
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1 year
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Life of Class
(1)
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Legacy Large Cap
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Return Before Taxes
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26.51%
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22.42%
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S&P 500
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.49%
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11.67%
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Russell 1000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.81%
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13.74%
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Legacy Multi Cap
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Return Before Taxes
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26.42%
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22.10%
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Russell 3000
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.14%
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11.06%
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Russell 3000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.40%
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13.32%
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1
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The inception date for the R Class is May 31, 2006.
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Advisor Class
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For the calendar year ended December 31, 2007
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1 year
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Life of Class
(1)
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Legacy Focused Large Cap
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Return Before Taxes
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46.35%
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33.19%
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S&P 500
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.49%
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11.67%
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Russell 1000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.81%
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13.74%
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Legacy Large Cap
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Return Before Taxes
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26.82%
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22.71%
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S&P 500
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.49%
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11.67%
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Russell 1000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.81%
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13.74%
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Legacy Multi Cap
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Return Before Taxes
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26.88%
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22.49%
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Russell 3000
®
Index
(reflects no deduction for fees, expenses or taxes)
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5.14%
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11.06%
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Russell 3000
®
Growth Index
(reflects no deduction for fees, expenses or taxes)
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11.40%
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13.32%
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1
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The inception date for the Advisor Class is May 31, 2006.
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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, please call us or visit americancentury.com.
Fees and Expenses
There are no sales loads, fees or other charges
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to buy fund shares directly from American Century Investments
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to reinvest dividends in additional shares
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to exchange into the same class of shares of other American Century Investments funds
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to redeem your shares (other than a $10 fee to redeem by wire)
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The following tables describe the fees and expenses you may pay if you buy and hold shares of the funds.
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Shareholder Fees
(fees paid directly from your investment)
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Investor Class (all funds)
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Maximum Account Maintenance Fee
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$25
(1)
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Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
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Management
Fee
(2)
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Distribution
and Service
(12b-1) Fees
(3)
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Other
Expenses
(4)
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Total Annual
Fund Operating
Expenses
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Legacy Focused Large Cap
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Investor Class
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1.10%
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None
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0.01%
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1.11%
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Institutional Class
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0.90%
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None
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0.01%
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0.91%
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R Class
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1.10%
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0.50%
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0.01%
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1.61%
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Advisor Class
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1.10%
(5)
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0.25%
(6)
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0.01%
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1.36%
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Legacy Large Cap
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Investor Class
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1.10%
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None
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0.01%
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1.11%
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Institutional Class
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0.90%
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None
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0.01%
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0.91%
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R Class
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1.10%
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0.50%
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0.01%
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1.61%
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Advisor Class
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1.10%
(5)
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0.25%
(6)
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0.01%
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1.36%
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Legacy Multi Cap
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Investor Class
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1.15%
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None
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0.01%
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1.16%
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Institutional Class
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0.95%
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None
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0.01%
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0.96%
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R Class
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1.15%
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0.50%
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0.01%
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1.66%
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Advisor Class
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1.15%
(5)
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0.25%
(6)
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0.01%
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1.41%
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1
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Applies only to investors whose total eligible investments with American Century Investments are less than $10,000. See
Account Maintenance Fee
under
Investing Directly with American Century
Investments
for
more details
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2
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Each fund pays the advisor a single, unified management fee for arranging all services necessary for the fund to operate. The fee shown is based on assets during each fund’s most recent fiscal year. Each fund has a stepped fee schedule. As a result, each fund’s unified management fee rate generally decreases as strategy assets increase and increases as strategy
assets decrease. For more information about the unified management fee, including an explanation of strategy assets, see
The Investment Advisor
under
Management.
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3
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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
Multiple Class
Information
and
Service,
Distribution and Administrative Fees
, page 27.
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4
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Other expenses include the fees and expenses of the funds’ independent directors and their legal counsel, interest, and, if applicable, acquired fund fees and expenses.
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5
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The unified management fee has been restated to reflect the increase in the fee approved by the funds’ shareholders effective September 4, 2007.
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6
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The 12b-1 fee has been restated to reflect the decrease in the fee effective September 4, 2007.
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Example
The examples in the tables 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 . . .
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invest $10,000 in the fund
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redeem all of your shares at the end of the periods shown below
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•
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earn a 5% return each year
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•
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incur the same operating expenses as shown above
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. . . your cost of investing in the fund would be:
Objectives, S
trategies and Risks
What are the funds’ investment objectives?
Each fund seeks long-term capital growth.
How do the funds pursue their investment objectives?
Each fund uses a quantitative investment process designed to identify common stocks of companies that currently have, or are expected to have, earnings and revenues that are not only growing, but growing at an accelerating rate, and that also have strong price momentum. This process is based on a proprietary multi-factor model that scores
the securities in each fund’s investment universe. The portfolio manager then selects from among the highest scored securities when making purchase decisions for the fund. These securities may be categorized as “growth” or “value” stocks and may be selected regardless of their weighting in any index or other benchmark and regardless of geographic location.
The investment universes for the funds differ. Under normal market conditions, Legacy Focused Large Cap and Legacy Large Cap will invest at least 80% of their respective assets in stocks of companies that, at the time of purchase, are large capitalization companies as defined by Morningstar. Typically, those funds intend to exceed this 80% requirement and be fully invested in large cap stocks.
The funds may change this 80% policy only upon 60 days’ prior written notice to shareholders. Although definitions may change from time to time, as of September 30, 2008, Morningstar defined large cap companies as those with a market capitalization of approximately $9.9 billion or more. Legacy Multi Cap, by contrast, will invest in small-, medium- and large capitalization stocks as defined by Lipper, with approximately 25% to 50% of assets invested in each category during normal market conditions. As of
September 30, 2008, Lipper used the following market capitalization ranges:
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Small-cap: $50 million to $3.8 billion
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Mid-cap: $3.8 billion to $7.8 billion
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•
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Large-cap: $7.8 billion and higher
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Each fund buys stocks that score in the top 10% of its scored universe, and these stocks become candidates for sale as their rankings fall. Due to the dynamic nature of the financial markets, the portfolio manager may make exceptions in extraordinary market circumstances.
The funds also differ in the number of stocks each is expected to hold in its portfolio. While Legacy Large Cap and Legacy Multi Cap are expected to hold approximately 50 and 75 stocks, respectively, Legacy Focused Large Cap is expected to maintain a smaller portfolio of approximately 30 stocks.
Although the funds’ portfolio manager expects the funds will invest a majority of their assets in U.S. companies, there is no limit on the amount of assets the funds can invest in foreign companies. Foreign investments may be significant at times.
The funds’ portfolio manager intends to be fully invested in common stocks under normal market conditions. However, if a fund’s investment methodology fails to generate sufficient investment ideas in common stocks, at the manager’s discretion, the fund may invest in other types of securities, subject to the 80% investment requirement
noted above for Legacy Focused Large Cap and Legacy Large Cap. These securities may include debt securities, preferred stock and equity-equivalent securities, such as convertible securities, stock futures contracts and options or stock index futures contracts and options. The fund generally limits its purchase of debt securities to investment-grade obligations.
In the event of exceptional market or economic conditions, a fund may, as a temporary defensive measure, invest all or a substantial portion of its assets in cash, cash-equivalent securities or short-term debt securities. To the extent a fund assumes a defensive position it will not be pursuing its objective of long-term capital growth.
A description of the policies and procedures with respect to the disclosure of the funds’ portfolio securities is available in the statement of additional information.
What are the principal risks of investing in the funds?
The funds’ investment models were developed by American Century Investments to analyze investment opportunities. This analysis is based on historical data. To the extent that this data is inaccurate or the investment models are not effective, the funds’ performance may suffer. In addition, market performance tends to be cyclical,
and in the various cycles, certain investment styles fall in and out of favor. If the market is not favoring the funds’ earnings and revenues growth and price momentum strategies, the funds’ gains may not be as big as, or its losses may be bigger than, other equity funds using different investment styles.
Legacy Focused Large Cap is classified as nondiversified. This means that the fund’s portfolio manager may choose to invest in a relatively small number of securities and to invest heavily in the most attractive companies identified by the fund’s methodology. If so, a price change in any one of these securities may have a greater
impact on the fund’s share price than would be the case if the fund were diversified.
Legacy Multi Cap invests in smaller companies. These companies may be more volatile, and subject to greater short-term risk, than larger companies. Smaller companies may have limited financial resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.
In addition, smaller companies may have less publicly available information.
The process driving the funds is specifically designed to respond quickly to changing stock market conditions and to exploit short growth cycles where possible. As a result, the funds’ portfolio turnover may be high when compared to a “buy and hold” fund strategy. This turnover could result in relatively high commission costs,
which could hurt the funds’ performance, and create tax liabilities for the funds’ shareholders.
Although the portfolio manager expects to invest a majority of the funds’ assets in U.S. stocks, the funds may invest in securities of foreign companies. Foreign investment involves additional risks, including fluctuations in currency exchange rates, less stable political and economic structures, reduced availability of public information,
and lack of uniform financial reporting and regulatory practices similar to those that apply in the United States. These factors make investing in foreign securities generally riskier than investing in U.S. stocks. To the extent a fund invests in foreign securities, the overall risk of the fund could be affected.
The value of a fund’s shares depends on the value of the stocks and other securities it owns. The value of these securities will go up and down depending on the performance of the companies that issued them, general market and economic conditions, and investor confidence.
At any given time your shares may be worth less than the price you paid for them. In other words, it is possible to lose money by investing in the funds.
Management
Who manages the funds?
The Board of Directors, investment advisor and fund management teams play key roles in the management of the funds.
The Board of Directors
The Board of Directors oversees the management of the funds and meets at least quarterly to review reports about fund operations. Although the Board of Directors does not manage the funds, it has hired an investment advisor to do so. More than three-fourths of the directors 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 Investments 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 provides to each fund, the advisor receives a unified management fee based on a percentage of the daily net assets of each class of shares of the fund. The amount of the fee is calculated daily and paid monthly in arrears. Out of that fee, the advisor pays all expenses of managing and operating the fund except brokerage
expenses, taxes, interest, fees and expenses of the independent directors (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.
The rate of the fee is determined by applying a formula that takes into account the assets of the fund as well as certain assets, if any, of other clients of the advisor outside the American Century Investments fund family (such as subadvised funds and separate accounts) that use very similar investment teams and strategies (strategy assets). The funds in this prospectus do not have the same
investment strategy and their assets are therefore not combined for purposes of calculating strategy assets. The use of strategy assets, rather than fund assets, in calculating the fund’s fee rate could allow the fund to realize scheduled cost savings more quickly. However, the funds’ strategy assets currently do not include assets of other client accounts. In addition, if such assets are acquired in the future, they may not be sufficient to result in a lower fee rate.
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Management Fees Paid by the Funds to the Advisor as a Percentage
of Average Net Assets for the
Fiscal Year Ended July 31, 2008
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Investor
Class
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Institutional
Class
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R
Class
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Advisor
Class
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Legacy Focused Large Cap
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1.10%
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0.90%
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1.10%
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1.08%
(1)
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Legacy Large Cap
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1.10%
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0.90%
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1.10%
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1.08%
(1)
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Legacy Multi Cap
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1.15%
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0.95%
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1.15%
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1.13%
(2)
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1
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From August 1, 2007 to September 3, 2007, the management fee was 0.85% of average net assets. From September 4, 2007 to July 31, 2008, the management fee was 1.10% of average net assets.
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2
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From August 1, 2007 to September 3, 2007, the management fee was 0.90% of average net assets. From September 4, 2007 to July 31, 2008, the management fee was 1.15% of average net assets.
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A discussion regarding the basis for the Board of Directors’ approval of the funds’ investment advisory agreements with the advisor is available in the funds’ report to shareholders dated July 31, 2008.
The Fund Management Teams
The advisor uses teams of portfolio managers and analysts to manage funds. The teams meet 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 objective and strategy.
The portfolio manager on the investment team who is primarily responsible for the day-to-day management of the funds is identified below.
John T. Small Jr.
Mr. Small, Vice President and Portfolio Manager, has been a member of the team that manages the funds since 2007. He joined American Century Investments in 1991 and became a portfolio manager in 1999. He has a bachelor’s degree in zoology from Rockford College, a master’s degree in laser optics physics from the Air Force Institute of Technology, and an MBA from Baker University.
The statement of additional information provides additional information about the accounts managed by the portfolio manager, the structure of his compensation, and his ownership of fund securities.
Fundamental Investment Policies
Fundamental investment policies contained in the statement of additional information and the investment objectives of the fund may not be changed without shareholder approval. The Board of Directors and/or the advisor may change any other policies and investment strategies.
Investing Directly with American Century Investments
Services Automatically Available to You
Most accounts automatically will have access to the services listed under
Ways to Manage Your Account
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, please call us. 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). 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. If you want to add online and telephone services later, you can complete a Full Services Option form.
Account Maintenance Fee
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond fund, in an American Century Investments 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 automatically redeem shares in one of your accounts to pay the $12.50 fee. Please note that you may incur 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 Investments 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 by visiting americancentury.com.
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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 Investments brokerage accounts, you are currently not subject to this fee, but you may be subject to other fees.
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Wire Purchases
Current Investors:
If you would like to make a wire purchase into an existing account, your bank will need the following information. (To invest in a new fund, please call us first to set up the new account.)
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American Century Investments’ bank information: Commerce Bank N.A., Routing No. 101000019, Account No. 2804918
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Your American Century Investments account number and fund name
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Your name
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The contribution year (for IRAs only)
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Dollar amount
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New Investors:
To make a wire purchase into a new account, please complete an application prior to wiring money.
Ways to Manage Your Account
ONLINE
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 Investments account.
Exchange shares:
Exchange shares from another American Century Investments account.
Make additional investments:
Make an additional investment into an established American Century Investments 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.
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.
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4500 Main Street, Kansas City, MO — 8 a.m. to 5 p.m., Monday – Friday
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4917 Town Center Drive, Leawood, KS — 8 a.m. to 5 p.m., Monday – Friday,
8 a.m. to noon, Saturday
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1665 Charleston Road, Mountain View, CA — 8 a.m. to 5 p.m., Monday – Friday
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BY TELEPHONE
Investor Services Representative:
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 Investments 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. The Automated Information Line is available only to Investor Class shareholders.
Sell shares:
Call a Service Representative.
BY MAIL OR FAX
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 Investments 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.
AUTOMATICALLY
Open an account:
Not available.
Exchange shares:
Send written instructions to set up an automatic exchange of your shares from one American Century Investments account to another.
Make additional investments:
With the automatic investment service, you can purchase shares on a regular basis. You must invest at least $50 per month per account.
Sell shares:
You may sell shares automatically by establishing Check-A-Month or Automatic Redemption plans.
See
Additional Policies Affecting Your Investment
for more information about investing with us.
Investing Through a Financial Intermediary
The funds’ R and Advisor Classes are intended for purchase by participants in employer-sponsored retirement plans. Additionally, the funds’ Advisor Class is intended for persons purchasing shares through
financial intermediaries
that provide various administrative
and distribution services. For more information regarding employer-sponsored retirement plan types, please see
Buying and Selling Fund Shares
in the statement of additional information.
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Financial intermediaries
include banks, broker-dealers, insurance companies, plan sponsors and financial professionals.
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Your ability to purchase, exchange, redeem and transfer shares will be affected by the policies of the financial intermediary through which you do business. Some policy differences may include
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minimum investment requirements
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exchange policies
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fund choices
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•
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cutoff time for investments
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trading restrictions
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In addition, your financial intermediary may charge a transaction fee for the purchase or sale of fund shares. Those charges are retained by the financial intermediary and are not shared with American Century Investments or the funds. Please contact your financial intermediary or plan sponsor for a complete description of its policies. Copies
of the funds’ annual report, semiannual report and statement of additional information are available from your financial intermediary or plan sponsor.
The funds have authorized certain financial intermediaries to accept orders on the funds’ behalf. American Century Investments has selling agreements with these financial 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 financial 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 Investments and paid for in accordance with the selling agreement, they will be priced at the net asset value next determined after your request is received in the form required by the financial intermediary.
See
Additional Policies Affecting Your Investment
for more information about investing with us.
Additional Policies Affecting Your Investment
Minimum Initial Investment Amounts (other than Institutional Class)
Unless otherwise specified below, the minimum initial investment amount to open an account is $2,500. Financial intermediaries may open an account with $250, but may require their clients to meet different investment minimums. See
Investing Through a Financial Intermediary
for more information.
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Broker-dealer sponsored wrap program accounts
and/or fee-based accounts
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No minimum
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Coverdell Education Savings Account (CESA)
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$2,000
(1)
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Employer-sponsored retirement plans
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No minimum
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1
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The minimum initial investment for financial intermediaries is $250. Financial intermediaries may have different minimums for their clients.
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Subsequent Purchases
There is a $50 minimum for subsequent purchases. See
Ways to Manage Your Account
for more information about making additional investments directly with American Century Investments. However, there is no subsequent purchase minimum for financial intermediaries or employer-sponsored retirement
plans, but financial intermediaries may require their clients to meet different subsequent purchase requirements.
Eligibility for Institutional Class Shares
The Institutional Class shares are made available for purchase by individuals and large institutional shareholders such as bank trust departments, corporations, retirement plans, endowments, foundations and financial advisors that meet the funds’ minimum investment requirements. Institutional Class shares are not available for purchase by insurance companies for variable annuity and variable
life products.
Minimum Initial Investment Amounts (Institutional Class)
The minimum initial investment amount is $5 million ($3 million for endowments and foundations) per fund. If you invest with us through a financial intermediary, this requirement may be met if your financial intermediary aggregates your investments with those of other clients into a single group, or omnibus, account that meets the minimum. The minimum investment requirement may be waived if you,
or your financial intermediary if you invest through an omnibus account, have an aggregate investment in our family of funds of $10 million or more ($5 million for endowments and foundations) or in other situations determined by American Century Investments. In addition, financial intermediaries or plan recordkeepers may require retirement plans to meet certain other conditions, such as plan size or a minimum level of assets per participant, in order to be eligible to purchase Institutional Class shares.
Redemptions
Your redemption proceeds will be calculated using the
net asset value
(NAV) next determined after we receive your transaction request in good order.
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A fund’s
net asset value
,
or NAV, is the price of the fund’s shares.
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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 Investments, 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. 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. Please remember, if you request redemptions by wire, $10 will be deducted from the amount redeemed. Your bank
also may charge a fee.
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 portfolio manager 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 Accounts Below Minimum
If your account balance falls below the minimum initial investment amount for any reason, American Century Investments reserves the right to redeem the shares in the account and send the proceeds to your address of record. Prior to doing so, we will notify you and give you 60 days to meet the minimum. You also may incur tax liability as a result of the redemption. For Institutional Class shares,
we reserve the right to convert your shares to Investor Class shares of the same fund. The Investor Class shares have a unified management fee that is 0.20% higher than the Institutional Class.
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.
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You have chosen to conduct business in writing only and would like to redeem
over $100,000.
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Your redemption or distribution check, Check-A-Month or automatic redemption is made payable to someone other than the account owners.
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Your redemption proceeds or distribution amount is sent by EFT (ACH or wire) to a destination other than your personal bank account.
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You are transferring ownership of an account over $100,000.
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You change your address and request a redemption over $100,000 within 15 days.
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You change your bank information and request a redemption within 15 days.
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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. The 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 the 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 Directors has approved American Century Investments’ 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. American Century Investments seeks to exercise its judgment in implementing these tools to the best of its ability in a manner that it believes is consistent with shareholder interests.
American Century Investments uses a variety of techniques to monitor for and detect abusive trading practices. These techniques may vary depending on the type of fund, the class of shares or whether the shares are held directly or indirectly with American Century Investments. They may change from time to time as determined by American Century
Investments 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 Investments, 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
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within seven days of the purchase, or
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within 30 days of the purchase, if it happens more than once per year.
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To the extent practicable, we try to use the same approach for defining abusive trading for shares held through financial intermediaries. American Century Investments 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 Investments 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 Investments’ 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 Investments handles, there can be no assurance that American Century Investments’ efforts will identify all trades or trading practices that may be considered abusive. American Century Investments monitors aggregate trades placed in omnibus accounts and works with financial intermediaries to identify shareholders engaging in abusive trading practices and impose restrictions to discourage such practices. Because American Century Investments relies on financial intermediaries to provide information
and impose restrictions, our ability to monitor and discourage abusive trading practices in omnibus accounts may be dependent upon the intermediaries’ timely performance of such duties.
Your Responsibility for Unauthorized Transactions
American Century Investments 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.
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
us or your financial professional. For American Century Investments brokerage accounts, please call 1-888-345-2071.
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 Investments 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 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 funds value 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 funds 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 a 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 as determined in good faith by the fund’s board or its designee, in accordance with procedures adopted by the fund’s board.
Circumstances that may cause the fund to use alternate procedures to value a security include, but are not limited to:
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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;
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a debt security has been declared in default; or
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trading in a security has been halted during the trading day.
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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 funds’ board.
The effect of using fair value determinations is that a 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 a fund’s assets that are invested in one or more open-end management investment companies that are registered with the SEC (known as registered investment companies, or 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 funds’ NAVs are not calculated. So, the value of the funds’ portfolios 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 that a fund should not be subject to state or federal income tax on amounts distributed. The distributions generally consist of dividends and interest received
by the fund, as well as
capital gains
realized by the 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.
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Capital gain
s
are increases in the values of capital assets, such as stock, from the time the assets are purchased.
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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 Investments account, to your bank electronically, or to your home address or to another person
or address by check.
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 a fund of dividend and interest income it has received or capital gains it has generated through its 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 employer-sponsored retirement 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 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.
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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.
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For capital gains and for income distributions designated as qualified dividend income, the following rates apply:
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Type of Distribution
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Tax Rate for 10%
and 15% Brackets
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Tax Rate for
All Other Brackets
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Short-term capital gains
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Ordinary Income
|
Ordinary Income
|
|
Long-term capital gains (> 1 year)
and Qualified Dividend Income
|
5%
|
15%
|
If a fund’s distributions exceed its taxable income and capital gains realized during the tax year, all or a portion of the distributions made by the fund in that tax year will be considered a return of capital. A return of capital distribution is generally not subject to tax, but will reduce your cost basis in the fund and result in
higher realized capital gains (or lower realized capital losses) upon the sale of fund shares.
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 Investments or your financial intermediary
will inform you of the tax status of fund distributions for each calendar year in an annual tax mailing.
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 Investments 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 a fund’s portfolio may build up taxable gains throughout the period covered by a distribution, as securities are sold at a profit. The fund distributes 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 Investments offers the following classes of shares of each fund: Investor Class, Institutional Class, R Class and Advisor Class.
The classes have different fees, expenses and/or minimum investment requirements. 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
a fund’s assets, which do not vary by class. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services from the advisor as shareholders of the other classes. As a result, the advisor is able to charge this class a lower unified management fee. Different fees and expenses will affect performance.
Except as described below, all classes of shares of a fund have identical voting, dividend, liquidation and other rights, preferences, terms and conditions. The only differences among 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; (d) each class may have different exchange privileges; and (e) the Institutional Class may provide for automatic conversion from that class into shares of the Investor Class of the same fund.
Service, Distribution and Admin
istrative 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’ R Class and Advisor Class shares have a 12b-1 plan. The plans provide for the funds to pay annual fees of 0.50% for R Class and 0.25% for Advisor Class
to the distributor for distribution and individual shareholder services, including past distribution services. The distributor pays all or a portion of such fees to the financial intermediaries that make the classes available. Because these fees may be 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
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 Investments’ 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 to intermediaries for various additional services, other expenses and/or the intermediaries’ distribution of the funds out of their profits or other available sources. Such payments may be made for one or more of the following: (1) distribution, which may include expenses incurred by intermediaries for their sales activities with respect to the funds, such as preparing, printing and distributing sales literature and advertising materials and compensating registered representatives or other
employees of such financial intermediaries for their sales activities, as well as the opportunity for the funds to be made available by such intermediaries; (2) shareholder services, such as providing individual and custom investment advisory services to clients of the financial intermediaries; and (3) marketing and promotional services, including business planning assistance, educating personnel about the funds, and sponsorship of sales meetings, which may include covering costs of providing speakers,
meals and other entertainment. The distributor may sponsor seminars and conferences designed to educate intermediaries about the funds and may cover the expenses associated with attendance at such meetings, including travel costs. These payments and activities are intended to provide an incentive to intermediaries to sell the funds by educating them about the funds and helping defray the costs associated with offering the funds. The amount of any payments described by this paragraph is determined by the advisor
or the distributor, and all such amounts are paid out of the available assets of the advisor and distributor, and not by you or the funds. As a result, the total expense ratio of the funds will not be affected by any such payments.
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 a shorter period if the share class is not five years old).
On a per-share basis, the table includes as appropriate
|
•
|
share price at the beginning of the period
|
|
•
|
investment income and capital gains or losses
|
|
•
|
distributions of income and capital gains paid to investors
|
|
•
|
share price at the end of the period
|
The table also includes some key statistics for the period as appropriate
|
•
|
Total Return
– the overall percentage of return of the fund, assuming the
reinvestment of all distributions
|
|
•
|
Expense Ratio
– the operating expenses of the fund as a percentage
of average net assets
|
|
•
|
Net Income Ratio
– the net investment income of the fund as a percentage
of average net assets
|
|
•
|
Portfolio Turnover
– the percentage of the fund’s investment portfolio that is replaced during the period
|
The Financial Highlights that follow have been audited by Deloitte & Touche
LLP
. Their Report of Independent Registered Public Accounting Firm and the financial statements are included in the funds’ annual report, which is available upon request.
Legacy Focused Large Cap Fund
|
Investor Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$12.51
|
$10.11
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
0.02
|
0.12
|
0.01
|
|
Net Realized and Unrealized Gain (Loss)
|
0.15
|
2.34
|
0.10
|
|
Total From Investment Operations
|
0.17
|
2.46
|
0.11
|
|
Distributions
|
|||
|
From Net Investment Income
|
(0.07)
|
(0.06)
|
—
|
|
From Net Realized Gains
|
(0.46)
|
—
|
—
|
|
From Tax Return of Capital
|
(0.12)
|
—
|
—
|
|
Total Distributions
|
(0.65)
|
(0.06)
|
—
|
|
Net Asset Value, End of Period
|
$12.03
|
$12.51
|
$10.11
|
|
Total Return
(3)
|
0.49%
|
24.44%
|
1.10%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
1.11%
|
1.10%
|
1.10%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
0.13%
|
1.24%
|
0.88%
(4)
|
|
Portfolio Turnover Rate
|
188%
|
255%
|
30%
|
|
Net Assets, End of Period (in thousands)
|
$35,334
|
$8,614
|
$3,669
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Legacy Focused Large Cap Fund
|
Institutional Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$12.53
|
$10.11
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
0.06
|
0.18
|
0.02
|
|
Net Realized and Unrealized Gain (Loss)
|
0.13
|
2.31
|
0.09
|
|
Total From Investment Operations
|
0.19
|
2.49
|
0.11
|
|
Distributions
|
|||
|
From Net Investment Income
|
(0.08)
|
(0.07)
|
—
|
|
From Net Realized Gains
|
(0.46)
|
—
|
—
|
|
From Tax Return of Capital
|
(0.14)
|
—
|
—
|
|
Total Distributions
|
(0.68)
|
(0.07)
|
—
|
|
Net Asset Value, End of Period
|
$12.04
|
$12.53
|
$10.11
|
|
Total Return
(3)
|
0.61%
|
24.78%
|
1.10%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
0.91%
|
0.90%
|
0.90%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
0.33%
|
1.44%
|
1.08%
(4)
|
|
Portfolio Turnover Rate
|
188%
|
255%
|
30%
|
|
Net Assets, End of Period (in thousands)
|
$3,751
|
$3,561
|
$758
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Legacy Focused Large Cap Fund
|
R Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$12.47
|
$10.10
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
0.01
|
0.07
|
0.01
|
|
Net Realized and Unrealized Gain (Loss)
|
0.08
|
2.33
|
0.09
|
|
Total From Investment Operations
|
0.09
|
2.40
|
0.10
|
|
Distributions
|
|||
|
From Net Investment Income
|
(0.04)
|
(0.03)
|
—
|
|
From Net Realized Gains
|
(0.46)
|
—
|
—
|
|
From Tax Return of Capital
|
(0.07)
|
—
|
—
|
|
Total Distributions
|
(0.57)
|
(0.03)
|
—
|
|
Net Asset Value, End of Period
|
$11.99
|
$12.47
|
$10.10
|
|
Total Return
(3)
|
(0.02)%
|
23.82%
|
1.00%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
1.61%
|
1.60%
|
1.60%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
(0.37)%
|
0.74%
|
0.38%
(4)
|
|
Portfolio Turnover Rate
|
188%
|
255%
|
30%
|
|
Net Assets, End of Period (in thousands)
|
$64
|
$938
|
$758
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Legacy Focused Large Cap Fund
|
Advisor Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$12.49
|
$10.11
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
(0.01)
|
0.10
|
0.01
|
|
Net Realized and Unrealized Gain (Loss)
|
0.14
|
2.33
|
0.10
|
|
Total From Investment Operations
|
0.13
|
2.43
|
0.11
|
|
Distributions
|
|||
|
From Net Investment Income
|
(0.05)
|
(0.05)
|
—
|
|
From Net Realized Gains
|
(0.46)
|
—
|
—
|
|
From Tax Return of Capital
|
(0.10)
|
—
|
—
|
|
Total Distributions
|
(0.61)
|
(0.05)
|
—
|
|
Net Asset Value, End of Period
|
$12.01
|
$12.49
|
$10.11
|
|
Total Return
(3)
|
0.24%
|
24.07%
|
1.10%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
1.36%
|
1.35%
|
1.35%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
(0.12)%
|
0.99%
|
0.63%
(4)
|
|
Portfolio Turnover Rate
|
188%
|
255%
|
30%
|
|
Net Assets, End of Period (in thousands)
|
$945
|
$960
|
$845
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Legacy Large Cap Fund
|
Investor Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$11.90
|
$10.15
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
0.01
|
0.08
|
0.01
|
|
Net Realized and Unrealized Gain (Loss)
|
0.41
|
1.73
|
0.14
|
|
Total From Investment Operations
|
0.42
|
1.81
|
0.15
|
|
Distributions
|
|||
|
From Net Investment Income
|
(0.03)
|
(0.06)
|
—
|
|
From Net Realized Gains
|
(0.61)
|
—
|
—
|
|
From Tax Return of Capital
|
(0.08)
|
—
|
—
|
|
Total Distributions
|
(0.72)
|
(0.06)
|
—
|
|
Net Asset Value, End of Period
|
$11.60
|
$11.90
|
$10.15
|
|
Total Return
(3)
|
3.07%
|
17.83%
|
1.50%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
1.11%
|
1.10%
|
1.10%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
0.10%
|
0.72%
|
0.66%
(4)
|
|
Portfolio Turnover Rate
|
175%
|
246%
|
39%
|
|
Net Assets, End of Period (in thousands)
|
$13,487
|
$5,887
|
$2,180
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Legacy Large Cap Fund
|
Institutional Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$11.92
|
$10.15
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
0.04
|
0.10
|
0.01
|
|
Net Realized and Unrealized Gain (Loss)
|
0.40
|
1.74
|
0.14
|
|
Total From Investment Operations
|
0.44
|
1.84
|
0.15
|
|
Distributions
|
|||
|
From Net Investment Income
|
(0.04)
|
(0.07)
|
—
|
|
From Net Realized Gains
|
(0.61)
|
—
|
—
|
|
From Tax Return of Capital
|
(0.10)
|
—
|
—
|
|
Total Distributions
|
(0.75)
|
(0.07)
|
—
|
|
Net Asset Value, End of Period
|
$11.61
|
$11.92
|
$10.15
|
|
Total Return
(3)
|
3.19%
|
18.16%
|
1.50%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
0.91%
|
0.90%
|
0.90%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
0.30%
|
0.92%
|
0.86%
(4)
|
|
Portfolio Turnover Rate
|
175%
|
246%
|
39%
|
|
Net Assets, End of Period (in thousands)
|
$947
|
$899
|
$761
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Legacy Large Cap Fund
|
R Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$11.87
|
$10.14
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
(0.05)
|
0.02
|
—
(3)
|
|
Net Realized and Unrealized Gain (Loss)
|
0.40
|
1.73
|
0.14
|
|
Total From Investment Operations
|
0.35
|
1.75
|
0.14
|
|
Distributions
|
|||
|
From Net Investment Income
|
(0.02)
|
(0.02)
|
—
(3)
|
|
From Net Realized Gains
|
(0.61)
|
—
|
—
|
|
From Tax Return of Capital
|
(0.03)
|
—
|
—
|
|
Total Distributions
|
(0.66)
|
(0.02)
|
—
(3)
|
|
Net Asset Value, End of Period
|
$11.56
|
$11.87
|
$10.14
|
|
Total Return
(4)
|
2.47%
|
17.33%
|
1.40%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
1.61%
|
1.60%
|
1.60%
(5)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
(0.40)%
|
0.22%
|
0.16%
(5)
|
|
Portfolio Turnover Rate
|
175%
|
246%
|
39%
|
|
Net Assets, End of Period (in thousands)
|
$915
|
$903
|
$760
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
2
|
Computed using average shares outstanding throughout the period.
|
|
3
|
Per-share amount was less than $0.005.
|
|
4
|
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.
|
|
5
|
Annualized.
|
Legacy Large Cap Fund
|
Advisor Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$11.88
|
$10.14
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
(0.02)
|
0.05
|
0.01
|
|
Net Realized and Unrealized Gain (Loss)
|
0.41
|
1.73
|
0.13
|
|
Total From Investment Operations
|
0.39
|
1.78
|
0.14
|
|
Distributions
|
|||
|
From Net Investment Income
|
(0.02)
|
(0.04)
|
—
|
|
From Net Realized Gains
|
(0.61)
|
—
|
—
|
|
From Tax Return of Capital
|
(0.06)
|
—
|
—
|
|
Total Distributions
|
(0.69)
|
(0.04)
|
—
|
|
Net Asset Value, End of Period
|
$11.58
|
$11.88
|
$10.14
|
|
Total Return
(3)
|
2.81%
|
17.59%
|
1.40%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
1.36%
|
1.35%
|
1.35%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
(0.15)%
|
0.47%
|
0.41%
(4)
|
|
Portfolio Turnover Rate
|
175%
|
246%
|
39%
|
|
Net Assets, End of Period (in thousands)
|
$1,304
|
$895
|
$761
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Legacy Multi Cap Fund
|
Investor Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$12.60
|
$9.94
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
(0.02)
|
(0.02)
|
0.01
|
|
Net Realized and Unrealized Gain (Loss)
|
(0.69)
|
2.72
|
(0.07)
|
|
Total From Investment Operations
|
(0.71)
|
2.70
|
(0.06)
|
|
Distributions
|
|||
|
From Net Investment Income
|
—
|
(0.04)
|
—
|
|
From Net Realized Gains
|
(0.17)
|
—
|
—
|
|
Total Distributions
|
(0.17)
|
(0.04)
|
—
|
|
Net Asset Value, End of Period
|
$11.72
|
$12.60
|
$9.94
|
|
Total Return
(3)
|
(5.78)%
|
27.21%
|
(0.60)%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
1.16%
|
1.15%
|
1.15%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
(0.17)%
|
(0.16)%
|
0.99%
(4)
|
|
Portfolio Turnover Rate
|
173%
|
230%
|
14%
|
|
Net Assets, End of Period (in thousands)
|
$35,392
|
$36,240
|
$2,801
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Legacy Multi Cap Fund
|
Institutional Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$12.61
|
$9.94
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
(0.01)
|
0.02
|
0.02
|
|
Net Realized and Unrealized Gain (Loss)
|
(0.67)
|
2.70
|
(0.08)
|
|
Total From Investment Operations
|
(0.68)
|
2.72
|
(0.06)
|
|
Distributions
|
|||
|
From Net Investment Income
|
—
|
(0.05)
|
—
|
|
From Net Realized Gains
|
(0.17)
|
—
|
—
|
|
Total Distributions
|
(0.17)
|
(0.05)
|
—
|
|
Net Asset Value, End of Period
|
$11.76
|
$12.61
|
$9.94
|
|
Total Return
(3)
|
(5.53)%
|
27.45%
|
(0.60)%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
0.96%
|
0.95%
|
0.95%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
0.03%
|
0.04%
|
1.19%
(4)
|
|
Portfolio Turnover Rate
|
173%
|
230%
|
14%
|
|
Net Assets, End of Period (in thousands)
|
$27
|
$633
|
$497
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Legacy Multi Cap Fund
|
R Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$12.56
|
$9.93
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
(0.08)
|
(0.06)
|
0.01
|
|
Net Realized and Unrealized Gain (Loss)
|
(0.70)
|
2.70
|
(0.08)
|
|
Total From Investment Operations
|
(0.78)
|
2.64
|
(0.07)
|
|
Distributions
|
|||
|
From Net Investment Income
|
—
|
(0.01)
|
—
|
|
From Net Realized Gains
|
(0.17)
|
—
|
—
|
|
Total Distributions
|
(0.17)
|
(0.01)
|
—
|
|
Net Asset Value, End of Period
|
$11.61
|
$12.56
|
$9.93
|
|
Total Return
(3)
|
(6.36)%
|
26.58%
|
(0.70)%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
1.66%
|
1.65%
|
1.65%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
(0.67)%
|
(0.66)%
|
0.49%
(4)
|
|
Portfolio Turnover Rate
|
173%
|
230%
|
14%
|
|
Net Assets, End of Period (in thousands)
|
$65
|
$641
|
$497
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Legacy Multi Cap Fund
|
Advisor Class
|
|||
|
For a Share Outstanding Throughout the Years Ended July 31 (except as noted)
|
|||
|
2008
|
2007
|
2006
(1)
|
|
|
Per-Share Data
|
|||
|
Net Asset Value, Beginning of Period
|
$12.58
|
$9.94
|
$10.00
|
|
Income From Investment Operations
|
|||
|
Net Investment Income (Loss)
(2)
|
(0.05)
|
(0.03)
|
0.01
|
|
Net Realized and Unrealized Gain (Loss)
|
(0.69)
|
2.69
|
(0.07)
|
|
Total From Investment Operations
|
(0.74)
|
2.66
|
(0.06)
|
|
Distributions
|
|||
|
From Net Investment Income
|
—
|
(0.02)
|
—
|
|
From Net Realized Gains
|
(0.17)
|
—
|
—
|
|
Total Distributions
|
(0.17)
|
(0.02)
|
—
|
|
Net Asset Value, End of Period
|
$11.67
|
$12.58
|
$9.94
|
|
Total Return
(3)
|
(6.03)%
|
26.83%
|
(0.60)%
|
|
Ratios/Supplemental Data
|
|||
|
Ratio of Operating Expenses to Average Net Assets
|
1.41%
|
1.40%
|
1.40%
(4)
|
|
Ratio of Net Investment Income (Loss) to Average Net Assets
|
(0.42)%
|
(0.41)%
|
0.74%
(4)
|
|
Portfolio Turnover Rate
|
173%
|
230%
|
14%
|
|
Net Assets, End of Period (in thousands)
|
$751
|
$853
|
$618
|
|
1
|
May 31, 2006 (fund inception) through July 31, 2006.
|
|
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.
|
Where to Find More Information
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, online at americancentury.com, by contacting American Century Investments at the addresses or telephone numbers listed below or by contacting your financial intermediary.
From the SEC
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
|
• EDGAR database at sec.gov
• 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 the funds in any state, territory, or other jurisdiction where the funds’ 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
|
|
Legacy Focused Large Cap Fund
|
|||
|
Investor Class
|
176
|
ACFOX
|
LegcyFocusLC
|
|
Institutional Class
|
376
|
ACFSX
|
LegcyFocusLC
|
|
R Class
|
476
|
ACFCX
|
LegcyFocusLC
|
|
Advisor Class
|
776
|
ACFDX
|
LegcyFocusLC
|
|
Legacy Large Cap Fund
|
|||
|
Investor Class
|
177
|
ACGOX
|
N/A
|
|
Institutional Class
|
377
|
ACGHX
|
N/A
|
|
R Class
|
477
|
ACGEX
|
N/A
|
|
Advisor Class
|
777
|
ACGDX
|
N/A
|
|
Legacy Multi Cap Fund
|
|||
|
Investor Class
|
178
|
ACMNX
|
LegcyMC
|
|
Institutional Class
|
378
|
ACMHX
|
LegcyMC
|
|
R Class
|
478
|
ACMEX
|
LegcyMC
|
|
Advisor Class
|
778
|
ACMFX
|
LegcyMC
|
Investment Company Act File No. 811-21861
|
American Century Investment
s
americancentury.com
|
|
|
Self-Directed Retail Investors
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021 or 816-531-5575
|
Banks and Trust Companies, Broker-Dealers,
Financial Professionals, Insurance Companies
P.O. Box 419786
Kansas City, Missouri 64141-6786
1-800-345-6488
|
CL-PRS-61851 0812
|
December 1, 2008
|
|
American Century Growth Funds, Inc.
Legacy Focused Large Cap Fund
Legacy Large Cap Fund
Legacy Multi Cap Fund
|
This statement of additional information adds to the discussion in the funds’ prospectus
dated December 1, 2008, but is not a prospectus. The statement of additional information
should be read in conjunction with the funds’ current prospectus. If you would like
a copy of the prospectus, please contact us at one of the addresses or telephone numbers listed
on the back cover or visit American Century Investments’ Web site at americancentury.com.
This statement of additional information incorporates by reference
certain information that appears in the funds’ annual
report which is delivered to all investors. You may
obtain a free copy of the funds’ annual
report by calling 1-800-345-2021.
American Century Investment Services, Inc., Distributor
American Century Investment Services, Inc., Distributor
©
2008 American Century Proprietary Holdings, Inc. All rights reserved.
Table of Contents
|
The Funds’ History
|
2
|
|
Fund Investment Guidelines
|
2
|
|
Fund Investments and Risks
|
3
|
|
Investment Strategies and Risks
|
3
|
|
Investment Policies
|
16
|
|
Temporary Defensive Measures
|
18
|
|
Portfolio Turnover
|
18
|
|
Management
|
19
|
|
The Board of Directors
|
22
|
|
Ownership of Fund Shares
|
26
|
|
Code of Ethics
|
26
|
|
Proxy Voting Guidelines
|
27
|
|
Disclosure of Portfolio Holdings
|
28
|
|
The Funds’ Principal Shareholders
|
32
|
|
Service Providers
|
34
|
|
Investment Advisor
|
34
|
|
Portfolio Manager
|
37
|
|
Transfer Agent and Administrator
|
40
|
|
Sub-Administrator
|
40
|
|
Distributor
|
40
|
|
Custodian Banks
|
41
|
|
Independent Registered Public Accounting Firm
|
41
|
|
Brokerage Allocation
|
41
|
|
Regular Broker-Dealers
|
43
|
|
Information About Fund Shares
|
43
|
|
Multiple Class Structure
|
44
|
|
Buying and Selling Fund Shares
|
49
|
|
Valuation of a Fund’s Securities
|
49
|
|
Taxes
|
50
|
|
Federal Income Tax
|
50
|
|
State and Local Taxes
|
52
|
|
Financial Statements
|
52
|
THE FUNDS’ HISTORY
American Century Growth Funds, Inc. is a registered open-end management investment company that was organized in 2006 as a Maryland corporation. Throughout this statement of additional information we refer to American Century Growth Funds, Inc. as the corporation.
Each fund described in this statement of additional information is a separate series of the corporation 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 numbers.
|
Fund
|
Ticker Symbol
|
Inception Date
|
|
Legacy Focused Large Cap
|
||
|
Investor Class
|
ACFOX
|
5/31/2006
|
|
Institutional Class
|
ACFSX
|
5/31/2006
|
|
R Class
|
ACFCX
|
5/31/2006
|
|
Advisor Class
|
ACFDX
|
5/31/2006
|
|
Legacy Large Cap
|
||
|
Investor Class
|
ACGOX
|
5/31/2006
|
|
Institutional Class
|
ACGHX
|
5/31/2006
|
|
R Class
|
ACGEX
|
5/31/2006
|
|
Advisor Class
|
ACGDX
|
5/31/2006
|
|
Legacy Multi Cap
|
||
|
Investor Class
|
ACMNX
|
5/31/2006
|
|
Institutional Class
|
ACMHX
|
5/31/2006
|
|
R Class
|
ACMEX
|
5/31/2006
|
|
Advisor Class
|
ACMFX
|
5/31/2006
|
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 each fund’s assets. Descriptions of the investment techniques and risks associated with each appear in the section,
Investment
Strategies and Risks,
which begins on page 3. In the case of the funds’ principal investment strategies, these descriptions elaborate upon the discussion contained in the prospectus.
Each fund, other than Legacy Focused Large Cap, 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 U.S. government securities and securities of other investment companies).
Legacy Focused Large Cap is nondiversified. Nondiversified means that the fund may invest a greater portion of its assets in a smaller number of securities than a diversified fund.
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.
|
In general, within the restrictions outlined here and in the funds’ prospectus, the portfolio manager has broad powers to decide how to invest fund assets, including the power to hold them uninvested.
Investments are varied according to what is judged advantageous under changing economic conditions. It is the advisor’s policy to retain maximum flexibility in management without restrictive provisions as to the proportion of one or another class of securities that may be held, subject to the investment restrictions described on the following
pages. It is the advisor’s intention that each fund will generally consist of domestic and foreign common stocks, convertible securities and equity-equivalent securities. However, subject to the specific limitations applicable to a fund, the funds’ management teams may invest the assets of each fund in varying amounts in other instruments and may use other techniques, such as those reflected in the
Fund Investments and Risks
section, when such
a course is deemed appropriate in order to pursue a fund’s investment objective. Senior securities that, in the opinion of the portfolio manager, are high-grade issues also may be purchased for defensive purposes.
So long as a sufficient number of acceptable securities are available, the portfolio manager intends to keep the funds fully invested. However, should a fund’s investment methodology fail to identify sufficient acceptable securities, or for any other reason including the desire to take a temporary defensive position, the funds may invest up to 100% of their assets in U.S. government securities.
In most circumstances, each fund’s actual level of cash and cash equivalents will be less than 10%. The manager may use futures contracts as a way to expose each fund’s cash assets to the market while maintaining liquidity. Because the manager may not leverage a fund’s portfolio, there is no greater market risk to the funds than if they purchase stocks. See
Derivative Securities,
page 5,
Futures
and Options
, page 8 and
Short-Term Securities
, page 13.
FUND INVESTMENTS AND RISKS
INVESTMENT STRATEGIES AND RI
SKS
This section describes investment vehicles and techniques the portfolio manager can use in managing a fund’s assets. It also details the risks associated with each, because each investment vehicle and technique contributes to a fund’s overall risk profile.
Convertible Securities
A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular time period at a specified price or formula. A convertible security entitles the holder to receive the interest paid or accrued
on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion or exchange, such securities ordinarily provide a stream of income with generally higher yields than common stocks of the same or similar issuers, but lower than the yield on non-convertible debt. Of course, there can be no assurance of current income because issuers of convertible securities may default on their obligations. In addition, there can be no assurance
of capital appreciation because the value of the underlying common stock will fluctuate. Because of the conversion feature, the manager considers some convertible securities to be equity equivalents.
The price of a convertible security will normally fluctuate in some proportion to changes in the price of the underlying asset. A convertible security is subject to risks relating to the activities of the issuer and/or general market and economic conditions. The stream of income typically paid on a convertible security may tend to cushion
the security against declines in the price of the underlying asset. However, the stream of income causes fluctuations based upon changes in interest rates and the credit quality of the issuer. In general, the value of a convertible security is a function of (1) its yield in comparison with yields of other securities of comparable maturity and quality that do not have a conversion privilege and (2) its worth, at market value, if converted or exchanged into the underlying common stock. The price of a convertible
security often reflects such variations in the price of the underlying common stock in a way that a non-convertible security does not. At any given time, investment value generally depends upon such factors as the general level of interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer and the seniority of the security in the issuer’s capital structure.
A convertible security may be subject to redemption at the option of the issuer at a predetermined price. If a convertible security held by a fund is called for redemption, the fund would be required to permit the issuer to redeem the security and convert it to underlying common stock or to cash, or would sell the convertible security to a
third party, which may have an adverse effect on the fund. A convertible security may feature a put option that permits the holder of the convertible security to sell that security back to the issuer at a predetermined price. A fund generally invests in convertible securities for their favorable price characteristics and total return potential and normally would not exercise an option to convert unless the security is called or conversion is forced.
Debt Securities
Each of the funds may invest in debt securities when the portfolio manager believes such securities represent an attractive investment for the fund. The funds may invest in debt securities for income, or as a defensive strategy when the manager believes adverse economic or market conditions exist.
The value of debt securities in which the funds may invest will fluctuate based upon changes in interest rates and the credit quality of the issuer. Debt securities generally will be limited to investment-grade obligations. Investment grade means that at the time of purchase, such obligations are rated within the four highest categories by
a nationally recognized statistical rating organization (for example, at least Baa by Moody’s Investors Service, Inc. or BBB by Standard & Poor’s Corporation), or, if not rated, are of equivalent investment quality as determined by the fund’s advisor. According to Moody’s, bonds rated Baa are medium-grade and possess some speculative characteristics. A BBB rating by S&P indicates S&P’s belief that a security exhibits a satisfactory degree of safety and capacity for repayment,
but is more vulnerable to adverse economic conditions and changing circumstances.
In addition, the value of a fund’s investments in fixed-income securities will change as prevailing interest rates change. In general, the prices of such securities vary inversely with interest rates. As prevailing interest rates fall, the prices of bonds and other securities that trade on a yield basis generally rise. When prevailing
interest rates rise, bond prices generally fall. Depending upon the particular amount and type of fixed-income securities holdings of a fund, these changes may impact the net asset value of that fund’s shares.
Depositary Receipts
American Depositary Receipts (ADRs) and European Depositary Receipts (EDRs) are receipts representing ownership of shares of a foreign-based issuer held in trust by a bank or similar financial institution. These are designed for U.S. and European securities markets as alternatives to purchasing underlying securities in their corresponding
national markets and currencies. ADRs and EDRs can be sponsored or unsponsored.
Sponsored ADRs and EDRs are certificates in which a bank or financial institution participates with a custodian. Issuers of unsponsored ADRs and EDRs are not contractually obligated to disclose material information in the United States. Therefore, there may not be a correlation between such information and the market value of the unsponsored
ADR or EDR.
ADRs are dollar-denominated receipts representing interests in the securities of a foreign issuer. They are issued by U.S. banks and traded on exchanges or over the counter in the United States. Ordinary shares are shares of foreign issuers that are traded abroad and on a U.S. exchange. New York shares are shares that a foreign issuer has
allocated for trading in the United States. ADRs, ordinary shares and New York shares all may be purchased with and sold for U.S. dollars, which protect the fund from the foreign settlement risks described under the section titled
Foreign Securitie
s
, page 6.
Derivative Secu
rities
To the extent permitted by its investment objectives and policies, each of the funds 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 are described more accurately as index/structured securities. Index/structured securities are derivative securities whose value or performance is linked to other equity securities (such as depositary receipts), currencies, interest rates, indices or other financial indicators (reference indices).
Some 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.
No fund may 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.
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 risks associated with investing in derivative securities, including:
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the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the portfolio manager anticipates;
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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;
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the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund’s initial investment; and
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the risk that the counterparty will fail to perform its obligations.
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The funds’ Board of Directors has reviewed 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 Directors as necessary.
Equity Equivalents
In addition to investing in common stocks, the funds may invest in other equity securities and equity equivalents, including securities that permit a fund to receive an equity interest in an issuer, the opportunity to acquire an equity interest in an issuer, or the opportunity to receive a return on its investment that permits the fund to
benefit from the growth over time in the equity of an issuer. Examples of equity securities and equity equivalents include preferred stock, convertible preferred stock and convertible debt securities.
Equity equivalents also may include securities whose value or return is derived from the value or return of a different security.
Foreign Securit
ies
The funds may invest an unlimited portion of their total assets in the securities of foreign issuers, when these securities meet its standards of selection. These funds may invest in common stocks, convertible securities, preferred stocks, bonds, notes and other debt securities of foreign issuers, foreign governments and their agencies. Securities
of foreign issuers may trade in the U.S. or foreign securities markets.
The funds may purchase foreign securities of issuers whose principal business activities are located in developed and emerging market countries. The funds consider developed countries to include Australia, Austria, Belgium, Bermuda, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Luxembourg, The Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States.
Investments in foreign securities may present certain risks, including:
Currency Risk
– The value of the foreign investments held by the funds may be significantly affected by changes in currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign
currency in which the security is denominated and tends to increase when the value of the dollar falls against such currency. In addition, the value of fund assets may be affected by losses and other expenses incurred in converting between various currencies in order to purchase and sell foreign securities, and by currency restrictions, exchange control regulation, currency devaluations and political developments.
Political and Economic Risk
– The economies of many of the countries in which the funds invest are not as developed as the economy of the United States and may be subject to significantly different forces. Political or social instability, expropriation,
nationalization, confiscatory taxation and limitations on the removal of funds or other assets also could adversely affect the value of investments. Further, the funds may find it difficult or be unable to enforce ownership rights, pursue legal remedies or obtain judgments in foreign courts.
Regulatory Risk
– Foreign companies generally are not subject to the regulatory controls imposed on U.S. issuers and, in general, there is less publicly available information about foreign securities than is available about domestic securities. Many
foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to domestic companies. Income from foreign securities owned by the funds may be reduced by a withholding tax at the source, which would reduce dividend income payable to shareholders.
Market and Trading Risk
– Brokerage commission rates in foreign countries, which generally are fixed rather than subject to negotiation as in the United States, are likely to be higher. The securities markets in many of the countries in which the funds
invest will have substantially less trading volume than the principal U.S. markets. As a result, the securities of some companies in these countries may be less liquid and more volatile than comparable U.S. securities. Furthermore, one securities broker may represent all or a significant part of the trading volume in a particular country, resulting in higher trading costs and decreased liquidity due to a lack of alternative trading partners. There generally is less government regulation and supervision of foreign
stock exchanges, brokers and issuers, which may make it difficult to enforce contractual obligations.
Clearance and Settlement Risk
– Foreign securities markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions,
making it difficult to conduct such transactions. Delays in clearance and settlement could result in temporary periods when assets of the funds are uninvested and no return is earned. The inability of the funds to make intended security purchases due to clearance and settlement problems could cause the funds to miss attractive investment opportunities. Inability to dispose of portfolio securities due to clearance and settlement problems could result either in losses to the funds due to subsequent declines in
the value of the portfolio security or, if the fund has entered into a contract to sell the security, liability to the purchaser.
Ownership Risk
– Evidence of securities ownership may be uncertain in many foreign countries. As a result, there is a risk that a fund’s trade details could be incorrectly or fraudulently entered at the time of the transaction, resulting in a loss
to the fund.
Forward Currency Exchange Contracts
Each fund may purchase and sell foreign currency on a spot (i.e., cash) basis and may engage in forward currency contracts, currency options and futures transactions for hedging or any other lawful purpose. See
Derivative Securities,
page 5.
The funds expect to use forward currency contracts under two circumstances:
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(1)
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When the portfolio manager is purchasing or selling a security denominated in a foreign currency and wishes to lock in the U.S. dollar price of that security, the portfolio manager would be able to enter into a forward currency contract to do so;
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(2)
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When the portfolio manager believes that the currency of a particular foreign country may suffer a substantial decline against the U.S. dollar, a fund would be able to enter into a forward currency contract to sell foreign currency for a fixed U.S. dollar amount approximating the value of some or all of its portfolio securities either denominated
in, or whose value is tied to, such foreign currency.
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In the first circumstance, when a fund enters into a trade for the purchase or sale of a security denominated in a foreign currency, it may be desirable to establish (lock in) the U.S. dollar cost or proceeds. By entering into forward currency contracts in U.S. dollars for the purchase or sale of a foreign currency involved in an underlying
security transaction, the fund will be able to protect itself against a possible loss between trade and settlement dates resulting from the adverse change in the relationship between the U.S. dollar and the subject foreign currency.
In the second circumstance, when the portfolio manager believes that the currency of a particular country may suffer a substantial decline relative to the U.S. dollar, a fund could enter into a forward currency contract to sell for a fixed dollar amount the amount in foreign currencies approximating the value of some or all of its portfolio securities either denominated in, or whose value is
tied to, such foreign currency. The fund will generally cover outstanding forward contracts by maintaining liquid portfolio securities denominated in, or whose value is tied to, the currency underlying the forward contract or the currency being hedged. To the extent that the fund is not able to cover its forward currency positions with underlying portfolio securities, the fund will segregate on its records cash or other liquid assets having a value equal to the aggregate amount of the fund’s commitments
under the forward currency contact.
The precise matching of forward currency contracts in the amounts and values of securities involved generally would not be possible because the future values of such foreign currencies will change as a consequence of market movements in the values of those securities between the date the forward currency contract is entered into and the date it matures. Predicting short-term currency market movements
is extremely difficult, and the successful execution of short-term hedging strategy is highly uncertain. Normally, consideration of the prospect for currency parities will be incorporated into the long-term investment decisions made with respect to overall diversification strategies. However, the portfolio manager believes that it is important to have flexibility to enter into such forward currency contracts when he determines that a fund’s best interests may be served.
When the forward currency contract matures, the fund may either sell the portfolio security and make delivery of the foreign currency, or it may retain the security and terminate the obligation to deliver the foreign currency by purchasing an offsetting forward currency contract with the same currency trader that obligates the fund to purchase,
on the same maturity date, the same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the forward currency contract. Accordingly, it may be necessary for a fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the
amount of foreign currency the fund is obligated to deliver and if a decision is made to sell the security to make delivery of the foreign currency the fund is obligated to deliver.
Futur
es and Options
Each 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. Generally, futures transactions will be used to:
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protect against a decline in market value of the fund’s securities (taking a short futures position),
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protect against the risk of an increase in market value for securities in which the fund generally invests at a time when the fund is not fully invested (taking a long futures position), or
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provide a temporary substitute for the purchase of an individual security that may not be purchased in an orderly fashion.
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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.
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.
For example, the sale of a future by a fund means the fund becomes obligated to deliver the security (or securities, in the case of an index future) at a specified price on a specified date. The purchase of a future means the fund becomes obligated to buy the security (or securities) at a specified price on a specified date. The portfolio
manager may engage in futures and options transactions based on securities indices, provided that the transactions are consistent with the fund’s investment objectives. Examples of indices that may be used include the Bond Buyer Index of Municipal Bonds for fixed-income funds, or the S&P 500 Index for equity funds. The manager also may engage in futures and options transactions based on specific securities, such as U.S. Treasury bonds or notes. 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.
Index futures contracts differ from traditional futures contracts in that when delivery takes place, no stocks or bonds change hands. Instead, these contracts settle in cash at the spot market value of the 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).
Unlike when the fund purchases or sells a security, no price is paid or received by the fund upon the purchase or sale of the future. Initially, the fund will be required to deposit an amount of cash or securities equal to a varying specified percentage of the contract amount. This amount is known as initial margin. The margin deposit is intended
to ensure completion of the contract (delivery or acceptance of the underlying security) if it is not terminated prior to the specified delivery date. A margin deposit does not constitute a margin transaction for purposes of the fund’s investment restrictions. 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. Cash held in the margin accounts generally is not income-producing. However, coupon bearing securities, such as Treasury bills and bonds, held in margin accounts generally will earn income. Subsequent payments to and from the broker,
called variation margin, will be made on a daily basis as the price of the underlying security or index fluctuates, making the future more or less valuable, a process known as marking the contract to market. Changes in variation margin are recorded by the fund as unrealized gains or losses. At any time prior to expiration of the future, the fund may elect to close the position by taking an opposite position. A final determination of variation margin is then made; additional cash is required to be paid by or released
to the fund and the fund realizes a loss or gain.
Risks Related to Futures and Options Transactions
Futures and options prices can be volatile, and trading in these markets involves certain risks. If the portfolio manager applies a hedge at an inappropriate time or judge interest rate or equity market trends incorrectly, futures and options strategies may lower a fund’s return.
A fund could suffer losses if it is 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 portfolio manager considers 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 portfolio manager 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 portfolio manager will seek to minimize these risks by limiting the futures 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 them 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
Each fund may enter into futures contracts, options or options on futures contracts as permitted under the Commodity Futures Trading Commission rules. The funds have claimed exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act and, therefore, are not subject to registration or regulation as commodity pool operators under that Act. To the
extent required by law, each fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in an amount sufficient to cover its obligations under the futures contracts and options.
Initial Public Offerings
The funds may invest in initial public offerings (IPOs) of common stock or other equity securities issued by a company. The purchase of securities in an IPO may involve higher transaction costs than those associated with the purchase of securities already traded on exchanges or other established markets. In addition to the risks associated with equity securities generally,
IPO securities may be subject to additional risk due to factors such as the absence of a prior public market, unseasoned trading and speculation, a potentially small number of securities available for trading, limited information about the issuer and other factors. These factors may cause IPO shares to be volatile in price. While a fund may hold IPO securities for a period of time, it may sell them in the aftermarket soon after the purchase, which could increase portfolio turnover and lead
to increased expenses such as commissions and transaction costs. Investments in IPOs could have a magnified impact (either positive or negative) on performance if a fund’s assets are relatively small. The impact of IPOs on a fund’s performance may tend to diminish as assets grow.
Investment in Issuers with Limited Operating Histories
Each fund may invest up to 10% of its assets in the equity securities of issuers with limited operating histories. The manager considers an issuer to have a limited operating history if that issuer has a record of less than three years of continuous operation. The manager will consider periods of capital formation, incubation, consolidations,
and research and development in determining whether a particular issuer has a record of three years of continuous operation.
Investments in securities of issuers with limited operating histories may involve greater risks than investments in securities of more mature issuers. By their nature, such issuers present limited operating histories and financial information upon which the manager may base his investment decision on behalf of the funds. In addition, financial
and other information regarding such issuers, when available, may be incomplete or inaccurate.
For purposes of this limitation, “issuers” refers to operating companies that issue securities for the purposes of issuing debt or raising capital as a means of financing their ongoing operations. It does not, however, refer to entities, corporate or otherwise, that are created for the express purpose of securitizing obligations
or income streams. For example, a fund’s investments in a trust created for the purpose of pooling mortgage obligations would not be subject to the limitation.
Other Investment Companies
Each of the funds may invest in other investment companies, such as mutual funds, provided that the investment is consistent with the fund’s investment policies and restrictions. Under the Investment Company Act, a fund’s investment in such securities, subject to certain exceptions, currently is limited to
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3% of the total voting stock of any one investment company;
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5% of the fund’s total assets with respect to any one investment company; and
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10% of a fund’s total assets in the aggregate.
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A fund’s investments in other investment companies may include money market funds managed by the advisor. Investments in money market funds are not subject to the percentage limitations set forth above.
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 Depositary Receipts (SPDRs) and the Lehman Aggregate Bond ETF, with the same percentage limitations as investments in registered investment companies. ETFs are a type of fund bought and sold on a securities exchange. An ETF trades like common stock and
usually 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.
Portfolio Lending
In order to realize additional income, a fund may lend its portfolio securities. Such loans may not exceed one-third of the fund’s total assets valued at market except
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through the purchase of debt securities in accordance with its investment objectives, policies and limitations, or
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by engaging in repurchase agreements with respect to portfolio securities.
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The principal risk of portfolio lending is the potential default or insolvency of the borrower. In either of these cases, a fund could experience delays in recovering securities or collateral or could lose all or part of the value of the loaned securities.
Repurchase Agreements
Each fund may invest in repurchase agreements when they present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund.
A repurchase agreement occurs when, at the time a fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to purchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the
time the fund’s money is invested in the security.
Because the security purchased constitutes collateral for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund’s risk is the seller’s ability to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in
disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss.
The funds will limit repurchase agreement transactions to securities issued by the U.S. government and its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy by the funds’ advisor.
Repurchase agreements maturing in more than seven days would count toward a fund’s 15% limit on illiquid securities.
Restricted and Illiquid Securities
The funds may, from time to time, purchase restricted or illiquid securities, including Rule 144A securities, when they present attractive investment opportunities that otherwise meet the funds’ criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional investors
rather than the general public. Although Rule 144A securities are considered restricted securities, they are not necessarily illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of the Securities and Exchange Commission (SEC) has taken the position that the liquidity of such securities in the portfolio of a fund offering redeemable securities is a question of fact for the Board of Directors to determine, such determination to be based upon a
consideration of the readily available trading markets and the review of any contractual restrictions. Accordingly, the Board of Directors is responsible for developing and establishing the guidelines and procedures for determining the liquidity of Rule 144A securities. As allowed by Rule 144A, the Board of Directors has delegated the day-to-day function of determining the liquidity of Rule 144A securities to the portfolio manager. The board retains the responsibility to monitor the implementation of the guidelines
and procedures it has adopted.
Because the secondary market for restricted securities is generally limited to certain qualified institutional investors, the liquidity of such securities may be limited accordingly and a fund may, from time to time, hold a Rule 144A or other security that is illiquid. In such an event, the portfolio manager will consider appropriate remedies
to minimize the effect on such fund’s liquidity.
Short Sales
A fund may engage in short sales for cash management purposes only if, at the time of the short sale, the fund owns or has the right to acquire securities equivalent in kind and amount to the securities being sold short.
In a short sale, the seller does not immediately deliver the securities sold and is said to have a short position in those securities until delivery occurs. To make delivery to the purchaser, the executing broker borrows the securities being sold short on behalf of the seller. While the short position is maintained, the seller collateralizes
its obligation to deliver the securities sold short in an amount equal to the proceeds of the short sale plus an additional margin amount established by the Board of Governors of the Federal Reserve. If a fund engages in a short sale, the fund’s custodian will segregate cash, cash equivalents or other appropriate liquid securities on its records in an amount sufficient to meet the purchase price. There will be certain additional transaction costs associated with short sales, but the fund will endeavor to
offset these costs with income from the investment of the cash proceeds of short sales.
Short-Term Sec
urities
In order to meet anticipated redemptions, anticipated purchases of additional securities for a fund’s portfolio, or, in some cases, for temporary defensive purposes, these funds may invest a portion of their assets in money market and other short-term securities.
Examples of those securities include:
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Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities
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Commercial Paper
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Certificates of Deposit and Euro Dollar Certificates of Deposit
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Bankers’ Acceptances
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Short-term notes, bonds, debentures or other debt instruments
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Repurchase agreements
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Money market funds
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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.
U.S. Government Securities
U.S. Treasury bills, notes, zero-coupon bonds and other bonds are direct obligations of the U.S. Treasury, which has never failed to pay interest and repay principal when due. Treasury bills have initial maturities of one year or less, Treasury notes from two to 10 years, and Treasury bonds more than 10 years. Although U.S. Treasury securities
carry little principal risk if held to maturity, the prices of these securities (like all debt securities) change between issuance and maturity in response to fluctuating market interest rates.
A number of U.S. government agencies and instrumentalities issue debt securities. These agencies generally are created by Congress to fulfill a specific need, such as providing credit to home buyers or farmers. Among these agencies are the Federal Home Loan Banks, the Federal Farm Credit Banks, the Student Loan Marketing Association and the
Resolution Funding Corporation.
Some agency securities are backed by the full faith and credit of the U.S. government, and some 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.
Interest rates on agency securities may be fixed for the term of the investment (fixed-rate agency securities) or tied to prevailing interest rates (floating-rate agency securities). Interest rate resets on floating-rate agency securities generally occur at intervals of one year or less, based on changes in a predetermined interest rate index.
Floating-rate agency securities frequently have caps limiting the extent to which coupon rates can be raised. The price of a floating-rate agency security may decline if its capped coupon rate is lower than prevailing market interest rates. Fixed- and floating-rate agency securities may be issued with a call date (which permits redemption
before the maturity date). The exercise of a call may reduce an obligation’s yield to maturity.
Interest Rate Resets on Floating-Rate
U.S. Government Agency Securities
Interest rate resets on floating-rate U.S. government agency securities generally occur at intervals of one year or less in response to changes in a predetermined interest rate index. There are two main categories of indices: those based on U.S. Treasury securities and those derived from a calculated measure, such as a cost-of-funds index.
Commonly used indices include the three-month, six-month and one-year Treasury bill rates; the two-year Treasury note yield; the Eleventh District Federal Home Loan Bank Cost of Funds Index (EDCOFI); and the London Interbank Offered Rate (LIBOR). Fluctuations in the prices of floating-rate U.S. government agency securities are typically attributed to differences between the coupon rates on these securities and prevailing market interest rates between interest rate reset dates.
When-Issued and Forward Commitment Agreements
The funds may sometimes purchase new issues of securities on a when-issued or forward commitment basis in which the transaction price and yield are each fixed at the time the commitment is made, but payment and delivery occur at a future date.
For example, a fund may sell a security and at the same time make a commitment to purchase the same or a comparable security at a future date and specified price. Conversely, a fund may purchase a security and at the same time make a commitment to sell the same or a comparable security at a future date and specified price. These types of transactions
are executed simultaneously in what are known as dollar-rolls, buy/sell back transactions, cash and carry, or financing transactions. For example, a broker-dealer may seek to purchase a particular security that a fund owns. The fund will sell that security to the broker-dealer and simultaneously enter into a forward commitment agreement to buy it back at a future date. This type of transaction generates income for the fund if the dealer is willing to execute the transaction at a favorable price in order to acquire
a specific security.
When purchasing securities on a when-issued or forward commitment basis, a fund assumes the rights and risks of ownership, including the risks of price and yield fluctuations. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the
value of that security may decline prior to delivery, which could result in a loss to the fund. While the fund will make commitments to purchase or sell securities with the intention of actually receiving or delivering them, it may sell the securities before the settlement date if doing so is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a fund will segregate cash, cash equivalents or other appropriate liquid securities on its record in an amount sufficient to meet the purchase price. To the extent a fund remains fully invested or almost fully invested at the same time it has purchased securities on a when-issued
basis, there will be greater fluctuations in its net asset value than if it solely set aside cash to pay for when-issued securities. When the time comes to pay for the when-issued securities, the fund will meet its obligations with available cash, through the sale of securities, or, although it would not normally expect to do so, by selling the when-issued securities themselves (which may have a market value greater or less than the fund’s payment obligation). Selling securities to meet when-issued or forward
commitment obligations may generate taxable capital gains or losses.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations on borrowing, the policies 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 assets will not be considered in determining whether
it has complied with its investment policies.
Fundamental Investment Policies
The funds’ fundamental investment policies are set forth below. These investment policies, a fund's investment objectives set forth in its prospectus, and a fund's status as diversified 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.
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Subject
|
Policy
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Senior
Securities
|
A fund may not issue senior securities, except as permitted under the Investment Company Act.
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Borrowing
|
A fund may not borrow money, except that a fund may borrow for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of the fund’s total assets (including the amount borrowed) less liabilities (other than borrowings).
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Lending
|
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.
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|
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). For the purpose of concentration, industry is defined to mean those companies that are assigned the same sub-industry classification under
the Global Industry Classification Standard (GICS).
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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.
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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.
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|
Control
|
A fund may not invest for purposes of exercising control over management.
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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 American Century Investments-advised funds that permit such transactions. All
such transactions will be subject to the limits for 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 costs 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 the purposes of the funds’ investment policy relating to borrowing, short positions held by the funds are not considered borrowings.
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
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(a)
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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 obligations,
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(b)
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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 their parents,
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(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
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(d)
|
personal credit and business credit businesses will be considered separate industries.
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For the purpose of concentration, industry is defined as those companies that are assigned the same sub-industry classification under the Global Industry Classification Standard (GICS).
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 Directors.
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Subject
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Policy
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Leveraging
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A fund may not purchase additional investment securities at any time during which outstanding borrowings exceed 5% of the total assets of the fund.
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Liquidity
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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 illiquid securities. Illiquid securities include repurchase agreements not entitling the holder to payment of principal and interest within seven days, and securities that are illiquid by virtue of
legal or contractual restrictions on resale or the absence of a readily available market.
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Short
Sales
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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.
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Margin
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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.
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Futures
and
Options
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A fund may enter into futures contracts and write and buy put and call options relating to futures contracts. A fund may not, however, enter into leveraged futures transactions if it would be possible for the fund to lose more than the notional value of the investment.
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Issuers
with
Limited
Operating
Histories
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A fund may invest a portion of its assets in the securities of issuers with limited operating histories. An issuer is considered to have a limited operating history if that issuer has a record of less than three years of continuous operation. Periods of capital formation, incubation, consolidations, and research and development may be considered
in determining whether a particular issuer has a record of three years of continuous operation.
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For the purposes of the funds’ investment policy relating to leveraging, short positions held by the funds are not considered borrowings.
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 defined by the Act. 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, each fund may invest in securities that may not fit its investment objective or its stated market. During a temporary defensive period, a fund may invest a portion of its assets in money market and other short-term securities.
Examples of those securities include:
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•
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securities issued or guaranteed by the U.S. government and its agencies and instrumentalities;
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•
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commercial paper;
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•
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interest-bearing bank accounts or certificates of deposit;
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•
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short-term notes, bonds, or other debt instruments;
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|
•
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repurchase agreements; and
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•
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money market funds.
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To the extent a fund assumes a defensive position, it will not be pursuing its investment objective.
PORTFOLIO TURNOVER
The portfolio turnover rate of each fund will be listed in the Financial Highlights table in that fund’s prospectus.
The manager may sell securities without regard to the length of time the securities have been held. Accordingly, each fund’s portfolio turnover rate may be substantial.
The portfolio manager intends to purchase a given security whenever he believes it will contribute to the stated objective of a particular fund. In order to achieve each fund’s investment objective, the manager may sell a given security regardless of the length of time it has been held in the portfolio, and regardless of the gain or loss
realized on the sale. The manager may sell a portfolio security if he believes that the security is not fulfilling its purpose because, among other things, it did not live up to the manager’s expectations, because it may be replaced with another security holding greater promise, because it has reached its optimum potential, because of a change in the circumstances of a particular company or industry or in general economic conditions, or because of some combination of such reasons.
When a general decline in security prices is anticipated, the equity funds may decrease or eliminate entirely their equity positions and increase their cash positions, and when a general rise in price levels is anticipated, the equity funds may increase their equity positions and decrease their cash positions. However, it should be expected
that the funds will, under most circumstances, be essentially fully invested in equity securities.
Because investment decisions are based on a particular security’s anticipated contribution to a fund’s investment objective, the manager believes that the rate of portfolio turnover is irrelevant when he determines that a change is required to pursue the fund’s investment objective. As a result, a fund’s annual portfolio
turnover rate cannot be anticipated and may be higher than that of other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost the funds pay directly. Portfolio turnover also may affect the character of capital gains realized and distributed by the fund, if any, because short-term capital gains are taxable as ordinary income.
Because the manager does not take portfolio turnover rate into account in making investment decisions, (1) the manager has no intention of maintaining any particular rate of portfolio turnover, whether high or low, and (2) the portfolio turnover rates in the past should not be considered as representative of the rates that will be attained
in the future.
Variations in a fund’s portfolio turnover rate from year to year may be due to a fluctuating volume of shareholder purchase and redemption activity, varying market conditions, and/or changes in the manager’s investment outlook.
MANAGEMENT
The individuals listed below serve as directors or officers of the funds. Each director serves until his or her successor is duly elected and qualified or until he or she retires. Mandatory retirement age for independent directors is 72. Those listed as interested directors are “interested” primarily by virtue of their engagement
as directors and/or officers of, or ownership interest in, American Century Companies, Inc. (ACC) or its wholly owned, direct or indirect, 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, LLC (ACS).
The other directors (more than three-fourths of the total number) are independent; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, ACIS and ACS. The directors serve in this capacity for seven registered investment
companies in the American Century Investments family of funds.
All persons named as officers of the funds also serve in similar capacities for the other 14 investment companies in the American Century Investments family of funds advised by ACIM or American Century Global Investment Management, Inc. (ACGIM), a wholly owned subsidiary of 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.
Interested Directors
James E. Stowers, Jr.,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1924
Position(s) Held with Funds:
Director (since 1958) and Vice Chairman (since 2007)
Principal Occupation(s) During Past 5 Years:
Founder, Co-Chairman, Director and Controlling Shareholder,
ACC
; Co-Vice Chairman,
ACC
(January 2005 to February 2007); Chairman,
ACC
(January
1995 to December 2004); Director,
ACIM, ACGIM, ACS, ACIS
and other
ACC
subsidiaries
Number of Portfolios in Fund Complex Overseen by Director:
70
Other Directorships Held by Director:
None
Jonathan S. Thomas,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1963
Position(s) Held with Funds:
Director (since 2007) and President (since 2007)
Principal Occupation(s) During Past 5 Years:
President and Chief Executive Officer,
ACC
(March 2007 to present);
Chief Administrative Officer,
ACC
(February
2006 to February 2007); Executive Vice President,
ACC
(November 2005 to February 2007). Also serves as: President, Chief Executive Officer and Director,
ACS
; Executive Vice President,
ACIM
and
ACGIM
; Director,
ACIM, ACGIM, ACIS
and
other
ACC
subsidiaries. Managing Director,
Morgan Stanley
(March 2000 to November 2005)
Number of Portfolios in Fund Complex Overseen by Director:
111
Independent Directors
Thomas A. Brown,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1940
Position(s) Held with Funds:
Director (since 1980)
Principal Occupation(s) During Past 5 Years:
Managing Member,
Associated Investments, LLC
(real estate investment company); Managing Member,
Brown Cascade Properties, LLC
(real estate investment company); Retired, Area Vice President,
Applied
Industrial Technologies
(bearings and power transmission company)
Number of Portfolios in Fund Complex Overseen by Director:
70
Other Directorships Held by Director:
None
Andrea C. Hall, Ph.D.,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1945
Position(s) Held with Funds:
Director (since 1997)
Principal Occupation(s) During Past 5 Years:
Retired, Advisor to the President,
Midwest Research Institute
(not-for-profit, contract research organization)
Number of Portfolios in Fund Complex Overseen by Director:
70
Other Directorships Held by Director:
None
James A. Olson,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1942
Position(s) Held with Funds:
Director (since 2007)
Principal Occupation(s) During Past 5 Years:
Member,
Plaza Belmont LLC
(private equity fund manager)
;
Chief Financial Officer,
Plaza Belmont LLC
(September 1999 to September
2006)
Number of Portfolios in Fund Complex Overseen by Director:
70
Other Directorships Held by Director:
Saia, Inc.
and
Entertainment Properties Trust
Donald H. Pratt,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1937
Position(s) Held with Funds:
Director (since 1995) and Chairman of the Board (since 2005)
Principal Occupation(s) During Past 5 Years:
Chairman and Chief Executive Officer,
Western Investments, Inc.
(real estate company)
;
Retired Chairman of the Board,
Butler Manufacturing Company
(metal buildings
producer)
Number of Portfolios in Fund Complex Overseen by Director:
70
Other Directorships Held by Director:
None
Gale E. Sayers,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1943
Position(s) Held with Funds:
Director (since 2000)
Principal Occupation(s) During Past 5 Years:
President, Chief Executive Officer and Founder,
Sayers40, Inc.
(technology products and services provider)
Number of Portfolios in Fund Complex Overseen by Director:
70
Other Directorships Held by Director:
None
M. Jeannine Strandjord,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1945
Position(s) Held with Funds:
Director (since 1994)
Principal Occupation(s) During Past 5 Years:
Retired, formerly Senior Vice President,
Sprint Corporation
(telecommunications company)
Number of Portfolios in Fund Complex Overseen by Director:
70
Other Directorships Held by Director: DST
Systems, Inc., Euronet Worldwide, Inc., Charming Shoppes, Inc.
John R. Whitten,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1946
Position(s) Held with Funds:
Director (since 2008)
Principal Occupation(s) During Past 5 Years:
Project Consultant,
Celanese Corp
. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer,
Applied Industrial Technologies,
Inc
. (bearings and power transmission company) (1995 to 2003)
Number of Portfolios in Fund Complex Overseen by Director:
70
Other Directorships Held by Director:
Rudolph Technologies, Inc.
Officers
Barry Fink,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1955
Position(s) Held with Funds:
Executive Vice President (since 2007)
Principal Occupation(s) During Past 5 Years:
Chief Operating Officer and Executive Vice President,
ACC
(September 2007 to present); President,
ACS
(October 2007 to present);
Managing Director,
Morgan Stanley
(2000 to 2007); Global General Counsel,
Morgan Stanley
(2000 to 2006). Also serves as: Director,
ACC, ACS, ACIS
and other
ACC
subsidiaries
Maryanne Roepke,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1956
Position(s) Held with Funds:
Chief Compliance Officer (since 2006) and Senior Vice President (since 2000)
Principal Occupation(s) During Past 5 Years:
Chief Compliance Officer,
ACIM, ACGIM
and
ACS
(August 2006 to present);
Assistant Treasurer,
ACC
(January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century Investments funds (July 2000 to August 2006). Also serves as: Senior Vice President,
ACS
Charles A. Etherington,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1957
Position(s) Held with Funds:
General Counsel (since 2007) and Senior Vice President (since 2006)
Principal Occupation(s) During Past 5 Years:
Attorney, ACC (February 1994 to present); Vice President,
ACC
(November 2005 to present); General Counsel,
ACC
(March
2007 to present). Also serves as: General Counsel,
ACIM, ACGIM, ACS, ACIS
and other
ACC
subsidiaries; and Senior Vice President,
ACIM, ACGIM
and
ACS
Robert Leach,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1966
Position(s) Held with Funds:
Vice President, Treasurer and Chief Financial Officer (all since 2006)
Principal Occupation(s) During Past 5 Years:
Vice President,
ACS
(February 2000 to present); and Controller, various American Century Investments funds (1997 to September 2006)
Jon Zindel,
4500 Main Street, Kansas City, MO 64111
Year of Birth:
1967
Position(s) Held with Funds:
Tax Officer (since 1998)
Principal Occupation(s) During Past 5 Years:
Chief Financial Officer and Chief Accounting Officer,
ACC
(March 2007 to present); Vice President,
ACC
(October
2001 to present); Vice President, certain
ACC
subsidiaries (October 2001 to August 2006); Vice President, Corporate Tax,
ACS
(April 1998 to August 2006). Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior Vice President,
ACIM, ACGIM,
ACS
and other
ACC
subsidiaries; and Chief Accounting Officer and Senior Vice President,
ACIS
On December 23, 1999, American Century Services, LLC (ACS) entered into an agreement with DST Systems, Inc. (DST) under which DST would provide back-office software and support services for transfer agency services provided by ACS (the Agreement). ACS pays DST fees based in part on the number of accounts and the number and type of transactions processed for those accounts. For the calendar year
ended December 31, 2007, DST received $20,416,010 in fees from ACS. DST’s total revenue for the calendar year ended December 31, 2007, was approximately $2.3 billion.
Ms. Strandjord is a director of DST and a holder of 22,642 shares and possesses options to acquire an additional 55,890 shares of DST common stock, the sum of which is less than one percent (1%) of the shares outstanding. Because of her official duties as a director of DST, she may be deemed to have an “indirect interest” in the Agreement. However, the Board of Directors of the funds
was not required to nor did it approve or disapprove the Agreement, since the provision of the services covered by the Agreement is within the discretion of ACS. DST was chosen by ACS for its industry-leading role in providing cost-effective back-office support for mutual fund service providers such as ACS. DST is the largest mutual fund transfer agent, servicing more than 75 million mutual fund accounts on its shareholder recordkeeping system. Ms. Strandjord’s role as a director of DST was not considered
by ACS; she was not involved in any way with the negotiations between ACS and DST; and her status as a director of either DST or the funds was not a factor in the negotiations. The Board of Directors of the funds has concluded that the existence of this Agreement does not impair Ms. Strandjord’s ability to serve as an independent director under the Investment Company Act.
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the funds and meets at least quarterly to review reports about fund operations. Although the Board of Directors does not manage the funds, it has hired the advisor to do so. The directors, 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.
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 directors 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 directors who may exercise the powers and authority of the board to the extent that the directors determine. They may, in general, delegate such authority as they
consider desirable to any officer of the funds, to any committee of the board, 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 directors in good faith shall be conclusive.
The Advisory Board
The funds also have an Advisory Board. Members of the Advisory Board, if any, function like fund directors in many respects, but do not possess voting power. Advisory Board members attend all meetings of the Board of Directors and the independent directors and receive any materials distributed in connection with such meetings. Advisory Board
members may be considered as candidates to fill vacancies on the Board of Directors.
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 director first named serves as chairman of the committee.
Committee:
Executive
Members:
Donald H. Pratt, M. Jeannine Strandjord, Jonathan S. Thomas
Function:
The Executive Committee performs the functions of the Board of Directors between board meetings, subject to the limitations on its power set out in the Maryland General Corporation Law, and except for matters required by the Investment Company Act to be acted upon by the whole board.
Number of Meetings Held During Last Fiscal Year: 1
Committee:
Compliance and Shareholder Services
Members:
M. Jeannine Strandjord, Andrea C. Hall, Ph.D., James A. Olson, Donald H. Pratt
Function:
The Compliance and Shareholder Services Committee reviews the results of the funds’ compliance testing program, reviews trends and significant shareholder and intermediary service and communication issues and monitors the implementation of the funds’ Code of Ethics, including any violations.
Number of Meetings Held During Last Fiscal Year:
4
Committee:
Audit
Members:
Thomas A. Brown, Gale E. Sayers, John R. Whitten
Function:
The Audit Committee approves the engagement of the funds’ independent registered public accounting firm, recommends approval of such engagement to the independent directors, 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.
Number of Meetings Held During Last Fiscal Year:
4
Committee:
Governance
Members:
Andrea C. Hall, Ph.D., Donald H. Pratt, Gale E. Sayers
Function:
The Governance Committee primarily considers and recommends individuals for nomination as directors. The names of potential director candidates are drawn from a number of sources, including recommendations from members of the board, management (in the case of interested directors only) and shareholders. See
Nominations
of Directors
below. This committee also reviews and makes recommendations to the board with respect to the composition of board committees and other board-related matters, including its organization, size, composition, responsibilities, functions and compensation.
Number of Meetings Held During Last Fiscal Year: 0
Committee:
Fund Performance Review
Members:
James A. Olson, Thomas A. Brown, Andrea C. Hall, Ph.D., Donald H. Pratt, Gale E. Sayers, M. Jeannine Strandjord, John R. Whitten
Function:
The Fund Performance Review Committee reviews quarterly the investment activities and strategies used to manage fund assets. The committee regularly receives reports from portfolio managers and other investment personnel concerning the funds’ investments.
Number of Meetings Held During Last Fiscal Year:
4
Nominations of Directors
As indicated in the table above, the Governance Committee is responsible for identifying, evaluating and recommending qualified candidates for election to the funds’ Board of Directors. While the Governance Committee largely considers nominees from searches that it conducts, the Committee will consider director candidates submitted by
shareholders. Any shareholder wishing to submit a candidate for consideration should send the following information to the Corporate Secretary, American Century Investments Funds, P.O. Box 410141, Kansas City, MO 64141 or by email to corporatesecretary@americancentury.com:
|
•
|
Shareholder’s name, the fund name and number of fund shares owned and length of period held;
|
|
•
|
Name, age and address of the candidate;
|
|
•
|
A detailed resume describing, among other things, the candidate’s educational background, occupation, employment history, financial knowledge and expertise and material outside commitments (e.g., memberships on other boards and committees, charitable foundations, etc.);
|
|
•
|
Any other information relating to the candidate that is required to be disclosed in solicitations of proxies for election of directors in an election contest pursuant to Regulation 14A under the Securities Exchange Act of 1934;
|
|
•
|
Number of fund shares owned by the candidate and length of time held;
|
|
•
|
A supporting statement which (i) describes the candidate’s reasons for seeking election to the Board of Directors and (ii) documents his/her ability to satisfy the director qualifications described in the board’s policy; and
|
|
•
|
A signed statement from the candidate confirming his/her willingness to serve on the Board of Directors.
|
The Corporate Secretary will promptly forward such materials to the Governance Committee chairman. The Corporate Secretary also will maintain copies of such materials for future reference by the Governance Committee when filling board positions.
Shareholders may submit potential director candidates at any time pursuant to these procedures. The Governance Committee will consider such candidates if a vacancy arises or if the board decides to expand its membership, and at such other times as the Governance Committee deems necessary or appropriate.
Compensation of Directors
The independent directors serve as directors for seven investment companies in the American Century Investments family of funds. James E. Stowers, Jr. and Jonathan S. Thomas are interested directors who serve as directors for seven investment companies and 15 investment companies, respectively, in the American Century Investments family of funds. As interested directors, Mr. Stowers and Mr. Thomas
do not receive any compensation from the funds for their service as directors. Each director 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 such 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 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 investment companies served by the board to each director who is not an interested person as defined in the Investment Company Act.
|
Aggregate Director Compensation for Fiscal Year Ended July 31, 2008
|
||
|
Name of Director
|
Total Compensation
from the Funds
(1)
|
Total Compensation from the
American Century Investments
Family of Funds
(2)
|
|
Thomas A. Brown
|
$251
|
$156,667
|
|
Andrea C. Hall, Ph.D.
|
$241
|
$150,417
|
|
James A. Olson
|
$241
|
$149,917
|
|
Donald H. Pratt
|
$301
|
$188,917
|
|
Gale E. Sayers
|
$235
|
$146,917
|
|
M. Jeannine Strandjord
|
$252
|
$157,667
|
|
Timothy S. Webster
(3)
|
$148
|
$99,333
|
|
John R. Whitten
(4)
|
$76
|
$42,500
|
|
1
|
Includes compensation paid to the directors for the fiscal year ended July 31, 2008, and also includes amounts deferred at the election of the directors under the American Century Investments Mutual Funds’ Independent Directors’ Deferred Compensation Plan.
|
|
2
|
Includes compensation paid by the investment companies of the American Century Investments family of funds served by this board at the end of the fiscal year. The total amount of deferred compensation included in the preceding table is as follows: Mr. Brown, $24,833; Dr. Hall, $140,867; Mr. Olson, $149,917; Mr. Pratt, $23,163; Mr. Sayers, $146,917 and Mr. Webster, $24,217.
|
|
3
|
Mr. Webster resigned from the Board on March 6, 2008.
|
|
4
|
Mr. Whitten joined the Board on April 29, 2008.
|
The funds have adopted the American Century Investments Mutual Funds’ Independent Directors’ Deferred Compensation Plan. Under the plan, the independent directors may defer receipt of all or any part of the fees to be paid to them for serving as directors of the funds.
All deferred fees are credited to an account established in the name of the directors. 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 Investments funds that are selected by the director. The account balance continues to fluctuate in
accordance with the performance of the selected fund or funds until final payment of all amounts credited to the account. Directors are allowed to change their designation of mutual funds from time to time.
No deferred fees are payable until such time as a director resigns, retires or otherwise ceases to be a member of the Board of Directors. Directors 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 director,
all remaining deferred fee account balances are paid to the director’s beneficiary or, if none, to the director’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 directors 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.
OWNERSHIP OF FUND SHARES
The directors owned shares in the funds as of December 31, 2007, as shown in the table below. John R. Whitten is not included in this table because he was not a director as of December 31, 2007.
Ranges: A—none, B—$1-$10,000, C—$10,001-$50,000, D—$50,001-$100,000, E—More than $100,000
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 codes of ethics under Rule 17j-1 of the Investment Company Act. They permit personnel subject to the codes 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 Directors 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:
|
•
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Election of Directors
|
|
•
|
Ratification of Selection of Auditors
|
|
•
|
Equity-Based Compensation Plans
|
|
•
|
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
|
|
|
•
|
Shareholder Proposals Involving Social, Moral or Ethical Matters
|
|
•
|
Anti-Greenmail Proposals
|
|
•
|
Changes to Indemnification Provisions
|
|
•
|
Non-Stock Incentive Plans
|
|
•
|
Director Tenure
|
|
•
|
Directors’ Stock Options Plans
|
|
•
|
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 Investments
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 directors of the funds.
In addition, to avoid any potential conflict of interest that may arise when one American Century Investments fund owns shares of another American Century Investments fund, the advisor will “echo vote” such shares, if possible. That is, it will vote the shares in the same proportion as the vote of all other holders of the shares.
Shares of American Century Investments “NT” funds will be voted in the same proportion as the vote of the shareholders of the corresponding American Century Investments policy portfolio for proposals common to both funds. For example, NT Growth Fund shares will be echo voted in accordance with the votes of Growth Fund shareholders. In all other cases, the shares will be voted in direct consultation with a committee of the independent directors of the voting fund.
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
The advisor (ACIM) has adopted policies and procedures with respect to the disclosure of fund portfolio holdings and characteristics, which are described below.
Distribution to the Public
Full portfolio holdings for each fund will be made available for distribution 30 days after the end of each calendar quarter, and will be posted on americancentury.com at approximately the same time. This disclosure is in addition to the portfolio disclosure in annual and semi-annual shareholder reports, and on Form N-Q, which disclosures
are filed with the Securities and Exchange Commission within 60 days of each fiscal quarter end and also posted on americancentury.com at the time the filings are made.
Top 10 holdings for each fund will be made available for distribution 30 days after the end of each month, and will be posted on americancentury.com at approximately the same time.
Portfolio characteristics that are derived from portfolio holdings but do not identify any specific security will be made available for distribution 15 days after the end of the period to which such data relates. Characteristics that identify any specific security will be made available 30 days after the end of the period to which such data relates. Characteristics in both categories will generally
be posted on americancentury.com at approximately the time they are made available for distribution. Data derived from portfolio returns and any other characteristics not deemed confidential will be available for distribution at any time. The advisor may make determinations of confidentiality on a fund-by-fund basis, and may add or delete characteristics to or from those considered confidential at any time.
Any American Century Investments fund that sells securities short as an investment strategy will disclose full portfolio holdings only in annual and semi-annual shareholder reports and on form N-Q. These funds will make long holdings available for distribution 30 days after the end of each calendar quarter, but the funds will keep short holdings confidential. Top 10 long holdings and
portfolio characteristics will be made available for distribution in accordance with the policies set forth above.
So long as portfolio holdings are disclosed in accordance with the above parameters, the advisor makes no distinction among different categories of recipients, such as individual investors, institutional investors, intermediaries that distribute the funds' shares, third-party service providers, rating and ranking organizations, and fund affiliates. Because this information is publicly available
and widely disseminated, the advisor places no conditions or restrictions on, and does not monitor, its use. Nor does the advisor require special authorization for its disclosure.
Accelerated Disclosure
The advisor recognizes that certain parties, in addition to the advisor and its affiliates, may have legitimate needs for information about portfolio holdings and characteristics prior to the times prescribed above. Such accelerated disclosure is permitted under the circumstances described below.
Ongoing Arrangements
Certain parties, such as investment consultants who provide regular analysis of fund portfolios for their clients and intermediaries who pass through information to fund shareholders, may have legitimate needs for accelerated disclosure. These needs may include, for example, the preparation of reports for customers who invest in the funds,
the creation of analyses of fund characteristics for intermediary or consultant clients, the reformatting of data for distribution to the intermediary’s or consultant’s clients, and the review of fund performance for ERISA fiduciary purposes.
In such cases, accelerated disclosure is permitted if the service provider enters an appropriate non-disclosure agreement with the funds’ distributor in which it agrees to treat the information confidentially until the public distribution date and represents that the information will be used only for the legitimate services provided to
its clients (i.e., not for trading). Non-disclosure agreements require the approval of an attorney in the advisor’s legal department. The advisor’s compliance department receives quarterly reports detailing which clients received accelerated disclosure, what they received, when they received it and the purposes of such disclosure. Compliance personnel are required to confirm that an appropriate non-disclosure agreement has been obtained from each recipient identified in the reports.
Those parties who have entered into non-disclosure agreements as of October 20, 2008, are as follows:
|
•
|
AIG Retirement Advisors, Inc.
|
|
•
|
AIG Retirement Services Company
|
|
•
|
American Fidelity Assurance Co.
|
|
•
|
AUL/American United Life Insurance Company
|
|
•
|
Ameritas Life Insurance Corporation
|
|
•
|
Annuity Investors Life Insurance Company
|
|
•
|
Asset Services Company L.L.C.
|
|
•
|
Bell Globemedia Publishing
|
|
•
|
Bellwether Consulting, LLC
|
|
•
|
Bidart & Ross
|
|
•
|
Callan Associates, Inc.
|
|
•
|
Cambridge Financial Services, Inc.
|
|
•
|
Capital Cities, LLC
|
|
•
|
Charles Schwab & Co., Inc.
|
|
•
|
Cleary Gull Inc.
|
|
•
|
Commerce Bank, N.A.
|
|
•
|
Connecticut General Life Insurance Company
|
|
•
|
Consulting Services Group, LLC
|
|
•
|
CRA RogersCasey, Inc.
|
|
•
|
Defined Contribution Advisors, Inc.
|
|
•
|
DWS Scudder Distributors, Inc.
|
|
•
|
EquiTrust Life Insurance Company
|
|
•
|
Evaluation Associates, LLC
|
|
•
|
Evergreen Investments
|
|
•
|
Farm Bureau Life Insurance Company
|
|
•
|
First MetLife Investors Insurance Company
|
|
•
|
Fund Evaluation Group, LLC
|
|
•
|
The Guardian Life Insurance & Annuity Company, Inc.
|
|
•
|
Hammond Associates, Inc.
|
|
•
|
Hewitt Associates LLC
|
|
•
|
ICMA Retirement Corporation
|
|
•
|
ING Life Insurance Company & Annuity Co.
|
|
•
|
Investors Securities Services, Inc.
|
|
•
|
Iron Capital Advisors
|
|
•
|
J.P. Morgan Retirement Plan Services LLC
|
|
•
|
Jefferson National Life Insurance Company
|
|
•
|
Jeffrey Slocum & Associates, Inc.
|
|
•
|
John Hancock Financial Services, Inc.
|
|
•
|
Kansas City Life Insurance Company
|
|
•
|
Kmotion, Inc.
|
|
•
|
Liberty Life Insurance Company
|
|
•
|
The Lincoln National Life Insurance Company
|
|
•
|
Lipper Inc.
|
|
•
|
Massachusetts Mutual Life Insurance Company
|
|
•
|
Merrill Lynch
|
|
•
|
MetLife Investors Insurance Company
|
|
•
|
MetLife Investors Insurance Company of California
|
|
•
|
Midland National Life Insurance Company
|
|
•
|
Minnesota Life Insurance Company
|
|
•
|
Morgan Keegan & Co., Inc.
|
|
•
|
Morgan Stanley & Co., Inc.
|
|
•
|
Morningstar Associates LLC
|
|
•
|
Morningstar Investment Services, Inc.
|
|
•
|
Mutual of America Life Insurance Company
|
|
•
|
National Life Insurance Company
|
|
•
|
Nationwide Financial
|
|
•
|
New England Pension Consultants
|
|
•
|
Northwestern Mutual Life Insurance Co.
|
|
•
|
NT Global Advisors, Inc.
|
|
•
|
NYLIFE Distributors, LLC
|
|
•
|
Principal Life Insurance Company
|
|
•
|
Prudential Financial
|
|
•
|
RiverSource Investments
|
|
•
|
Rocaton Investment Advisors, LLC
|
|
•
|
S&P Financial Communications
|
|
•
|
Security Benefit Life Insurance Co.
|
|
•
|
Smith Barney
|
|
•
|
SunTrust Bank
|
|
•
|
Symetra Life Insurance Company
|
|
•
|
Trusco Capital Management
|
|
•
|
Union Bank of California, N.A.
|
|
•
|
The Union Central Life Insurance Company
|
|
•
|
Vestek Systems, Inc.
|
|
•
|
Wachovia Bank, N.A.
|
|
•
|
Wells Fargo Bank, N.A.
|
Once a party has executed a non-disclosure agreement, it may receive any or all of the following data for funds in which its clients have investments or are actively considering investment:
|
(1)
|
Full holdings quarterly as soon as reasonably available;
|
|
(2)
|
Full holdings monthly as soon as reasonably available;
|
|
(3)
|
Top 10 holdings monthly as soon as reasonably available; and
|
|
(4)
|
Portfolio characteristics monthly as soon as reasonably available.
|
The types, frequency and timing of disclosure to such parties vary. In most situations, the information provided pursuant to a non-disclosure agreement is limited to certain portfolio characteristics and/or top 10 holdings, which information is provided on a monthly basis. In limited situations, and when approved by a member of the legal department
and responsible chief investment officer, full holdings may be provided.
Single Event Requests
In certain circumstances, the advisor may provide fund holding information on an accelerated basis outside of an ongoing arrangement with manager-level or higher authorization. For example, from time to time the advisor may receive requests for proposals (RFPs) from consultants or potential clients that request information about a fund’s
holdings on an accelerated basis. 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 as of the most recent month end regardless of lag time. Such information will be provided with a confidentiality legend and only in cases where the advisor has reason to believe that the data will be used only for legitimate purposes and not for trading.
In addition, the advisor occasionally may work with a transition manager to move a large account into or out of a fund. To reduce the impact to the fund, such transactions may be conducted on an in-kind basis using shares of portfolio securities rather than cash. The advisor may provide accelerated holdings disclosure to the transition manager
with little or no lag time to facilitate such transactions, but only if the transition manager enters into an appropriate non-disclosure agreement.
Service Providers
Various service providers to the funds and the funds’ advisor must have access to some or all of the funds’ portfolio holdings information on an accelerated basis from time to time in the ordinary course of providing services to the funds. These service providers include the funds’ custodian (daily, with no lag), auditors (as
needed) and brokers involved in the execution of fund trades (as needed). Additional information about these service providers and their relationships with the funds and the advisor are provided elsewhere in this statement of additional information.
Additional Safeguards
The advisor’s policies and procedures include a number of safeguards designed to control disclosure of portfolio holdings and characteristics so that such disclosure is consistent with the best interests of fund shareholders. First, the frequency with which this information is disclosed to the public, and the length of time between the
date of the information and the date on which the information is disclosed, are selected to minimize the possibility of a third party improperly benefiting from fund investment decisions to the detriment of fund shareholders. Second, distribution of portfolio holdings information, including compliance with the advisor’s policies and the resolution of any potential conflicts that may arise, is monitored quarterly. Finally, the funds’ Board of Directors exercises oversight of disclosure of the funds’
portfolio securities. The board has received and reviewed a summary of the advisor’s policy and is informed on a quarterly basis of any changes to or violations of such policy detected during the prior quarter.
Neither the advisor nor the funds receive any compensation from any party for the distribution of portfolio holdings information.
The advisor reserves the right to change its policies and procedures with respect to the distribution of portfolio holdings information at any time. There is no guarantee that these policies and procedures will protect the funds from the potential misuse of holdings information by individuals or firms in possession of such information.
THE FUNDS’ PRINCIPAL SHAREHOLDERS
As of October 31, 2008, the following shareholders owned more than 5% of the outstanding shares of a class of the funds. The table shows shares owned of record. Beneficial ownership of which American Century Investments is aware appears in a footnote to the table.
|
Fund/
Class
|
Shareholder
|
Percentage of
Outstanding Shares
Owned of Record
|
|
Legacy Focused Large Cap
|
||
|
Investor Class
|
||
|
Charles Schwab & Co., Inc.
San Francisco, California
|
13%
|
|
|
Institutional Class
|
||
|
Rockhurst University Endowment Fund
Kansas City, Missouri
|
99%
|
|
|
R Class
|
||
|
American Century Investment Management, Inc.
Kansas City, Missouri
|
76%
(1)
|
|
|
National Financial Services Corp.
New York, New York
|
17%
|
|
|
Maxpitch Media 401K Plan
Richmond, Virginia
|
7%
|
|
|
Advisor Class
|
||
|
LPL Financial
FBO Customer Accounts
San Diego, California
|
26%
|
|
|
Ameritrade Inc
Omaha, Nebraska
|
22%
|
|
|
Charles Schwab & Co., Inc.
San Francisco, California
|
13%
|
|
|
GPC Securities Inc. Agent For Reliance Trust
Company FBO Marble Harbor 401K Plan
Atlanta, Georgia
|
12%
|
|
|
Legacy Large Cap
|
||
|
Investor Class
|
||
|
None
|
||
|
Institutional Class
|
||
|
American Century Investment Management, Inc.
Kansas City, Missouri
|
97%
(1)
|
|
|
R Class
|
||
|
American Century Investment Management, Inc.
Kansas City, Missouri
|
100%
(1)
|
|
|
1
|
Shares owned of record and beneficially.
|
|
Fund/
Class
|
Shareholder
|
Percentage of
Outstanding Shares
Owned of Record
|
|
Legacy Large Cap
|
||
|
Advisor Class
|
||
|
American Century Investment Management, Inc.
Kansas City, Missouri
|
57%
(1)
|
|
|
Charles Schwab & Co., Inc.
San Francisco, California
|
38%
|
|
|
Legacy Multi Cap
|
||
|
Investor Class
|
||
|
American Century Services Corp
KPESP LQ Very Aggressive
Kansas City, Missouri
|
20%
|
|
|
American Century Services Corp
KPESP LQ Aggressive
Kansas City, Missouri
|
20%
|
|
|
American Century Services Corp
KPESP LQ 100% Equity
Kansas City, Missouri
|
6%
|
|
|
Institutional Class
|
||
|
American Century Investment Management, Inc.
Kansas City, Missouri
|
66%
(1)
|
|
|
Ameritrade Inc.
Omaha, Nebraska
|
7%
|
|
|
R Class
|
||
|
MG Trust Company as Agent For Frontier Trust
CO AS TR Santa's Heating & Air Conditioning
Fargo, North Dakota
|
42%
|
|
|
GPC Securities Inc. Agent For Reliance Trust Company FBO Caredent, P.L.L.C. Profit Plan
Atlanta, Georgia
|
17%
|
|
|
MG Trust Company Custodian
FBO Pediatric Psychology Associates LLC
Denver, Colorado
|
17%
|
|
|
GPC Securities Inc. Agent For Reliance Trust Company FBO C&S Construction, Inc. Ret. Plan
Atlanta, Georgia
|
7%
|
|
|
Ameritrade Inc
Omaha, Nebraska
|
7%
|
|
|
Advisor Class
|
||
|
Charles Schwab & Co., Inc.
San Francisco, California
|
75%
|
|
|
Pershing LLC
Jersey City, New Jersey
|
14%
|
|
|
Ameritrade Inc
Omaha, Nebraska
|
6%
|
|
|
1
|
Shares owned of record and beneficially.
|
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. A shareholder owning of record or beneficially more than 25% of the corporation’s outstanding shares may be considered a controlling person. The vote of any such person could have a more significant effect on matters presented at a shareholders’
meeting than votes of other shareholders. The funds are unaware of any shareholders, beneficial or of record, who own more than 25% of the voting securities of American Century Growth Funds, Inc. As of October 31, 2008, the officers and directors 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 corporation has hired a number of service providers. Each service provider has a specific function to fill on behalf of the funds that is described below.
ACIM, ACS and ACIS are wholly owned, directly or indirectly, by ACC. James E. Stowers, Jr., controls ACC by virtue of his ownership of a majority of its voting stock.
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 prospectus under the heading
Management.
For services provided to each fund, the advisor receives a unified management fee based on a percentage of the daily net assets of each class of shares of the fund. For more information about the unified management fee, see
The Investment Advisor
under the heading
Management
in the
funds’ prospectus. The amount of the fee is calculated daily and paid monthly in arrears. For each fund with a stepped fee schedule, the rate of the fee is determined by applying the formula indicated in the table below. This formula takes into account all of the advisor’s assets under management in the fund’s investment strategy (strategy assets). Strategy assets include assets of the fund and certain assets of other clients of the advisor outside the American Century Investments fund family that
use very similar investment teams and strategies. The funds in this statement of additional information do not have the same investment strategy and their assets are therefore not combined for purposes of calculating strategy assets. The use of strategy assets, rather than fund assets, in calculating the fee rate for a particular fund could allow the fund to realize scheduled cost savings more quickly. However, the funds’ strategy assets currently do not include assets of other client accounts. In addition,
if such assets are acquired in the future, they may not be sufficient to result in a lower fee rate. The management fee schedules for the funds appear below.
|
Fund
|
Class
|
Percentage of Strategy Assets
|
|
Legacy Focused
Large Cap
|
Investor, R and Advisor
|
1.10% of first $500 million
1.05% of the next $500 million
1.00% of the next $4 billion
0.99% of the next $5 billion
0.98% of the next $5 billion
0.97% of the next $5 billion
0.95% of the next $5 billion
0.90% of the next $5 billion
0.80% over $30 billion
|
|
Institutional
|
0.90% of first $500 million
0.85% of the next $500 million
0.80% of the next $4 billion
0.79% of the next $5 billion
0.78% of the next $5 billion
0.77% of the next $5 billion
0.75% of the next $5 billion
0.70% of the next $5 billion
0.60% over $30 billion
|
|
|
Legacy Large Cap
|
Investor, R and Advisor
|
1.10% of first $500 million
1.05% of the next $500 million
1.00% of the next $4 billion
0.99% of the next $5 billion
0.98% of the next $5 billion
0.97% of the next $5 billion
0.95% of the next $5 billion
0.90% of the next $5 billion
0.80% over $30 billion
|
|
Institutional
|
0.90% of first $500 million
0.85% of the next $500 million
0.80% of the next $4 billion
0.79% of the next $5 billion
0.78% of the next $5 billion
0.77% of the next $5 billion
0.75% of the next $5 billion
0.70% of the next $5 billion
0.60% over $30 billion
|
|
|
Legacy Multi Cap
|
Investor, R and Advisor
|
1.15% of first $500 million
1.10% of the next $500 million
1.05% of the next $4 billion
1.04% of the next $5 billion
1.03% of the next $5 billion
1.02% of the next $5 billion
1.00% of the next $5 billion
0.95% of the next $5 billion
0.85% over $30 billion
|
|
Institutional
|
0.95% of first $500 million
0.90% of the next $500 million
0.85% of the next $4 billion
0.84% of the next $5 billion
0.83% of the next $5 billion
0.82% of the next $5 billion
0.80% of the next $5 billion
0.75% of the next $5 billion
0.65% over $30 billion
|
On each calendar day, each class of each fund accrues a management fee that is equal to the class’s management fee rate (as calculated pursuant to the above schedules) 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 management fee is the sum of the daily fee calculations for each day of the previous month.
The management agreement between the corporation 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 fund shareholders following such execution and for as long thereafter as its continuance is specifically approved at least annually by
|
(1)
|
the funds’ Board of Directors, or a majority of outstanding shareholder votes (as defined in the Investment Company Act) and
|
|
(2)
|
the vote of a majority of the directors 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 Directors 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 states 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, directors and employees may engage in other business, render services to others, and devote time and attention to any other business whether of a similar or dissimilar nature.
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. A particular security may be bought for one client or fund on the same day it is sold for another client or fund, and a client or fund may hold a short position in a particular security at the same time another client or fund holds a long position. In addition, purchases or sales of the same security may be
made for two or more clients or funds on the same date. The advisor has adopted procedures designed to ensure such transactions will be allocated among clients and funds 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 Directors has approved the policy of the advisor with respect to the aggregation of portfolio transactions. To the extent
equity trades are aggregated, shares purchased or sold are generally allocated to the participating portfolios pro rata based on order size. 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 for the fiscal years ended July 31, 2008, 2007 and 2006, are indicated in the following table.
|
Unified Management Fee
|
|||
|
Fund
|
2008
|
2007
|
2006
(1)
|
|
Legacy Focused Large Cap
|
$373,363
|
$117,787
|
$8,427
|
|
Legacy Large Cap
|
$137,006
|
$70,823
|
$6,556
|
|
Legacy Multi Cap
|
$483,736
|
$158,149
|
$6,669
|
|
1
|
For the period from the funds’ inception, May 31, 2006, through July 31, 2006.
|
PORTFOLIO MANAGER
Accounts Managed
The portfolio manager is responsible for the day-to-day management of various accounts, as indicated by the following table. Unless otherwise noted, these accounts do not have an advisory fee based on the performance of the account.
|
Accounts Managed (As of July 31, 2008)
|
||||
|
Registered
Investment
Companies (e.g.,
American Century Investments
funds and
American Century
Investments -
subadvised funds)
|
Other Pooled
Investment
Vehicles (e.g.,
commingled
trusts and 529
education
savings plans)
|
Other Accounts
(e.g., separate accounts
and corporate accounts
including
incubation
strategies and
corporate money)
|
||
|
John T.
Small Jr.
|
Number of
Accounts
|
5
|
0
|
1
|
|
Assets
|
$252,883,021
(1)
|
N/A
|
$1,039,403
|
|
|
1
|
Includes $40,088,002 in Legacy Focused Large Cap, $16,649,770 in Legacy Large Cap and $36,235,300 in Legacy Multi Cap.
|
Potential Conflicts of Interest
Certain conflicts of interest may arise in connection with the management of multiple portfolios. Potential conflicts include, for example, conflicts among investment strategies and conflicts in the allocation of investment opportunities. American Century Investments has adopted policies and procedures that are designed to minimize the effects
of these conflicts. Responsibility for managing American Century Investments client portfolios is organized according to investment discipline. Investment disciplines include, for example, core equity, small- and mid-cap growth, large-cap growth, value, international, fixed income, asset allocation, and sector funds. Within each discipline are one or more portfolio teams responsible for managing specific client portfolios. Generally, client portfolios with similar strategies are managed by the same team using
the same objective, approach, and philosophy. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar portfolios, which minimizes the potential for conflicts of interest.
For each investment strategy, one portfolio is generally designated as the “policy portfolio.” Other portfolios with similar investment objectives, guidelines and restrictions, if any, are referred to as “tracking portfolios.” When managing policy and tracking portfolios, a portfolio team typically purchases and sells securities
across all portfolios that the team manages. American Century Investments’ trading systems include various order entry programs that assist in the management of multiple portfolios, such as the ability to purchase or sell the same relative amount of one security across several funds. In some cases a tracking portfolio may have additional restrictions or limitations that cause it to be managed separately from the policy portfolio. Portfolio managers make purchase and sale decisions for such portfolios alongside
the policy portfolio to the extent the overlap is appropriate, and separately, if the overlap is not.
American Century Investments may aggregate orders to purchase or sell the same security for multiple portfolios when it believes such aggregation is consistent with its duty to seek best execution on behalf of its clients. Orders of certain client portfolios may, by investment restriction or otherwise, be determined not available for aggregation.
American Century Investments has adopted policies and procedures to minimize the risk that a client portfolio could be systematically advantaged or disadvantaged in connection with the aggregation of orders. To the extent equity trades are aggregated, shares purchased or sold are generally allocated to the participating portfolios
pro rata
based on order size. Because initial public offerings (IPOs) are usually available in limited supply and in amounts
too small to permit across-the-board pro rata allocations, American Century Investments has adopted special procedures designed to promote a fair and equitable allocation of IPO securities among clients over time. Fixed income securities transactions are not executed through a centralized trading desk. Instead, portfolio teams are responsible for executing trades with broker/dealers in a predominantly dealer marketplace. Trade allocation decisions are made by the portfolio manager at the time of trade execution
and orders entered on the fixed income order management system.
Finally, investment of American Century Investments’ corporate assets in proprietary accounts may raise additional conflicts of interest. To mitigate these potential conflicts of interest, American Century Investments has adopted policies and procedures intended to provide that trading in proprietary accounts is performed in a manner
that does not give improper advantage to American Century Investments to the detriment of client portfolios.
Compensation
American Century Investments portfolio manager compensation is structured to align the interests of portfolio managers with those of the shareholders whose assets they manage. As of July 31, 2008, it includes the components described below, each of which is determined with reference to a number of factors such as overall performance, market competition, and internal equity. Compensation is not
directly tied to the value of assets held in client portfolios.
Base Salary
Portfolio managers receive base pay in the form of a fixed annual salary.
Bonus
A significant portion of portfolio manager compensation takes the form of an annual incentive bonus tied to performance. Bonus payments are determined by a combination of factors. One factor is fund investment performance. Fund investment performance is generally measured by a combination of one- and three-year pre-tax performance relative to various benchmarks and/or internally-customized peer
groups, such as those indicated below. The performance comparison periods may be adjusted based on a fund’s inception date or a portfolio manager’s tenure on the fund. Beginning in 2008, American Century Investments is placing increased emphasis on long-term performance and is phasing in five-year performance comparison periods.
|
Fund
|
Benchmarks
|
Peer Group
(1)
|
|
Legacy Focused Large Cap
|
S&P 500 Index
|
Morningstar
Large Cap Growth
|
|
Legacy Large Cap
|
Russell 1000 Growth Index
|
Morningstar
Large Cap Growth
|
|
Legacy Multi Cap
|
Russell 3000 Index
|
Lipper Multi-Cap
Growth
|
|
1
|
Custom peer groups are constructed using all the funds in the indicated categories as a starting point. Funds are then eliminated from the peer group based on a standardized methodology designed to result in a final peer group that is both more stable (i.e., has less peer turnover) over the long term and that more closely represents the fund’s true peers based on internal investment mandates.
|
Portfolio managers may have responsibility for multiple American Century Investments mutual funds. In such cases, the performance of each is assigned a percentage weight appropriate for the portfolio manager’s relative levels of responsibility. Portfolio managers also may have responsibility for other types of similarly managed portfolios. If the performance of a similarly managed account
is considered for purposes of compensation, it is either measured in the same way as a comparable American Century Investments mutual fund (i.e., relative to the performance of a benchmark and/or peer group) or relative to the performance of such mutual fund.
A second factor in the bonus calculation relates to the performance of a number of American Century Investments funds managed according to one of the following investment styles: U.S. growth, U.S. value, international, quantitative and fixed-income. Performance is measured for each product individually as described above and then combined to create an overall composite for the product group.
These composites may measure one-year performance (equal weighted) or a combination of one- and three-year performance (equal or asset weighted) depending on the portfolio manager’s responsibilities and products managed. This feature is designed to encourage effective teamwork among portfolio management teams in achieving long-term investment success for similarly styled portfolios.
A portion of portfolio managers’ bonuses may be tied to individual performance goals, such as research projects and the development of new products.
Restricted Stock Plans
Portfolio managers are eligible for grants of restricted stock of ACC. These grants are discretionary, and eligibility and availability can vary from year to year. The size of an individual’s grant is determined by individual and product performance as well as other product-specific considerations. Grants can appreciate/depreciate in
value based on the performance of the ACC stock during the restriction period (generally three years).
Deferred Compensation Plans
Portfolio managers are eligible for grants of deferred compensation. These grants are used in very limited situations, primarily for retention purposes. Grants are fixed and can appreciate/depreciate in value based on the performance of the American Century Investments mutual funds in which the portfolio manager chooses to invest them.
Ownership of Securities
The following table indicates the dollar range of securities of each fund beneficially owned by the funds’ portfolio manager as of July 31, 2008, the fund’s most recent fiscal year end.
|
Ownership of Securities
|
|
|
Aggregate Dollar Range
of Securities in Fund
|
|
|
Legacy Focused Large Cap
|
|
|
John T. Small Jr.
|
C
|
|
Legacy Large Cap
|
|
|
John T. Small Jr.
|
B
|
|
Legacy Multi Cap
|
|
|
John T. Small Jr.
|
B
|
Ranges: A – none; B – $1-$10,000; C – $10,001-$50,000; D – $50,001-$100,000; E – $100,001-$500,000; F – $500,001-$1,000,000; G – More than $1,000,000
TRANSFER AGENT AND ADMINISTRATOR
American Century Services, LLC (ACS), 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 ACS’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
on page 34.
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.
SUB-ADMINISTRATOR
The advisor has entered into a Mutual Funds Services Agreement with J.P. Morgan Investor Services Co. (JPMIS) to provide certain fund accounting, fund financial reporting, tax and treasury/tax compliance services for the funds, including striking the daily net asset value for each fund. The advisor pays JPMIS a monthly fee on a per fund basis as compensation for these services. While ACS continues
to serve as the administrator of the funds, JPMIS provides sub-administrative services that were previously undertaken by ACS.
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 payment, see the above discussion under the caption
Investment Advisor
on page 34. 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 that 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.
CUSTODIAN BANKS
JPMorgan Chase Bank, 4 Metro Tech Center, Brooklyn, New York 11245, serves as custodian of the funds’ cash and securities. Foreign securities, if any, are held by foreign banks participating in a network coordinated by JPMorgan Chase Bank. Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105, also serves as custodian of the funds’ cash to facilitate purchases and redemptions
of fund shares. 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. JPMorgan Chase Bank is paid based on the monthly average of assets held in custody plus a transaction fee.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche
LLP
is the independent registered public accounting firm of the funds. The address of Deloitte & Touche
LLP
is 1100 Walnut Street, Kansas City, Missouri 64106. As the independent registered public accounting firm of the funds, Deloitte & Touche
LLP
provides
services including
|
(1)
|
auditing the annual financial statements for each fund, and
|
|
(2)
|
assisting and consulting in connection with SEC filings.
|
BROKERAGE ALLOCATION
The advisor places orders for equity portfolio transactions with broker-dealers, who receive commissions for their services. Generally, commissions relating to securities traded on foreign exchanges will be higher than commissions relating to securities traded on U.S. exchanges. The advisor purchases and sells fixed-income securities through principal transactions, meaning
the advisor normally purchases securities on a net basis directly from the issuer or a primary market-maker acting as principal for the securities. The funds generally do not pay a stated brokerage commission 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).
Under the management agreement between the funds and the advisor, the advisor has the responsibility of selecting brokers and dealers to execute portfolio transactions. The funds’ policy is to secure the most favorable prices and execution of orders on its portfolio transactions. The advisor selects broker-dealers on their perceived ability to obtain “best execution”
in effecting transactions in its clients’ portfolios. In selecting broker-dealers to effect portfolio transactions relating to equity securities, the advisor considers the full range and quality of a broker-dealer’s research and brokerage services, including, but not limited to, the following:
|
•
|
applicable commission rates and other transaction costs charged by the broker-dealer
|
|
•
|
value of research provided to the advisor by the broker-dealer (including economic forecasts, fundamental and technical advice on individual securities, market analysis, and advice, either directly or through publications or writings, as to the value of securities, availability of securities or of purchasers/sellers of securities)
|
|
•
|
timeliness of the broker-dealer's trade executions
|
|
•
|
broker-dealer’s ability to provide data on securities executions
|
|
•
|
financial condition of the broker-dealer
|
|
•
|
the quality of the overall brokerage and customer service provided by the broker-dealer
|
In transactions to buy and sell fixed-income securities, the selection of the broker- dealer is determined by the availability of the desired security and its offering price, as well as the broker-dealer’s general execution and operational and financial capabilities in the type of transaction involved. The advisor will seek to obtain prompt execution of orders at the most favorable
prices or yields. The advisor does not consider the receipt of products or services other than brokerage or research services in selecting broker-dealers.
On an ongoing basis, the advisor seeks to determine what levels of commission rates are reasonable in the marketplace. In evaluating the reasonableness of commission rates, the advisor considers:
|
•
|
rates quoted by broker-dealers
|
|
•
|
the size of a particular transaction, in terms of the number of shares, dollar amount, and number of clients involved
|
|
•
|
the ability of a broker-dealer to execute large trades while minimizing market impact
|
|
•
|
the complexity of a particular transaction
|
|
•
|
the nature and character of the markets on which a particular trade takes place
|
|
•
|
the level and type of business done with a particular firm over a period of time
|
|
•
|
the ability of a broker-dealer to provide anonymity while executing trades
|
|
•
|
historical commission rates
|
|
•
|
rates that other institutional investors are paying, based on publicly available information
|
The brokerage commissions paid by the funds may exceed those that another broker-dealer might have charged for effecting the same transactions, because of the value of the brokerage and research services provided by the broker-dealer. Research services furnished by broker-dealers through whom the funds effect securities transactions may be used by the advisor in servicing all of its accounts,
and not all such services may be used by the advisor in managing the portfolios of the funds.
Pursuant to its internal allocation procedures, the advisor regularly evaluates the brokerage and research services provided by each broker-dealer that it uses. On a semi-annual basis, each member of the advisor’s portfolio management team rates the quality of research and brokerage services provided by each broker-dealer that provides execution services and research to the advisor
for its clients’ accounts. The resulting scores are used to rank these broker-dealers on a broker research list. In the event that the advisor has determined that best execution for a particular transaction may be obtained by more than one broker-dealer, the advisor may consider the relative positions of the broker-dealer on this list in determining the party through which to execute the transaction. Actual business received by any firm may be more or less than other broker-dealers
with a similar rank. Execution-only brokers are used where deemed appropriate.
In the fiscal years ended July 31, 2008, 2007 and 2006, the brokerage commissions including, as applicable, futures commissions, of each fund are listed in the following table.
|
Fund
|
2008
|
2007
|
2006
(1)
|
|
Legacy Focused Large Cap
|
$27,656
|
$14,556
|
$1,952
|
|
Legacy Large Cap
|
$10,829
|
$7,228
|
$1,660
|
|
Legacy Multi Cap
|
$63,538
|
$30,995
|
$1,777
|
|
1
|
May 31, 2006 (inception) through July 31, 2006.
|
Brokerage commissions paid by a fund may vary significantly from year to year as a result of changing asset levels throughout the year, portfolio turnover, varying market conditions, and other factors.
The funds’ distributor (ACIS) and investment advisor (ACIM) are wholly owned, directly or indirectly, by ACC. JPMorgan Chase & Co. (JPM) is an equity investor in ACC. The funds paid J.P. Morgan Securities Inc. (JPMS), subsidiary of JPM, the following brokerage commissions for the fiscal years ended July 31, 2008, 2007, and 2006.
|
Fund
|
2008
|
2007
|
2006
|
|
Legacy Focused Large Cap
|
$0
|
$0
|
$0
|
|
Legacy Large Cap
|
$167
|
$0
|
$0
|
|
Legacy Multi Cap
|
$840
|
$0
|
$0
|
For the fiscal year ended July 31, 2008, the following table shows the percentage of each fund’s aggregate brokerage commissions paid to JPMS and the percentage of each fund’s aggregate dollar amount of portfolio transactions involving the payment of commissions effected through JPMS.
|
Fund
|
Percentage of
Brokerage Commissions
|
Percentage of Dollar Amount
of Portfolio Transactions
|
|
Legacy Focused Large Cap
|
0%
|
0%
|
|
Legacy Large Cap
|
1.54%
|
0.37%
|
|
Legacy Multi Cap
|
1.32%
|
0.32%
|
REGULAR BROKER-DEALERS
As of fiscal year end, July 31, 2008, none of the funds 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.
INFORMATION ABOUT FUND SHARES
Each of the funds named on the front of this statement of additional information is a series of shares issued by the corporation, 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 investors holding more than 50% of the corporation’s (all funds’) outstanding shares may be able to elect a Board of Directors. The corporation 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 directors is determined by the votes received from all the corporation’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.
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. Within their respective series, all shares have equal redemption rights. Each share, when issued, is fully
paid and non-assessable.
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.
MULTIPLE CLASS STRUCTURE
The corporation’s Board of Directors has adopted a multiple class plan pursuant to Rule 18f-3 adopted by the SEC. The plan is described in the funds’ prospectus. Pursuant to such plan, the funds may issue four classes of shares: Investor Class, Institutional Class, R Class and Advisor Class.
The Investor Class is made available to investors directly from American Century Investments and/or through some financial intermediaries. Investor Class shares charge a single unified management fee, without any load or commission payable to American Century Investments. Additional information regarding eligibility for Investor Class shares
may be found in the funds’ prospectus. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients 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. The Advisor Class also is made available through financial intermediaries, for purchase by individual investors who receive advisory and personal
services from the intermediary. The R Class is made available through financial intermediaries and is generally used in 401(k) and other retirement plans. The unified management fee for the R and Advisor Classes is the same as for Investor Class, but the R and Advisor Class shares each are subject to a separate Master Distribution and Individual Shareholder Services Plan (the R Class Plan and Advisor Class Plan, respectively, and, collectively, the plans) described below. The plans have been adopted by the funds’
Board of Directors 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 Directors and approved by its shareholders. Pursuant to such rule, the Board of Directors of the funds’ R and Advisor Classes have approved and entered into the R Class Plan and Advisor
Class Plan, respectively. The plans are described below.
In adopting the plans, the Board of Directors (including a majority of directors who are not interested persons of the funds [as defined in the Investment Company Act], hereafter referred to as the independent directors) determined that there was a reasonable likelihood that the plans would benefit the funds and the shareholders of the affected
class. Some of the anticipated benefits include improved name recognition of 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 about revenues and expenses under the plans is presented to the Board of Directors quarterly for its consideration in continuing the plans. Continuance
of the plans must be approved by the Board of Directors, including a majority of the independent directors, annually. The plans may be amended by a vote of the Board of Directors including a majority of the independent directors, except that the plans may not be amended to materially increase the amount to be spent for distribution without majority approval of the shareholders of the affected class. The plans terminate automatically in the event of an assignment and may be terminated upon a vote of a majority
of the independent directors or by vote of a majority of outstanding shareholder votes of the affected class.
All fees paid under the plans will be made in accordance with Section 2830 of the Conduct Rules of the Financial Industry Regulatory Authority (FINRA).
R Class Plan
As described in the prospectus, the R Class shares of the funds are made available to participants in employer-sponsored retirement 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 R Class investors. In addition to such services, the financial intermediaries provide various individual shareholder
and 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’ Board of Directors has adopted the R Class Plan. Pursuant to the R Class Plan, the R Class pays the funds’ distributor 0.50% annually of the average daily net asset value of the R Class shares. The distributor may use these fees
to pay for certain ongoing shareholder and administrative services (as described below) and 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 July 31, 2008, the aggregate amount of fees paid under the R Class Plan was:
Legacy Focused Large Cap $1,621
Legacy Large Cap $4,869
Legacy Multi Cap $1,211
The distributor then makes these payments to the financial intermediaries (including underwriters and broker-dealers, who may use some of the proceeds to compensate sales personnel) who offer the R Class shares for the services, as 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 R Class shares, which services may include but are not limited to:
|
(a)
|
paying sales commissions, on-going commissions and other payments to brokers, dealers, financial institutions or others who sell R Class shares pursuant to selling agreements;
|
|
(b)
|
compensating registered representatives or other employees of the distributor who engage in or support distribution of the funds’ R Class shares;
|
|
(c)
|
compensating and paying 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 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 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 Conduct Rules of the FINRA; 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 funds’ distributor and in accordance with Rule 12b-1 of the Investment Company Act.
|
Advisor Class Plan
As described in the prospectus, the funds’ Advisor Class shares are made available to participants in employer-sponsored retirement 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 shareholders in the Advisor Class. In addition to such services, the financial intermediaries provide various distribution
services.
To make the funds’ shares available through such plans and financial intermediaries, and to compensate them for these services, the funds’ Board of Directors has adopted the Advisor Class Plan. Prior to September 4, 2007, the Advisor Class Plan required the Advisor Class to pay 0.50% annually of the aggregate average daily net assets of the funds’ Advisor Class shares, 0.25% for
certain ongoing shareholder and administrative services (as described below) and 0.25% for distribution services, including past distribution services. However, at a shareholder meeting on July 27, 2007, the Advisor Class shareholders approved a decrease in the fee required by the Advisor Class Plan of 0.25%, and a corresponding increase in the Advisor Class management fee. This change was made because the administrative services portion of the 12b-1 fee does not need to be made out of the 12b-1 plan, but may
properly be made out of the funds’ unified fee, consistent with the other classes of the funds. This change resulted in no difference in the overall fee for the Advisor Class, but will lower the amount of the 12b-1 fee charged under the Advisor Class Plan from and after September 4, 2007. After that date, pursuant to the Advisor Class Plan, the Advisor Class pays the funds’ distributor 0.25% annually of the aggregate average daily net assets of the funds’ Advisor Class shares, which is paid for
certain ongoing individual shareholder services (as described below) and for distribution services, including past distribution services (as described below). This payment is fixed at 0.25% and is not based on expenses incurred by the distributor. During the fiscal year ended July 31, 2008, the aggregate amount of fees paid under the Advisor Class Plan was:
Legacy Focused Large Cap $3,038
(1)
Legacy Large Cap $3,073
(2)
Legacy Multi Cap $2,424
(3)
|
1
|
For the period August 1, 2007 to September 3, 2007, the aggregate amount of fees paid under the Advisor Class Plan was $404. From September 4, 2007 to July 31, 2008, the aggregate amount of fees paid under the Advisor Class Plan was $2,634.
|
|
2
|
For the period August 1, 2007 to September 3, 2007, the aggregate amount of fees paid under the Advisor Class Plan was $378. From September 4, 2007 to July 31, 2008, the aggregate amount of fees paid under the Advisor Class Plan was $2,695.
|
|
3
|
For the period August 1, 2007 to September 3, 2007, the aggregate amount of fees paid under the Advisor Class Plan was $314. From September 4, 2007 to July 31, 2008, the aggregate amount of fees paid under the Advisor Class Plan was $2,110.
|
The distributor then makes these payments to the financial intermediaries (including underwriters and broker-dealers, who may use some of the proceeds to compensate sales personnel) who offer the Advisor Class shares in payment for provision of the services described below. No portion of these payments is used by the distributor to pay for advertising, printing costs or interest expenses.
Prior to September 4, 2007, 0.25% of the fee charged pursuant to the Advisor Class Plan was 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 use 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 according to specific or preauthorized 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 for shares beneficially owned by customers of third parties or providing the information to a fund as necessary for such subaccounting;
|
|
(i)
|
preparing and forwarding shareholder communications from the funds (such as proxies, shareholder reports, annual and semiannual 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 July 31, 2008, the amount of fees paid under the Advisor Class Plan for shareholder services was:
Legacy Focused Large Cap $202
(1)
Legacy Large Cap $189
(1)
Legacy Multi Cap $157
(1)
|
1
|
For the period August 1, 2007 to September 3, 2007.
|
Although these services are still being provided by the financial intermediaries, after September 4, 2007, they will be reimbursed by the funds’ advisor out of the unified management fee rather than out of a 12b-1 fee, as described above.
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)
|
paying sales commissions, ongoing commissions and other payments to brokers, dealers, financial institutions or others who sell Advisor Class shares pursuant to selling agreements;
|
|
(b)
|
compensating registered representatives or other employees of the distributor who engage in or support distribution of the funds’ Advisor Class shares;
|
|
(c)
|
compensating and paying expenses (including overhead and telephone expenses) of the distributor;
|
|
(d)
|
printing prospectuses, statements of additional information and reports for other-than-existing investors;
|
|
(e)
|
preparing, printing and distributing sales literature and advertising materials provided to the funds’ investors and prospective investors;
|
|
(f)
|
receiving and answering correspondence from prospective investors, including distributing prospectuses, statements of additional information and shareholder reports;
|
|
(g)
|
providing facilities to answer questions from prospective investors about fund shares;
|
|
(h)
|
complying with federal and state securities laws pertaining to the sale of fund shares;
|
|
(i)
|
assisting investors in completing application forms and selecting dividend and other account options;
|
|
(j)
|
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 compensation or promotional incentives;
|
|
(l)
|
profit on the foregoing;
|
|
(m)
|
the payment of “service fees” for the provision of personal, continuing services to investors, as contemplated by the Conduct Rules of the FINRA; 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 funds’ distributor and in accordance with Rule 12b-1 of the Investment Company Act.
|
During the fiscal year ended July 31, 2008, the amount of fees paid under the Advisor Class Plan for distribution services was:
Legacy Focused Large Cap $202
(1)
Legacy Large Cap $189
(1)
Legacy Multi Cap $157
(1)
|
1
|
For the period August 1, 2007 to September 3, 2007 .
|
Beginning on September 4, 2007, a portion of the 12b-1 fee will be paid to the distributor for certain individual shareholder services. These 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.
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.
Examples of employer-sponsored retirement plans to include the following:
|
•
|
401(a) plans
|
|
•
|
pension plans
|
|
•
|
profit sharing plans
|
|
•
|
401(k) plans
|
|
•
|
money purchase plans
|
|
•
|
target benefit plans
|
|
•
|
Taft-Hartley multi-employer pension plans
|
|
•
|
SERP and “Top Hat” plans
|
|
•
|
ERISA trusts
|
|
•
|
employee benefit plans and trusts
|
|
•
|
employer-sponsored health plans
|
|
•
|
457 plans
|
|
•
|
KEOGH or HR (10) Plans
|
|
•
|
employer-sponsored 403(b) plans (including self-directed)
|
|
•
|
nonqualified deferred compensation plans
|
|
•
|
nonqualified excess benefit plans
|
|
•
|
nonqualified retirement plans
|
|
•
|
SIMPLE IRAs
|
|
•
|
SEP IRAs
|
|
•
|
SARSEP
|
Traditional and Roth IRAs are not considered employer-sponsored retirement plans. The following table indicates the types of shares that may be purchased through employer-
sponsored retirement plans, Traditional IRAs and Roth IRAs.
|
Employer-Sponsored
Retirement Plans
|
Traditional and
Roth IRAs
|
|
|
Institutional Class shares may be purchased
|
Yes
|
Yes
|
|
Investor Class shares may be purchased
|
Yes
|
Yes
|
|
Advisor Class shares may be purchased
|
Yes
|
Yes
|
|
R Class shares may be purchased
|
Yes
|
No
(1)
|
|
1
|
Accounts established prior to August 1, 2006, may make additional purchases.
|
VALUATION OF A FUND’S SECURITIES
All classes of the funds are offered at their net asset value, as described below.
Each fund’s net asset value per share (NAV) is calculated as of the close of business of the New York Stock Exchange (the NYSE) each day the NYSE is open for business. The Exchange 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.
Each fund’s NAV is calculated by adding the value of all portfolio securities and other assets, deducting liabilities and dividing the result by the number of shares outstanding. Expenses and interest earned on portfolio securities are accrued daily.
The portfolio securities of each fund that are listed or traded on a domestic securities exchange are valued at the last sale price on that exchange, except as otherwise noted. Portfolio securities primarily traded on foreign securities exchanges generally are valued at the preceding closing values of such securities on the exchange where
primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, the last sale price, or the official closing price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the Board of Directors.
Debt securities not traded on a principal securities exchange are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Directors.
Securities maturing within 60 days of the valuation date may be valued at cost, plus or minus any amortized discount or premium, unless the advisor, based on guidelines and procedures established by the Board of Directors for determining the valuation of a security, determines 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 using methods approved by the Board of Directors.
The value of an exchange-traded foreign security is determined in its national currency as of the close of trading on the foreign exchange on which it is traded or as of the close of business on the NYSE, if that is earlier. That value is then translated to dollars at the prevailing foreign exchange rate.
Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed at various times before the close of business on each day that the NYSE is open. If an event were to occur after the value of a security was established, but before the net asset value per share was determined, that was
likely to materially change the net asset value, then that security would be valued as determined in accordance with procedures adopted by the Board of Directors.
Trading of these securities in foreign markets may not take place on every day that the NYSE is open. In addition, trading may take place in various foreign markets and on some electronic trading networks on Saturdays or on other days when the NYSE is not open and on which the funds’ net asset values are not calculated. Therefore, such
calculations do not take place contemporaneously with the determination of the prices of many of the portfolio securities used in such calculation, and the value of the funds’ portfolios may be affected on days when shares of the funds may not be purchased or redeemed.
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 should 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 investors. If a fund fails to qualify as a regulated investment company, it will be liable for taxes, significantly reducing its distributions to investors and eliminating investors’ ability to treat distributions received from the funds in the same manner in which they were realized by the funds.
If fund shares are purchased through taxable accounts, distributions of either cash or additional shares 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 a fund, in which case such distributions are taxed at the long-term
capital gains tax rates. Unless extended, all dividends will be taxed at ordinary income rates beginning in 2011. 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. The required holding period for qualified dividend income is met if the underlying shares are held more than 60 days in the 121-day period beginning 60 days prior to the ex-dividend date. Dividends received
by the funds on shares of stock of domestic corporations may qualify for the 70% dividends-received deduction available to corporate shareholders to the extent that the fund held those shares for more than 45 days.
Distributions from gains on assets held by the funds 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 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.
Dividends and interest received by a fund on foreign securities may give rise to withholding and other taxes imposed by foreign countries. However, tax conventions between certain countries and the United States may reduce or eliminate such taxes. Foreign countries generally do not impose taxes on capital gains with respect to investments
by non-resident investors. Any foreign taxes paid by a fund will reduce its dividend distributions to investors.
If more than 50% of the value of a fund’s total assets at the end of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction
for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by you. In order for you to utilize the foreign tax credit, you must have held your shares for 16 days or more during the 31-day period, beginning 15 days prior to the ex-dividend date for the mutual fund shares. The mutual fund must meet a similar holding period requirement with respect to foreign securities to which a dividend is attributable. Any portion of the foreign
tax credit that is ineligible as a result of the fund not meeting the holding period requirement will be deducted in computing net investment income.
If a fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies (PFIC), capital gains on the sale of such holdings will be deemed ordinary income regardless of how long the fund holds the investment. The fund also may be subject to corporate income tax and an interest charge on certain
dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute them to shareholders. Any distribution attributable to a PFIC is characterized as ordinary income.
As of July 31, 2008, the funds in the table below had the following capital loss carryovers. When a fund has a capital loss carryover, it does not make capital gains distributions until the loss has been offset or expired.
|
Capital Loss Carryover
|
||||||||
|
Fund
|
2009
|
2010
|
2011
|
2012
|
2013
|
2014
|
2015
|
2016
|
|
Legacy
Focused
Large Cap
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Legacy
Large Cap
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Legacy
Multi Cap
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
$(1,217,468)
|
If you have not complied with certain provisions of the Internal Revenue Code and Regulations, either American Century Investments or your financial intermediary is required by federal law to withhold and remit to the IRS the applicable federal withholding rate of reportable payments (which may include 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.
STATE AND LOCAL TAXES
Distributions by the funds also may be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received such interest directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through
to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax advisor about the tax status of such distributions in your state.
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 advisors or state or local tax authorities to determine whether the funds are suitable investments.
FINANCIAL STATEMENTS
The financial statements and financial highlights of each of the funds for the fiscal year ended July 31, 2008 have been audited by Deloitte & Touche
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 July 31, 2008, are incorporated herein by reference.
Notes
Where to Find More Information
Annual and Semiannual Reports
The 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 any questions about the funds, online at americancentury.com, by contacting American Century Investments at the addresses or telephone numbers listed below or by contacting your financial intermediary.
If you own or are considering purchasing fund shares through
|
•
|
an employer-sponsored retirement plan
|
|
•
|
a bank
|
|
•
|
a broker-dealer
|
|
•
|
an insurance company
|
|
•
|
another financial intermediary
|
you can receive the annual and semiannual reports directly from them.
From the SEC
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 202-942-8090 for location and hours.
|
|
On the Internet
|
• EDGAR database at sec.gov
• By email request at publicinfo@sec.gov
|
|
By mail
|
SEC Public Reference Section
Washington, D.C. 20549-0102
|
Investment Company Act File No. 811-0816
|
American Century Investments
americancentury.com
|
|
|
Self-Directed Retail Investors
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021 or 816-531-5575
|
Banks and Trust Companies, Broker-Dealers,
Financial Professionals, Insurance Companies
P.O. Box 419786
Kansas City, Missouri 64141-6786
1-800-345-6488
|
CL-SAI-61906 0812
AMERICAN CENTURY GROWTH FUNDS, INC.
PART C OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Amendment and Restatement of American Century Growth Funds, Inc., dated May 5, 2006 (filed electronically as Exhibit a to Pre-Effective Amendment No. 1 to the Registration Statement of the Registrant on May 30,
2006, File No. 333-132114, and incorporated herein by reference).
(b) Amended and Restated By-Laws, dated November 29, 2007, are included herein.
(c) Registrant hereby incorporates by reference, as though set forth fully herein, Article Fourth, Article Seventh and Article Tenth of the Registrant's Amended and Restated Articles of Incorporation, appearing as Exhibit (a) herein,
and Sections 3 through 11 of the Registrant's Amended and Restated Bylaws, appearing as Exhibit (b) herein.
(d) Management Agreement between American Century Growth Funds, Inc. and American Century Investment Management, Inc., dated August 1, 2008, is included herein.
(e) (1) Distribution Agreement between American Century Growth Funds, Inc. and American Century Investment Services, Inc., dated May 15, 2006 (filed electronically
as Exhibit e1 to Pre-Effective Amendment No. 1 to the Registration Statement of the Registrant on May 30, 2006, File No. 333-132114, and incorporated herein by reference).
(2) Form of Dealer/Agency Agreement (filed electronically as Exhibit e2 to Post-Effective Amendment No. 25 to the Registration Statement of American Century International Bond Funds on April 30, 2007, File No. 333-43321, 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) Amendment No. 3 to the Global Custody Agreement between American Century Investments and the JPMorgan Chase Bank, dated as of May 31, 2006 (filed electronically as Exhibit g6 to Pre-Effective Amendment No. 1 to the Registration
Statement of the Registrant on May 30, 2006, File No. 333-132114, and incorporated herein by reference).
(6) Amendment No. 4 to the Global Custody Agreement with JPMorgan Chase Bank, dated as of July 2, 2008 (filed electronically as Exhibit g6 to Post-Effective Amendment No. 56 to the Registration Statement of American Century Government
Income Trust on July 29, 2008, File No. 2-99222, and incorporated herein by reference).
(h) (1) Transfer Agency Agreement between American Century Growth Funds, Inc. and American Century Services, LLC, dated May 15, 2006 (filed electronically as Exhibit
h1 to Pre-Effective Amendment No. 1 to the Registration Statement of American Century Growth Funds, Inc. on May 30, 2006, File No. 333-132114, and incorporated herein by reference).
(2) American Century Funds Credit Agreement dated December 12, 2007 with Bank of America, N.A., as Administrative Agent (filed electronically as Exhibit h2 to Post-Effective Amendment No. 43 to the Registration Statement of American
Century California Tax-Free and Municipal Funds on December 28, 2007, File No. 2-82734, and incorporated herein by reference).
(3) Fund Services Agreement between American Century Investment Management, Inc. and J.P. Morgan Investor Services Co., dated July 2, 2008 (filed electronically as Exhibit h3 to Post-Effective Amendment No. 53 to the Registration
Statement of American Century Municipal Trust on September 26, 2008, File No. 2-91229, and incorporated herein by reference).
(4) Revised Schedule A-2 to Fund Services Agreement between American Century Investment Management, Inc. and J.P. Morgan Investor Services Co., effective July 2, 2008 (filed electronically as Exhibit h3 to Post-Effective Amendment
No. 10 to the Registration Statement of American Century Asset Allocation Portfolios, Inc. on November 26, 2008, File No. 333-116351, and incorporated herein by reference).
(i) Opinion and Consent of Counsel, dated May 30, 2006 (filed electronically as Exhibit i to Pre-Effective Amendment No. 1 to the Registration Statement of American Century Growth Funds, Inc. on May 30, 2006, File No. 333-132114,
and incorporated herein by reference).
(j) Consent of Deloitte & Touche, LLP, independent registered public accounting firm, dated November 20, 2008, is included herein.
(k) Not Applicable.
(l) Initial Capital Agreement dated May 23, 2006 (filed electronically as Exhibit l to Pre-Effective Amendment No. 1 to the Registration Statement of American Century Growth Funds, Inc. on May 30, 2006, File No. 333-132114, and
incorporated herein by reference).
(m) (1) Amended and Restated Master Distribution and Individual Shareholder Services Plan (Advisor Class) of American Century Growth Funds, Inc., dated January 1,
2008, is included herein.
(2) Amended and Restated Master Distribution and Individual Shareholder Services Plan (R Class) of American Century Growth Funds, Inc., dated January 1, 2008, is included herein.
(n) Amended and Restated Multiple Class Plan of American Century Growth Funds, Inc., dated January 1, 2008, is included herein.
(o) Reserved.
(p) (1) American Century Investments Code of Ethics (filed electronically as Exhibit p1 to Post-Effective Amendment No. 41 to the Registration Statement of American
Century California Tax-Free and Municipal Funds on December 28, 2006, File No. 2-82734, and incorporated herein by reference).
(2) Independent Directors’ Code of Ethics amended March 4, 2000 (filed electronically as Exhibit p2 to Pre-Effective Amendment No. 1 to the Registration Statement of American Century Growth Funds, Inc. on May 30, 2006, File
No. 333-132114, and incorporated herein by reference).
(q) (1) Power of Attorney, dated June 4, 2008 (filed electronically as Exhibit q1 to Post-Effective Amendment No. 42 to the Registration Statement of American Century
Capital Portfolios, Inc. on July 29, 2008, File No. 33-64872, and incorporated herein by reference).
(2) Secretary’s Certificate, dated June 4, 2008 (filed electronically as Exhibit q2 to Post-Effective Amendment No. 42 to the Registration Statement of American Century Capital Portfolios, Inc. on July 29, 2008, File No. 33-64872,
and incorporated herein by reference).
Item 24. Persons Controlled by or Under Common Control with Fund
The persons who serve as the directors of the Registrant also serve, in substantially identical capacities, the following investment companies:
American Century Asset Allocation Portfolios, Inc.
American Century Capital Portfolios, Inc.
American Century Growth Funds, Inc.
American Century Mutual Funds, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, 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 25. Indemnification
Under the laws of the State of Maryland, the directors are entitled and empowered to purchase insurance for and to provide by resolution or in the Bylaws for indemnification out of Corporation assets for liability and for all expenses reasonably incurred or paid or expected to be paid by a director
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 Corporation. 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 Directors.
Registrant hereby incorporates by reference, as though set forth fully herein, the Eighth Article of Registrant's Amended and Restated Articles of Incorporation filed herein within Exhibit (a), and Section 50 of Registrant's Bylaws incorporated by reference as Exhibit (b) herein.
The Registrant has purchased an insurance policy insuring its officers and directors against certain liabilities which such officers and directors 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 directors by way of indemnification against such liabilities, subject in either case to clauses respecting deductibility and participation.
Item 26. Business and Other Connections of Investment Advisor
In addition to serving as the Registrant’s investment advisor, American Century Investment Management, Inc. provides portfolio management services for other investment companies as well as for other business and institutional clients. Business backgrounds of the directors and
principal executive officers of the advisor that also hold positions with the Registrant are included under “Management” in the Statement of Additional Information included in this registration statement. The remaining principal executive officer of the advisor and his principal occupations during the past 2 fiscal years are as follows:
Enrique Chang (President, Chief Executive Officer and Chief Investment Officer of ACIM and ACGIM).
The principal address for all American Century entities other than ACGIM is 4500 Main Street, Kansas City, MO 64111. The principal address for ACGIM is 666 Third Avenue, 23
rd
Floor, New York, NY 10017.
Item 27. 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 Growth Funds, 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, Inc.
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 Financial Industry Regulatory Authority. 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 and executive officers of ACIS:
|
Name and Principal
Business Address*
|
Positions and Offices
With Underwriter
|
Positions and Offices
With Registrant
|
|
James E. Stowers, Jr.
|
Director
|
Director and Vice Chairman
|
|
Jonathan S. Thomas
|
Director
|
President and Director
|
|
Barry Fink
|
Director
|
Executive Vice President
|
|
Brian Jeter
|
President and Chief
Executive Officer
|
none
|
|
Jon W. Zindel
|
Senior Vice President and
Chief Accounting Officer
|
Tax Officer
|
|
David K. Anderson
|
Chief Financial Officer
|
none
|
|
Mark Killen
|
Senior Vice President
|
none
|
|
David Larrabee
|
Senior Vice President
|
none
|
|
Barry Mayhew
|
Senior Vice President
|
none
|
|
Martha G. Miller
|
Senior Vice President
|
none
|
|
Michael Raddie
|
Chief Compliance Officer
|
none
|
* All addresses are 4500 Main Street, Kansas City, Missouri 64111
(c) Not applicable.
Item 28. 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 American Century Investment Management, Inc., 4500 Main Street, Kansas City, MO 64111 and 1665 Charleston Road, Mountain View, CA
94043; American Century Services, LLC, 4500 Main Street, Kansas City, MO 64111; Commerce Bank, N.A., 1000 Walnut, Kansas City, MO 64105; and JP Morgan Chase Bank, 4 Metro Tech Center, Brooklyn, NY 11245.
Item 29. Management Services – Not Applicable
Item 30. Undertakings – Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement amendment pursuant to Rule 485(b) promulgated under the Securities Act of 1933, as amended, and has duly caused this amendment to be signed
on its behalf by the undersigned, duly authorized, in the City of Kansas City, State of Missouri on the 26th day of November, 2008.
|
AMERICAN CENTURY GROWTH FUNDS, INC.
|
|
|
(Registrant)
|
|
|
By:
*
___________________________________
Jonathan S. Thomas
President
|
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement amendment has been signed by the following persons in the capacities and on the dates indicated.
|
*By:
/s/ Christine J. Crossley
Christine J. Crossley
Attorney in Fact
(pursuant to Power of Attorney
dated June 4, 2008)
|
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF DOCUMENT
NUMBER
|
EXHIBIT (b)
|
Amended and Restated By-Laws, dated November 29, 2007.
|
|
EXHIBIT (d)
|
Management Agreement between American Century Growth Funds, Inc. and American Century Investment Management, Inc., dated August 1, 2008.
|
|
EXHIBIT (j)
|
Consent of Deloitte & Touche, LLP, independent registered public accounting firm, dated November 20, 2008.
|
|
EXHIBIT (m)(1)
|
Amended and Restated Master Distribution and Individual Shareholder Services Plan (Advisor Class) of American Century Growth Funds, Inc., dated January 1, 2008.
|
|
EXHIBIT (m)(2)
|
Amended and Restated Master Distribution and Individual Shareholder Services Plan (R Class) of American Century Growth Funds, Inc., dated January 1, 2008.
|
|
EXHIBIT (n)
|
Amended and Restated Multiple Class Plan of American Century Growth Funds, Inc., dated January 1, 2008.
|