ck0000924211-20240731
December
1, 2024
American
Century Investments
Statement
of Additional Information
American
Century Strategic Asset Allocations, Inc.
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Strategic
Allocation: Conservative Fund
Investor
Class (TWSCX)
I
Class (ACCIX)
A
Class (ACCAX)
C
Class (AACCX)
R
Class (AACRX)
R5
Class (AACGX)
R6
Class (AACDX)
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Strategic
Allocation: Moderate Fund
Investor
Class (TWSMX)
I
Class (ASAMX)
A
Class (ACOAX)
C
Class (ASTCX)
R
Class (ASMRX)
R5
Class (ASMUX)
R6
Class (ASMDX) |
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Strategic
Allocation: Aggressive Fund
Investor
Class (TWSAX)
I
Class (AAAIX)
A
Class (ACVAX)
C
Class (ASTAX)
R
Class (AAARX)
R5
Class (ASAUX)
R6
Class (AAAUX)
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statement of additional information adds to the discussion in the funds’
prospectuses dated December 1, 2024, but is not a prospectus. The
statement of additional information should be read in conjunction with the
funds’ current prospectuses. If you would like a copy of a prospectus,
please contact us at one of the addresses or telephone numbers listed on
the back cover or visit American Century Investments’ website at
americancentury.com. |
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This
statement of additional information incorporates by reference certain
information that appears in the funds’ financial statements, which are
included in the funds’ Form N-CSR. You may obtain a free copy of the
funds’ annual reports, as well as financial statements and other
information, by calling 1-800-345-2021. |
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©2024
American Century Proprietary Holdings, Inc. All rights reserved.
American
Century Strategic Asset Allocations, Inc. is a registered open-end management
investment company that was organized as a Maryland corporation on April 4,
1994. Prior to January 1, 1997, it was known as Twentieth Century Strategic
Asset Allocations, Inc. Throughout this statement of additional information, we
refer to American Century Strategic Asset Allocations, Inc. as the corporation.
Prior to July 31, 2018, each fund had a fiscal year ended November 30. Beginning
July 31, 2018, each fund changed its fiscal year end to July 31.
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.
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Fund
Class
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Ticker
Symbol
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Inception
Date
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Strategic
Allocation: Conservative
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| Investor
Class |
TWSCX |
02/15/1996 |
| I
Class |
ACCIX |
08/01/2000 |
| A
Class |
ACCAX |
10/02/1996 |
| C
Class |
AACCX |
09/30/2004 |
| R
Class |
AACRX |
03/31/2005 |
| R5
Class |
AACGX |
04/10/2017 |
| R6
Class |
AACDX |
07/26/2013 |
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Strategic
Allocation: Moderate
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| Investor
Class |
TWSMX |
02/15/1996 |
| I
Class |
ASAMX |
08/01/2000 |
| A
Class |
ACOAX |
10/02/1996 |
| C
Class |
ASTCX |
10/02/2001 |
| R
Class |
ASMRX |
08/29/2003 |
| R5
Class |
ASMUX |
04/10/2017 |
| R6
Class |
ASMDX |
07/26/2013 |
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Strategic
Allocation: Aggressive
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| Investor
Class |
TWSAX |
02/15/1996 |
| I
Class |
AAAIX |
08/01/2000 |
| A
Class |
ACVAX |
10/02/1996 |
| C
Class |
ASTAX |
11/27/2001 |
| R
Class |
AAARX |
03/31/2005 |
| R5
Class |
ASAUX |
04/10/2017 |
| R6
Class |
AAAUX |
07/26/2013 |
This
section explains the extent to which the funds’ advisor, American Century
Investment Management, Inc. (ACIM), can use various investment vehicles and
strategies in managing a fund’s assets. Descriptions of the investment
techniques and risks associated with each appear in the section, Investment
Strategies and Risks,
which begins on page 5. In the case of the funds’ principal investment
strategies, these descriptions elaborate upon the discussion contained in the
prospectuses. Each fund is diversified as defined in the Investment Company Act
of 1940 (the Investment Company Act). Diversified means that, with respect to
75% of its total assets, each fund will not invest more than 5% of its total
assets in the securities of a single issuer or own more than 10% of the
outstanding voting securities of a single issuer (other than U.S. government
securities and securities of other investment companies).
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 (other than the U.S.
government or a regulated investment company) and it does not own more than 10%
of the outstanding voting securities of a single issuer.
In
general, within the restrictions outlined here and in the funds’ prospectuses,
the portfolio managers have 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 in the funds’ prospectuses and below. Subject to the specific
limitations applicable to a fund, the fund management teams may invest the
assets of each fund in varying amounts in other instruments when such a course
is deemed appropriate in order to pursue a fund’s investment objective. Unless
otherwise noted, all investment restrictions described below and in each fund’s
prospectus are measured at the time of the transaction in the security. If
market action affecting fund securities (including, but not limited to,
appreciation, depreciation or a credit rating event) causes a fund to exceed an
investment restriction, the advisor is not required to take immediate action.
Under normal market conditions, however, the advisor’s policies and procedures
indicate that the advisor will not make any purchases that will make the fund
further outside the investment restriction.
The
assets of Strategic Allocation: Conservative, Strategic Allocation: Moderate and
Strategic Allocation: Aggressive (collectively, the Strategic Allocation Funds)
are allocated among major asset classes, including equity securities, bonds and
cash-equivalent instruments, based on the fund’s target allocation and subject
to the applicable operating ranges. Each fund’s assets are further diversified
among various investment categories and disciplines within the major asset
classes.
The
equity portion of each fund’s portfolio may be invested in any type of domestic
or foreign equity or equity-equivalent security that meets certain fundamental
and technical standards of selection. Equity equivalents include securities that
permit the 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 securities.
Equity equivalents also may include securities whose value or return is derived
from the value or return of a different security. Derivative instruments are
discussed in greater detail on page 8 under the heading Derivative
Instruments.
The
funds’ portfolio managers use several investment disciplines in managing the
equity portion of each fund’s portfolio, including growth, value and
quantitative management disciplines. The growth strategy is based on the belief
that, over the long term, stock price movements follow growth in earnings,
revenue and/or cash flow. The portfolio managers use a variety of analytical
research tools and techniques to identify stocks of companies that meet their
investment criteria. This includes companies demonstrating accelerating earnings
or revenue growth rates, stock price momentum, increasing cash flows or other
indications of the relative strength of a company’s business. The value
investment discipline seeks capital growth by investing in equity securities of
well-established companies that the managers believe to be temporarily
undervalued.
The
advisor believes both value investing and growth investing provide the potential
for appreciation over time. Value investing tends to provide less volatile
results. This lower volatility means that the price of value stocks tends not to
fall as significantly as the price of growth stocks in down markets. However,
value stocks do not usually appreciate as significantly as growth stocks do in
up markets. In keeping with the diversification theme of these funds, and as a
result of management’s belief that these styles are complementary, both
disciplines will be represented to some degree in each portfolio at all
times.
As
noted, the value investment discipline tends to be less volatile than the growth
investment discipline. As a result, Strategic Allocation: Conservative will
generally have a higher proportion of its equity investments in value stocks
than Strategic Allocation: Moderate and Strategic Allocation: Aggressive.
Likewise, Strategic Allocation: Aggressive will generally have a greater
proportion of growth stocks than either Strategic Allocation: Moderate or
Strategic Allocation: Conservative.
In
addition, the equity portion of each fund’s portfolio will be further
diversified among small, medium and large companies. This approach provides
investors with an additional level of diversification and enables investors to
achieve a broader exposure to the various capitalization ranges without having
to invest in multiple funds.
The
funds’ portfolio managers also may apply quantitative management techniques to a
portion of each fund’s portfolio. These techniques are applied in a multi-step
process that draws heavily on computer technology. In the first step, the
portfolio managers rank stocks from most attractive to least attractive using a
computer model that combines measures of a stock’s value, as well as measures of
its growth potential, among others. In the second step, the managers use a
technique called portfolio optimization. In portfolio optimization the managers
build a portfolio of stocks from the ranking described above that they believe
will provide the optimal balance between risk and expected return. The goal is
to create a portfolio that provides better returns than its benchmark without
taking on significant additional risk. Finally, the managers review the
output of the quantitative model, considering factors such as risk management,
transaction costs, and liquidity management.
Although
the funds will remain exposed to each of the investment disciplines and
categories described above, a particular investment discipline or investment
category may be emphasized when, in the managers’ opinion, such investment
discipline or category is undervalued relative to the other disciplines or
categories.
The
fixed-income portion of a fund’s portfolio may include U.S. Treasury securities,
securities issued or guaranteed by the U.S. government or a foreign government,
or an agency or instrumentality of the U.S. or a foreign government, and
convertible and nonconvertible debt obligations issued by U.S. or foreign
corporations. The funds also may invest in inflation-indexed securities,
which
are described in greater detail under the heading Inflation-Indexed
Securities,
or in mortgage-related and other asset-backed securities, which are described in
greater detail below.
As with the equity portion of a fund’s portfolio, the fixed-income portion of a
fund’s portfolio will be diversified among the various fixed-income investment
categories described above. The managers’ strategy is to actively manage the
portfolio by investing the funds’ assets in sectors they believe are undervalued
(relative to the other sectors) and that represent better relative long-term
investment opportunities.
The
value of fixed-income securities fluctuates based on changes in interest rates
and in the credit quality of the issuers. Debt securities that comprise part of
a fund’s fixed-income portfolio will be limited primarily to investment-grade
obligations. However, Strategic Allocation: Aggressive, Strategic Allocation:
Moderate and Strategic Allocation:
Conservative may each invest up to 10% of their assets in below
investment-grade (high yield) securities. 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. (Moody’s) or BBB by Standard &
Poor’s Corporation (S&P)), or, if not rated, are of equivalent investment
quality as determined by the managers. 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.
High-yield
securities, which are also known as “junk bonds,” are higher risk,
nonconvertible debt obligations that are rated below investment-grade
securities, or are unrated, but with similar credit quality.
There
are no credit or maturity restrictions on the fixed-income securities in which
the high-yield portion of a fund’s portfolio may be invested. Debt securities
rated below investment-grade are considered by many to be predominantly
speculative. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments on
such securities than is the case with higher-quality debt securities. Regardless
of rating levels, all debt securities considered for purchase by the funds are
analyzed by the managers to determine, to the extent reasonably possible, that
the planned investment is consistent with the investment objective of the
fund.
Under
normal market conditions, the weighted average maturity for the fixed-income
portions of the Strategic Allocation Funds will be in the three- to 10-year
range.
The
cash-equivalent portion of the Strategic Allocation Funds’ portfolios may be
invested in high-quality money market instruments (denominated in U.S. dollars
or foreign currencies), including U.S. government obligations, obligations of
domestic and foreign banks, short-term corporate debt instruments and repurchase
agreements.
The
portfolio managers also intend to invest a portion of the funds’ assets in real
estate-related investments. Such investments may provide exposure to (or direct
holdings in) securities issued by real estate investment trusts (REITs) or
companies engaged in the real estate industry. Equity REITs buy real estate and
investors receive income from the rents received and from any profits on the
sale of its properties. Mortgage REITs lend money to building developers and
other real estate companies, and receive income from interest paid on those
loans. There are also hybrid REITs, which engage in both owning real estate and
making loans. A company is considered to be a real estate company if, in the
opinion of the portfolio managers, at least 50% of its revenues or 50% of the
market value of its assets at the time its securities are purchased by the fund
are attributed to the ownership, construction, management or sale of real
estate.
Within
each asset class each fund’s holdings will be invested across industry groups
and issuers that meet its investment criteria. This diversity of investment is
intended to help reduce the risk created by overconcentration in a particular
industry or issuer.
The
managers regularly review each fund’s investments and allocations and may make
changes in the securities holdings within each asset class or to a fund’s asset
mix (within the defined operating ranges for the Strategic Allocation Funds) to
emphasize investments that they believe will provide the most favorable outlook
for achieving a fund’s objective. Recommended reallocations may be implemented
promptly or may be implemented gradually.
The
funds will use elements of both “strategic” and “tactical” asset allocation to
achieve their objectives. The longer-term, strategic asset allocation will be
driven primarily by the need for broad diversification, while the shorter-term,
tactical deviations from strategic positions will be implemented in an effort to
add value based on the portfolio managers’ assessments of the current economic
and financial environment. Given the tactical component of the funds’ asset
allocation strategy, the funds may reallocate assets promptly.
In
determining the allocation of assets among U.S. and foreign capital markets, the
managers consider the condition and growth potential of the various economies;
the relative valuations of the markets; and social, political and economic
factors that may affect the markets.
In
selecting securities in foreign currencies, the managers consider, among other
factors, the impact of foreign exchange rates relative to the U.S. dollar value
of such securities. In addition to purchasing securities denominated in foreign
currencies, the funds may also invest in foreign currencies. The managers may
seek to hedge all or a part of a fund’s foreign currency exposure through the
use of foreign currency exchange contracts or options thereon. The funds also
may use foreign currency exchange contracts to enhance the funds’
return.
The
funds attempt to diversify across asset classes and investment categories to a
greater extent than funds that invest primarily in equity securities or
primarily in fixed-income securities. However, the Strategic Allocation Funds
are designed to fit three general risk profiles and may not provide an
appropriately balanced investment plan for all investors.
This
section describes investment vehicles and techniques the portfolio managers 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.
Asset-Backed
Securities (ABS)
ABS
are structured like mortgage-backed securities, but instead of mortgage loans or
interest in mortgage loans, the underlying assets may include, for example, such
items as motor vehicle installment sales or installment loan contracts, leases
of various types of real and personal property, home equity loans, student
loans, small business loans, and receivables from credit card agreements. The
ability of an issuer of ABS to enforce its security interest in the underlying
assets may be limited. The value of an asset-backed security is affected by
changes in the market’s perception of the assets backing the security, the
creditworthiness of the servicing agent for the loan pool, the originator of the
loans, the financial institution providing any credit enhancement, and
subordination levels.
Payments
of principal and interest passed through to holders of ABS are typically
supported by some form of credit enhancement, such as a letter of credit, surety
bond, limited guarantee by another entity or a priority to certain of the
borrower’s other securities. The degree of credit enhancement varies, and
generally applies to only a fraction of the asset-backed security’s par value
until exhausted. If the credit enhancement of an asset-backed security held by
the fund has been exhausted, and if any required payments of principal and
interest are not made with respect to the underlying loans, the fund may
experience losses or delays in receiving payment.
Some
types of ABS may be less effective than other types of securities as a means of
“locking in” attractive long-term interest rates. One reason is the need to
reinvest prepayments of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest rates. These
prepayments would have to be reinvested at lower rates. As a result, these
securities may have less potential for capital appreciation during periods of
declining interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value during periods
of rising interest rates. Prepayments may also significantly shorten the
effective maturities of these securities, especially during periods of declining
interest rates. Conversely, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the fund.
The
risks of investing in ABS are ultimately dependent upon the repayment of loans
by the individual or corporate borrowers. Although a fund would generally have
no recourse against the entity that originated the loans in the event of default
by a borrower, ABS typically are structured to mitigate this risk of
default.
ABS
are generally issued in more than one class, each with different payment terms.
Multiple class ABS may be used as a method of providing credit support through
creation of one or more classes whose right to payments is made subordinate to
the right to such payments of the remaining class or classes. Multiple classes
also may permit the issuance of securities with payment terms, interest rates or
other characteristics differing both from those of each other and from those of
the underlying assets. Examples include so-called strips (ABS entitling the
holder to disproportionate interests with respect to the allocation of interest
and principal of the assets backing the security), and securities with classes
having characteristics such as floating interest rates or scheduled amortization
of principal.
Bank
Loans
Each
fund may invest in bank loans, which include senior secured and unsecured
floating rate loans of corporations, partnerships, or other entities. Typically,
these loans hold a senior position in the borrower’s capital structure, may be
secured by the borrower’s assets and have interest rates that reset frequently.
These loans are usually rated non-investment grade by the rating agencies. An
economic downturn generally leads to higher non-payment and default rates by
borrowers, and a bank loan can lose a substantial part of its value due to these
and other adverse conditions and events. However, as compared to junk bonds,
senior floating rate loans are typically senior in the capital structure and are
often secured by collateral of the borrower. A fund’s investments in bank loans
are subject to credit risk, and there is no assurance that the liquidation of
collateral would satisfy the claims of the borrower’s obligations in the event
of non-payment of scheduled interest or principal, or that the collateral could
be readily liquidated. The interest rates on many bank loans reset frequently,
and therefore investors are subject to the risk that the return will be less
than anticipated when the investment was first made. Most bank loans, like most
investment grade bonds, are not traded on any national securities exchange. Bank
loans generally have less liquidity than investment grade bonds and there may be
less publicly available information about them.
A
fund eligible to invest in bank loans may purchase bank loans from the primary
market, from other lenders (sometimes referred to as loan assignments) or it may
also acquire a participation interest in another lender’s portion of the bank
loan. Large bank loans to
corporations
or governments may be shared or syndicated among several lenders, usually
commercial or investment banks. A fund may participate in such syndicates, or
can buy part of a loan, becoming a direct lender. Participation interests
involve special types of risk, including liquidity risk and the risks of being a
lender. Risks of being a lender include credit risk (the borrower’s ability to
meet required principal and interest payments under the terms of the loan),
industry risk (the borrower’s industry’s exposure to rapid change or
regulation), financial risk (the effectiveness of the borrower’s financial
policies and use of leverage), liquidity risk (the adequacy of the borrower’s
back-up sources of cash), and collateral risk (the sufficiency of the
collateral’s value to repay the loan in the event of non-payment or default by
the borrower). If a fund purchases a participation interest, it may only be able
to enforce its rights through the lender, and may assume the credit risk of the
lender in addition to the credit risk of the borrower.
In
addition, transactions in bank loans may take more than seven days to settle. As
a result, the proceeds from the sale of bank loans may not be readily available
to make additional investments or to meet the fund’s redemption obligations. To
mitigate these risks, the fund monitors its short-term liquidity needs in light
of the longer settlement period of bank loans. Some bank loan interests may not
be considered securities or registered under the Securities Act of 1933 and
therefore not afforded the protections of the federal securities
laws.
Collateralized
Obligations
Each
fund may also invest in collateralized obligations, including collateralized
debt obligations (CDOs), collateralized loan obligations (CLOs), collateralized
mortgage obligations (CMOs), collateralized bond obligations (CBOs), and other
similarly structured investments. CBOs and CLOs are types of asset backed
securities. A CLO is a trust or other special purpose entity that is typically
collateralized by a pool of loans, which may include, among others, U.S. and
non-U.S. senior secured loans, senior unsecured loans, and subordinate corporate
loans, including loans that may be rated below investment grade or equivalent
unrated loans. A CBO is generally a trust which is backed by a diversified pool
of high risk, below investment grade fixed income securities. The risks of an
investment in a CDO depend largely on the type of the collateral backing the
obligation and the class of the CDO in which a fund invests. CDOs are subject to
credit, interest rate, valuation, prepayment and extension risks. These
securities are also subject to risk of default on the underlying asset,
particularly during periods of economic downturn. CDOs carry additional risks
including, but not limited to, (i) the possibility that distributions from
collateral securities will not be adequate to make interest or other payments,
(ii) the collateral may decline in value or default, (iii) a fund may invest in
CDOs that are subordinate to other classes, and (iv) the complex structure of
the security may not be fully understood at the time of investment and may
produce disputes with the issuer or unexpected investment results. A CMO is a
multiclass bond backed by a pool of mortgage pass-through certificates or
mortgage loans. CMOs are discussed in more detail in the Mortgage-Backed
Securities
section below.
Commercial
Paper
The
funds may invest in commercial paper (CP) that is issued by utility, financial,
and industrial companies, supranational organizations and foreign governments
and their agencies and instrumentalities. Rating agencies assign ratings to
short-term securities (including CP) issuers indicating the agencies’ assessment
of credit risk. Short-term ratings assigned by certain rating agencies are
provided in the Explanation
of Fixed-Income Securities Ratings, Appendix D.
Domestic
CP is issued by U.S. industrial and finance companies, utility companies,
thrifts and bank holding companies. Foreign CP is issued by non-U.S. industrial
and finance companies and financial institutions. Domestic and foreign corporate
issuers occasionally have the underlying support of a well-known, highly rated
commercial bank or insurance company. Bank support is provided in the form of a
letter of credit (an LOC) or irrevocable revolving credit commitment (an IRC).
Insurance support is provided in the form of a surety bond.
Bank
holding company CP is issued by the holding companies of many well-known
domestic banks. Bank holding company CP may be issued by the parent of a money
center or regional bank.
Thrift
CP is issued by major federal- or state-chartered savings and loan associations
and savings banks.
Schedule
B Bank CP is short-term, U.S. dollar-denominated CP issued by Canadian
subsidiaries of non-Canadian banks (Schedule B banks). Whether issued as CP, a
certificate of deposit or a promissory note, each instrument issued by a
Schedule B bank ranks equally with any other deposit obligation. CP issued by
Schedule B banks provides an investor with the comfort and reduced risk of a
direct and unconditional parental bank guarantee.
Schedule
B instruments generally offer higher rates than the short-term instruments of
the parent bank or holding company.
Asset-backed
CP is issued by corporations through special programs. In a typical program, a
special purpose corporation (SPC), created and/or serviced by a bank or other
financial institution, uses the proceeds from an issuance of CP to purchase
receivables or other financial assets from one or more corporations (sellers).
The sellers transfer their interest in the receivables or other financial assets
to the SPC, and the cash flow from the receivables or other financial assets is
used to pay interest and principal on the CP. Letters of credit or other forms
of credit enhancement may be available to cover the risk that the cash flow from
the receivables or other financial assets will not be sufficient to cover the
maturing CP.
Convertible
Securities
The
funds may invest in 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 managers consider 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.
Contingent
convertible securities (sometimes referred to as CoCos) generally either convert
into equity or have their principal written down upon the occurrence of certain
trigger events, which may be linked to the issuer’s stock price, regulatory
capital thresholds, regulatory actions relating to the issuer’s continued
viability, or other pre-specified events. Under certain circumstances, CoCos may
be subject to an automatic write-down of the principal amount or value of the
securities, sometimes to zero, thereby cancelling the securities. If such an
event occurs, a fund may not have any rights to repayment of the principal
amount of the securities that has not become due. Additionally, a fund may not
be able to collect interest payments or dividends on such securities once the
write-down has occurred. In the event of liquidation or dissolution of the
issuer, CoCos generally rank junior to the claims of holders of the issuer’s
other debt obligations. CoCos also may provide for the mandatory conversion of
the security into common stock of the issuer under certain circumstances.
Because the common stock of an issuer may not pay a dividend, a fund may
experience reduced yields (or no yield) as a result of the conversion.
Conversion of the security from debt to equity would deepen the subordination of
the investor and thereby worsen the fund’s standing in bankruptcy.
Counterparty
Risk
A
fund will be exposed to the credit risk of the counterparties with which, or the
brokers, dealers and exchanges through which, it deals, whether it engaged in
exchange traded or off-exchange transactions.
A
fund is subject to the risk that issuers of the instruments in which it invests
and trades may default on their obligations under those instruments, and that
certain events may occur that have an immediate and significant adverse effect
on the value of those instruments. There can be no assurance that an issuer
of an instrument in which a fund invests will not default, or that an event that
has an immediate and significant adverse effect on the value of an instrument
will not occur, and that a fund will not sustain a loss on a transaction as a
result.
Transactions
entered into by a fund may be executed on various U.S. and non-U.S. exchanges,
and may be cleared and settled through various clearinghouses, custodians,
depositories and prime brokers throughout the world. Although a fund
attempts to execute, clear and settle the transactions through entities the
advisor believes to be sound, there can be no assurance that a failure by any
such entity will not lead to a loss to a fund.
Cyber
Security Risk
As
the funds increasingly rely on technology and information systems to operate,
they become susceptible to operational risks linked to security breaches in
those information systems. Both calculated attacks and unintentional events can
cause failures in the funds’ information systems. Cyber attacks can include
acquiring unauthorized access to information systems, usually through hacking or
the use of malicious software, for purposes of stealing assets or confidential
information, corrupting data, or disrupting fund operations. Cyber attacks can
also occur without direct access to information systems, for example by making
network services unavailable to
intended
users. Cyber security failures by, or breaches of the information systems of,
the advisor, distributors, broker-dealers, other service providers (including,
but not limited to, index providers, fund accountants, custodians, transfer
agents and administrators), or the issuers of securities the fund invests in may
also cause disruptions and impact the funds’ business operations. Breaches
in information security may result in financial losses, interference with the
funds’ ability to calculate NAV, impediments to trading, inability of fund
shareholders to transact business, violations of applicable privacy and other
laws, regulatory fines, penalties, reputational damage, reimbursement or other
compensation costs, or additional compliance costs. Additionally, the funds may
incur substantial costs to prevent future cyber incidents. The funds have
business continuity plans in the event of, and risk management systems to help
prevent, such cyber attacks, but these plans and systems have limitations
including the possibility that certain risks have not been identified. Moreover,
the funds do not control the cyber security plans and systems of our service
providers and other third party business partners. The funds and their
shareholders could be negatively impacted as a result.
Derivative
Instruments
To
the extent permitted by its investment objectives and policies, each of the
funds may invest in derivative instruments. Generally, a derivative instrument
is a financial arrangement, the value of which is based on, or derived from, a
traditional security, asset, or market index. The advisor has a derivatives risk
management program that includes policies and procedures reasonably designed to
manage each fund’s respective derivatives risk. The derivatives risk management
program complies with Rule 18f-4 of the Investment Company Act. Unless a fund
qualifies as a limited derivatives user, the fund will be required to
participate in the derivatives risk management program, which includes
compliance with value-at-risk based leverage limits, oversight by a derivatives
risk manager, and additional reporting and disclosure regarding its derivatives
positions. A fund designated as a limited derivatives user has policies and
procedures to manage its aggregate derivatives risk. The advisor will report on
the derivatives risk management program to the Board of Trustees on a quarterly
basis.
Examples
of common derivative instruments include futures contracts, warrants, structured
notes, credit default swaps, options contracts, swap transactions and forward
currency contracts.
The
risks associated with investments in derivatives differ from, and may be greater
than, the risks associated with investing directly in traditional
investments.
Leverage
Risk
– Relatively small market movements may cause large changes in an investment’s
value. Leverage is associated with certain types of derivatives or trading
strategies. Certain transactions in derivatives (such as futures transactions or
sales of put options) involve substantial leverage and may expose a fund to
potential losses that exceed the amount of initial investment.
Hedging
Risk
– When used to hedge against a position in a fund, losses on a derivative
instrument are typically offset by gains on the hedged position, and vice versa.
Thus, though hedging can minimize or cancel out losses, it can also have the
same effect on gains. Occasionally, there may be imperfect matching between the
derivative and the underlying security, such a match may prevent the fund from
achieving the intended hedge or expose it to a risk of loss. There is no
guarantee that a fund’s hedging strategy will be effective. Portfolio managers
may decide not to hedge against any given risk either because they deem such
risk improbable or they do not foresee the occurrence of the risk. Additionally,
certain risks may be impossible to hedge against.
Correlation
Risk
– The value of the underlying security, interest rate, market index or other
financial asset may not move in the direction the portfolio managers anticipate.
Additionally, the value of the derivative may not move or react to changes in
the underlying security, interest rate, market index or other financial asset as
anticipated.
Illiquidity
Risk
– There may be no liquid secondary market, which may make it difficult or
impossible to close out a position when desired. For exchange-traded derivatives
contracts, daily limits on price fluctuations and speculative position limits
set by the exchanges on which the fund transacts in derivative instruments may
prevent profitable liquidation of positions, subjecting a fund to the potential
of greater losses.
Settlement
Risk
– A fund may have an obligation to deliver securities or currency pursuant to a
derivatives transaction that such fund does not own at the inception of the
derivatives trade.
Counterparty
Risk
– A counterparty may fail to perform its obligations. Because bi-lateral
derivative transactions are traded between counterparties based on contractual
relationships, a fund is subject to the risk that a counterparty will not
perform its obligations under the related contracts. Although each fund intends
to enter into transactions only with counterparties which the advisor believes
to be creditworthy, there can be no assurance that a counterparty will not
default and that the funds will not sustain a loss on a transaction as a result.
In situations where a fund is required to post margin or other collateral with a
counterparty, the counterparty may fail to segregate the collateral or may
commingle the collateral with the counterparty’s own assets. As a result, in the
event of the counterparty’s bankruptcy or insolvency, a fund’s collateral may be
subject to the conflicting claims of the counterparty’s creditors, and a fund
may be exposed to the risk of a court treating a fund as a general unsecured
creditor of the counterparty, rather than as the owner of the
collateral.
Volatility
Risk
– A fund could face higher volatility because some derivative instruments create
leverage.
Foreign
Currency Exchange Transactions
A
fund may conduct foreign currency transactions on a spot basis (i.e., for prompt
delivery and settlement) or forward basis (i.e., by entering into forward
currency exchange contracts, currency options and futures transactions for
hedging or any other lawful purpose).
Although
foreign exchange dealers generally do not charge a fee for such transactions,
they do realize a profit based on the difference between the prices at which
they are buying and selling various currencies.
Forward
contracts are customized transactions that require a specific amount of a
currency to be delivered at a specific exchange rate on a specific date or range
of dates in the future. Forward contracts are generally traded in an interbank
market directly between currency traders (usually larger commercial banks) and
their customers. The parties to a forward contract may agree to offset or
terminate the contract before its maturity, or may hold the contract to maturity
and complete the contemplated currency exchange.
The
following summarizes the principal currency management strategies involving
forward contracts. A fund may also use swap agreements, indexed securities, and
options and futures contracts relating to foreign currencies for the same
purposes. A fund’s foreign currency management strategies may involve
currencies of developed as well as emerging market countries.
(1)Settlement
Hedges or Transaction Hedges –
When the portfolio managers wish to lock in the U.S. dollar price of or proceeds
from a foreign currency denominated security when a fund is purchasing or
selling the security, the fund may enter into a forward contract to do so. This
type of currency transaction, often called a “settlement hedge” or “transaction
hedge,” protects the fund against an adverse change in foreign currency values
between the date a security is purchased or sold and the date on which payment
is made or received (i.e., settled). Forward contracts to purchase or sell a
foreign currency may also be used by a fund in anticipation of future purchases
or sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by the portfolio managers. This strategy
is often referred to as “anticipatory hedging.”
(2)Position
Hedges –
When the portfolio managers believe that the currency of a particular foreign
country may suffer substantial decline against the U.S. dollar, a fund may enter
into a forward 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. This use of a
forward contract is sometimes referred to as a “position hedge.” For example, if
a fund owned securities denominated in Euro, it could enter into a forward
contract to sell Euro in return for U.S. dollars to hedge against possible
declines in the Euro’s value. This hedge would tend to offset both positive and
negative currency fluctuations, but would not tend to offset changes in security
values caused by other factors.
A
fund could also hedge the position by entering into a forward contract to sell
another currency expected to perform similarly to the currency in which the
fund’s existing investments are denominated. This type of hedge, often called a
“proxy hedge,” could offer advantages in terms of cost, yield or efficiency, but
may not hedge currency exposure as effectively as a simple position hedge
against U.S. dollars. This type of hedge may result in losses if the currency
used to hedge does not perform similarly to the currency in which the hedged
securities are denominated.
The
precise matching of forward 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 contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of a 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 managers
believe that it is important to have flexibility to enter into such forward
contracts when they determine that a fund’s best interests may be
served.
At
the maturity of the forward contract, 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 contract with the same currency trader
obligating 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 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 and make delivery of the foreign
currency the fund is obligated to deliver.
(3)Shifting
Currency Exposure –
A fund may also enter into forward contracts to shift its investment exposure
from one currency into another for hedging purposes or to enhance returns. This
may include shifting exposure from U.S. dollars to foreign currency, or from one
foreign currency to another foreign currency and may result in the fund being
obligated to deliver an amount in excess of the value of its securities or other
assets denominated in that currency (a “net short” position). This strategy
tends to limit exposure to the currency sold, and increase exposure to the
currency that is purchased, much as if a fund had sold a security denominated in
one currency and purchased an equivalent security denominated in another
currency. For example, if the portfolio managers believed that the U.S. dollar
may suffer a substantial decline against the Euro, they could enter into a
forward contract to purchase Euros for a fixed amount of U.S. dollars. This
transaction would protect against losses resulting from a decline in the value
of the U.S. dollar, but would cause the fund to assume the risk of fluctuations
in the value of the Euro.
Successful
use of currency management strategies will depend on the fund management team’s
skill in analyzing currency values. Currency management strategies may
substantially subject a fund’s investment exposure to changes in currency rates
and could result in losses to a fund if currencies do not perform as the
portfolio managers anticipate. For example, if a currency’s value rose at a time
when the portfolio managers hedged a fund by selling the currency in exchange
for U.S. dollars, a fund would not participate in the
currency’s
appreciation. Similarly, if the portfolio managers increase a fund’s exposure to
a currency and that currency’s value declines, a fund will sustain a loss. These
risks are heightened when the transactions involve currencies of emerging market
countries. There is no assurance that the portfolio managers’ use of foreign
currency management strategies will be advantageous to a fund or that they will
hedge at appropriate times.
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.
The
funds may also invest in nondeliverable forward (NDF) currency transactions. An
NDF is a transaction that represents an agreement between the fund and a
counterparty to buy or sell a specified amount of a particular currency at an
agreed upon foreign exchange rate on a future date. Unlike other currency
transactions, there is no physical delivery of the currency on the settlement of
an NDF transaction. Rather, the fund and the counterparty agree to net the
settlement by making a payment in U.S. dollars or another fully convertible
currency that represents any difference between the foreign exchange rate agreed
upon at the inception of the NDF agreement and the actual exchange rate on the
agreed upon future date. The funds may use an NDF contract to gain exposure to
foreign currencies which are not internationally traded or if the markets for
such currencies are heavily regulated or highly taxed. When currency exchange
rates do not move as anticipated, a fund could sustain losses on the NDF
transaction. This risk is heightened when the transactions involve currencies of
emerging market countries. Additionally, certain NDF transactions which involve
currencies of less developed countries or with respect to certain other
currencies may be relatively illiquid.
Futures
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.
Futures
Generally,
futures transactions will be used to
•protect
against a decline in market value of the funds’ securities (taking a short
futures position),
•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
•provide
a temporary substitute for the purchase of an individual security that may not
be purchased in an orderly fashion.
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 managers may engage in futures and options
transactions, consistent with a fund’s investment objective, that are based on
securities indices, such as the S&P 500 Index. The managers also may engage
in futures and options transactions based on specific securities, such as
Treasury 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 a fund purchases or sells a security, no price is paid or received by the
fund upon the purchase or sale of the future. Initially, a 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 a 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 securities 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 a fund as unrealized gains or
losses. At any time prior to
expiration
of the future, a 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.
Options
By
buying a put option, a fund obtains the right (but not the obligation) to sell
the instrument underlying the option at a fixed strike price and in return a
fund pays the current market price for the option (known as the option premium).
A fund may terminate its position in a put option it has purchased by allowing
it to expire, by exercising the option or by entering into an offsetting
transaction, if a liquid market exists. If the option is allowed to expire, a
fund will lose the entire premium it paid. If a fund exercises a put option on a
security, it will sell the instrument underlying the option at the strike price.
The buyer of a typical put option can expect to realize a gain if the value of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss limited to the
amount of the premium paid, plus related transaction costs.
The
features of call options are essentially the same as those of put options,
except that the buyer of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option’s strike price.
The buyer of a typical call option can expect to realize a gain if the value of
the underlying instrument increases substantially and can expect to suffer a
loss if security prices do not rise sufficiently to offset the cost of the
option.
When
a fund writes a put option, it takes the opposite side of the transaction from
the option’s buyer. In return for the receipt of the premium, a fund assumes the
obligation to pay the strike price for the instrument underlying the option if
the other party to the option chooses to exercise it. A fund may seek to
terminate its position in a put option it writes before exercise by purchasing
an offsetting option in the market at its current price. Otherwise, a fund must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to post margin as discussed
below. If the price of the underlying instrument rises, a put writer would
generally realize as profit the premium it received. If the price of the
underlying instrument remains the same over time, it is likely that the writer
will also profit, because it should be able to close out the option at a lower
price. If the price of the underlying instrument falls, the put writer would
expect to suffer a loss.
A
fund writing a call option is obligated to sell or deliver the option’s
underlying instrument in return for the strike price upon exercise of the
option. Writing calls generally is a profitable strategy if the price of the
underlying instrument remains the same or falls. A call writer offsets part of
the effect of a price decline by receipt of the option premium, but gives up
some ability to participate in security price increases. The writer of an
exchange traded put or call option on a security, an index of securities or a
futures contract is required to deposit cash or securities or a letter of credit
as margin and to make mark to market payments of variation margin as the
position becomes unprofitable.
Call
option overwriting is a related investment strategy that typically combines a
long equity position and short call position. This strategy enhances potential
return by generating income through receipt of a call option premium. By
reducing potential loss and capping potential return, call option overwriting
may also help reduce volatility in a fund’s equity holdings.
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.
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 was written and would keep the
contract open until the obligation to deliver it pursuant to the call
expired.
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 managers apply 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 managers consider it appropriate or
desirable to do so. In the event of adverse price movements, a fund would be
required to continue making daily cash payments to maintain its required margin.
If the fund had insufficient cash, it might have to sell portfolio securities to
meet daily margin requirements at a time when the portfolio managers 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
managers 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.
If
a fund’s futures commission merchant, (FCM) becomes bankrupt or insolvent, or
otherwise defaults on its obligations to the fund, the fund may not receive all
amounts owed to it in respect of its trading, despite the clearinghouse fully
discharging all of its obligations. The Commodity Exchange Act requires an FCM
to segregate all funds received from its customers with respect to regulated
futures transactions from such FCM’s proprietary funds. If an FCM were not to do
so to the full extent required by law, the assets of an account might not be
fully protected in the event of the bankruptcy of an FCM. Furthermore, in the
event of an FCM’s bankruptcy, a fund would be limited to recovering only a pro
rata share of all available funds segregated on behalf of an FCM’s combined
customer accounts, even though certain property specifically traceable to the
fund (for example, U.S. Treasury bills deposited by the fund) was held by an
FCM. FCM bankruptcies have occurred in which customers were unable to recover
from the FCM’s estate the full amount of their funds on deposit with such FCM
and owing to them. Such situations could arise due to various factors, or a
combination of factors, including inadequate FCM capitalization, inadequate
controls on customer trading and inadequate customer capital. In addition, in
the event of the bankruptcy or insolvency of a clearinghouse, the fund might
experience a loss of funds deposited through its FCM as margin with the
clearinghouse, a loss of unrealized profits on its open positions, and the loss
of funds owed to it as realized profits on closed positions. Such a bankruptcy
or insolvency might also cause a substantial delay before the fund could obtain
the return of funds owed to it by an FCM who was a member of such
clearinghouse.
When
purchasing an option on a futures contract, the fund assumes the risk of the
premium paid for the option plus related transaction costs. The purchase of an
option on a futures contract also entails the risk that changes in the value of
the underlying futures contract will not be fully reflected in the value of the
option purchased.
Restrictions
on the Use of Futures Contracts and Options
Each
fund may enter into futures contracts, options, options on futures contracts, or
swap agreements as permitted by its investment policies and the CFTC rules. The
advisor to each fund has claimed an exclusion from the definition of the term
“commodity pool operator” under the Commodity Exchange Act and, therefore, the
advisor is not subject to registration or regulation as a commodity pool
operator under that Act with respect to its provision of services to each
fund.
Certain
rules adopted by the CFTC may impose additional limits on the ability of a fund
to invest in futures contracts, options on futures, swaps, and certain other
commodity interests if its investment advisor does not register with the CFTC as
a “commodity pool operator” with respect to such fund. It is expected that the
funds will be able to execute their investment strategies within the limits
adopted by the CFTC’s rules. As a result, the advisor does not intend to
register with the CFTC as a commodity pool operator on behalf of any of the
funds. In the event that one of the funds engages in transactions that
necessitate future registration with the CFTC, the advisor will register as a
commodity pool operator and comply with applicable regulations with respect to
that fund.
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, including inflation indexes, stock, bond or defined portfolio of loans
and mortgages) in exchange for fee payments, often a variable stream of cash
flows based on a reference rate. 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 or that are cleared through a
Derivatives Clearing Organization (DCO). Certain restrictions imposed on the
funds by the Internal Revenue Code may limit the funds’ ability to use swap
agreements.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
and related regulatory developments require the clearing and exchange-trading of
certain standardized derivative instruments that the CFTC and SEC have defined
as “swaps.” The CFTC has implemented mandatory exchange-trading and clearing
requirements under the Dodd-Frank Act and the CFTC continues to approve
contracts for central clearing. Although exchange trading is designed to
decrease counterparty risk, it does not do so entirely because the fund will
still be subject to the credit risk of the central clearinghouse. Cleared swaps
are subject to margin requirements imposed by both the central clearinghouse and
the clearing member FCM. Uncleared swaps are now subject to posting and
collecting collateral on a daily basis to secure mark-to-market obligations
(variation margin). Swaps data reporting may subject a fund
to administrative costs, and the safeguards established to
protect trader anonymity may not function as expected.
Exchange trading, central clearing, margin
requirements, and data reporting regulations may increase a fund’s
cost of hedging risk and, as a result, may affect shareholder
returns.
Equity
and 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 securities. Equity
equivalents also may include securities whose value or return is derived from
the value or return of a different security.
Preferred
stock is a type of equity security that generally pays dividends at a specified
rate and has preference over common stock in the liquidation of assets and
payment of dividends. Preferred stock does not ordinarily carry voting rights.
Unlike interest payments on a fixed-income security, preferred stock dividends
are only payable if declared by the issuer’s board of directors. A board of
directors, however, is usually not obligated to pay dividends even if they have
accrued. Additionally, if an issuer of preferred stock experiences economic or
financial difficulties, its preferred stock may lose value due to the reduced
likelihood that its board of directors will declare a dividend. Preferred stocks
are typically subordinated to bonds and other debt instruments in an issuer’s
capital structure, in which case, preferred stock dividends are usually paid
only after the company makes required payments to those bond and other debt
holders. Consequently, the value of preferred stock may react more strongly than
bonds and other debt to actual or perceived changes in a company’s financial
condition or prospects. Preferred stock may be substantially less liquid than
other securities.
Foreign
Securities
Each
fund may invest in the securities (including debt securities) of foreign
issuers, including foreign governments, when these securities meet its standards
of selection. Securities of foreign issuers may trade in the U.S. or foreign
securities markets.
The
following table shows the operating ranges within which the funds’ assets
invested in securities of foreign issuers generally will vary.
|
|
|
|
|
| |
|
Fund |
Foreign
Securities |
| Strategic
Allocation: Conservative |
10-35% |
| Strategic
Allocation: Moderate |
10-35% |
| Strategic
Allocation: Aggressive |
10-40% |
The
funds may make such investments either directly in foreign securities or
indirectly by purchasing depositary receipts or depositary shares of similar
instruments (depositary receipts) for foreign securities. Depositary receipts
are securities that are listed on exchanges or quoted in the domestic
over-the-counter markets in one country, but represent shares of issuers
domiciled in another country. Direct investments in foreign securities may be
made either on foreign securities exchanges or in the over-the-counter
markets.
Subject
to its investment objective and policies, each fund may invest in common stocks,
convertible securities, preferred stocks, bonds, notes and other debt securities
of foreign issuers and debt securities of foreign governments and their
agencies. The credit quality standards applicable to domestic debt securities
purchased by each fund are also applicable to its foreign securities
investments.
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.
Social,
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 and there may be less stringent investor protection and
disclosure standards in some foreign markets. Certain jurisdictions do not
currently provide the Public Company Accounting Oversight Board (“PCAOB”) with
sufficient access to inspect audit work papers and practices, or otherwise do
not cooperate with U.S. regulators, potentially exposing investors in U.S.
capital markets to significant risks. 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 may
invest 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, more volatile and harder to value 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.
In many of these countries, the most notable of which is the Russian Federation,
the ultimate evidence of securities ownership is the share register held by the
issuing company or its registrar. While some companies may issue share
certificates or provide extracts of the company’s share register, these are not
negotiable instruments and are not effective evidence of securities ownership.
In an ownership dispute, the company’s share register is controlling. As a
result, there is a risk that a fund’s trade details could be incorrectly or
fraudulently entered on the issuer’s share register at the time of the
transaction, or that a fund’s ownership position could thereafter be altered or
deleted entirely, resulting in a loss to the fund. While the funds intend to
invest directly in Russian companies that utilize an independent registrar,
there can be no assurance that such investments will not result in a loss to the
funds.
Sanctions
Risk
– The U.S. may impose economic sanctions against companies in various sectors of
certain countries. This could limit a fund's investment opportunities in such
countries, impairing the fund’s ability to invest in accordance with its
investment strategy and/or to meet its investment objective. For example, a fund
may be prohibited from investing in securities issued by companies subject to
such sanctions. In addition, the sanctions may require a fund to freeze its
existing investments in sanctioned companies, prohibiting the fund from selling
or otherwise transacting in these investments. Current sanctions or the threat
of potential sanctions may also impair the value or liquidity of affected
securities and negatively impact a fund.
In
early 2022, the United States and countries throughout the world imposed
economic sanctions on Russia in response to its military invasion of Ukraine.
The sanctions are broad and include restrictions on the Russian government as
well as Russian companies, individuals, and banking entities. The sanctions and
other measures, such as boycotts or changes in consumer preferences, will likely
cause declines in the value and liquidity of Russian securities, downgrades in
the credit ratings of Russian securities, devaluation of
Russia’s
currency, and increased market volatility and disruption in Russia and
throughout the world. Sanctions and similar measures, such as banning Russia
from financial transaction systems that facilitate international transfers of
funds, could limit or prevent the funds from selling and buying impacted
securities both in Russia and in other markets. Such measures will likely cause
significant delay in the settlement of impacted securities transactions or
prevent settlement all together. The lack of available market prices for such
securities may cause the funds to use fair value procedures to value certain
securities. The consequences of the war and sanctions may negatively impact
other regional and global economic markets. Additionally, Russia may take
counter measures or engage in retaliatory actions—including cyberattacks and
espionage—which could further disrupt global markets and supply chains.
Companies in other countries that do business with Russia and the global
commodities market for oil and natural gas, especially, will likely feel the
impact of the sanctions. The sanctions, together with the potential for a wider
armed or cyber conflict, could increase financial market volatility globally and
negatively impact the funds’ performance beyond any direct exposure to Russian
issuers or securities.
Risk
of Investing in China
- Investing in Chinese securities is riskier than investing in U.S. securities.
Although the Chinese government is currently implementing reforms to promote
foreign investment and reduce government economic control, there is no guarantee
that the reforms will be ongoing or effective. Investing in China involves risk
of loss due to nationalization, expropriation, and confiscation of assets and
property. Losses may also occur due to new or expanded restrictions on foreign
investments or repatriation of capital. Participants in the Chinese market are
subject to less regulation and oversight than participants in the U.S. market.
This may lead to trading volatility, difficulty in the settlement and recording
of transactions, and uncertainty in interpreting and applying laws and
regulations. Reduction in spending on Chinese products and services, institution
of tariffs or other trade barriers, or a downturn in the economies of any of
China's key trading partners may adversely affect the securities of Chinese
issuers. Regional conflict could also have an adverse effect on the Chinese
economy.
The
SEC and the PCAOB continue to have concerns about their ability to inspect
international auditing standards of U.S. companies operating in China and
PCAOB-registered auditing firms in China. Because the SEC and PCAOB have limited
access to information about these auditing firms and are restricted from
inspecting the audit work and practices of registered accountants in China,
there is the risk that material information about Chinese issuers may be
unavailable. As a result, there is substantially greater risk that disclosures
will be incomplete or misleading and, in the event of investor harm,
substantially less access to recourse, in comparison to U.S. domestic companies.
The
U.S. government may occasionally place restrictions on investments in Chinese
companies. For example, in November 2020, an Executive Order was issued that
prohibits U.S. persons from purchasing or investing in certain publicly-traded
securities of companies identified as “Communist Chinese military companies” or
in instruments that are designed to provide investment exposure to those
companies. The companies identified may change from time to time. A fund may
incur losses if more investors attempt to sell such securities or if the fund is
unable to participate in an otherwise attractive investment. Securities that are
or become prohibited may become less liquid and their market prices may decline.
In addition, the market for securities of other Chinese-based issuers may also
be negatively impacted, resulting in reduced liquidity and price
declines.
Due
to Chinese governmental restrictions on foreign ownership of companies in
certain industries, Chinese operating companies often rely on variable interest
entity (VIE) structures to raise capital from non-Chinese investors. In a VIE
structure, a China-based operating company establishes an entity—typically
offshore—that enters into service and other contracts with the Chinese company
designed to provide economic exposure to the company. The offshore entity then
issues shares that are sold to non-Chinese investors. A U.S.-listed company and
its China-based VIE might appear to be the same company—because they are
presented in a consolidated manner—but they are not. The U.S.-listed company’s
control over the China-based company is predicated on contracts with the
China-based company, not equity ownership. The Chinese government has never
explicitly approved these structures and thus could determine at any time, and
without notice, that the VIE’s underlying contractual arrangements violate
Chinese law. If either the China-based company (or its officers, directors, or
Chinese equity owners) breach those contracts with the U.S.-listed shell
company, or Chinese law changes in a way that affects the enforceability of
these arrangements, or those contracts are otherwise not enforceable under
Chinese law, U.S. investors may suffer losses with limited recourse available.
Additionally, investments in the U.S.-listed company may be affected by
conflicts of interest and duties between the legal owners of the China-based VIE
and the stockholders of the U.S.-listed company. Finally, if Chinese companies
listed on U.S. exchanges, including ADRs and companies that rely on VIE
structures, do not meet U.S. accounting standards and auditor oversight
requirements they may be delisted, which would likely decrease the liquidity and
value of these securities.
Inflation-Indexed
Securities
The
funds may purchase inflation-indexed securities issued by the U.S. Treasury,
U.S. government agencies and instrumentalities other than the U.S. Treasury, and
entities other than the U.S. Treasury or U.S. government agencies and
instrumentalities including state and local municipalities.
Inflation-indexed
securities are designed to offer a return linked to inflation, thereby
protecting future purchasing power of the money invested in them. However,
inflation-indexed securities provide this protected return only if held to
maturity. In addition, inflation-indexed securities may not trade at par value.
Real interest rates (the market rate of interest less the anticipated rate of
inflation) change over time as a result of many factors, such as what investors
are demanding as a true value for money. When real rates do change,
inflation-indexed securities prices will be more sensitive to these changes than
conventional bonds, because these securities were sold originally based upon a
real interest rate that is no longer prevailing. Should market expectations for
real interest rates rise,
the
price of inflation-indexed securities and the share price of a fund holding
these securities will fall. Investors in the funds should be prepared to accept
not only this share price volatility but also the possible adverse tax
consequences it may cause.
An
investment in securities featuring inflation-adjusted principal and/or interest
involves factors not associated with more traditional fixed-principal
securities. Such factors include the possibility that the inflation index may be
subject to significant changes, that changes in the index may or may not
correlate to changes in interest rates generally or changes in other indices, or
that the resulting interest may be greater or less than that payable on other
securities of similar maturities. In the event of sustained deflation, it is
possible that the amount of semiannual interest payments, the inflation-adjusted
principal of the security or the value of the stripped components will decrease.
If any of these possibilities are realized, a fund’s net asset value could be
negatively affected.
Municipal
inflation-linked bonds generally have a fixed principal amount and the inflation
component is reflected in the nominal coupon.
Inflation-Indexed
Treasury Securities
Inflation-indexed
U.S. Treasury securities are U.S. Treasury securities with a final value and
interest payment stream linked to the inflation rate. Inflation-indexed U.S.
Treasury securities may be issued in either note or bond form. Inflation-indexed
U.S. Treasury notes have maturities of at least one year, but not more than 10
years. Inflation-indexed U.S. Treasury bonds have maturities of more than 10
years.
Inflation-indexed
U.S. Treasury securities may be attractive to investors seeking an investment
backed by the full faith and credit of the U.S. government that provides a
return in excess of the rate of inflation. These securities were first sold in
the U.S. market in January 1997. Inflation-indexed U.S. Treasury securities are
auctioned and issued on a quarterly basis.
Structure
and Inflation Index –
The principal value of inflation-indexed U.S. Treasury securities will be
adjusted to reflect changes in the level of inflation. The index for measuring
the inflation rate for inflation-indexed U.S. Treasury securities is the
non-seasonally adjusted U.S. City Average All Items Consumer Price for All Urban
Consumers Index (Consumer Price Index) published monthly by the U.S. Department
of Labor’s Bureau of Labor Statistics.
Semiannual
coupon interest payments are made at a fixed percentage of the inflation-indexed
principal value. The coupon rate for the semiannual interest rate of each
issuance of inflation-indexed U.S. Treasury securities is determined at the time
the securities are sold to the public (i.e., by competitive bids in the
auction). The coupon rate will likely reflect real yields available in the U.S.
Treasury market; real yields are the prevailing yields on U.S. Treasury
securities with similar maturities, less then-prevailing inflation expectations.
While a reduction in inflation will cause a reduction in the interest payment
made on the securities, the repayment of principal at the maturity of the
security is guaranteed by the U.S. Treasury to be no less than the original face
or par amount of the security at the time of issuance.
Indexing
Methodology –
The principal value of inflation-indexed U.S. Treasury securities will be
indexed, or adjusted, to account for changes in the Consumer Price Index.
Semiannual coupon interest payment amounts will be determined by multiplying the
inflation-indexed principal amount by one-half the stated rate of interest on
each interest payment date.
Taxation
– The taxation of inflation-indexed U.S. Treasury securities is similar to the
taxation of conventional bonds. Both interest payments and the difference
between original principal and the inflation-adjusted principal will be treated
as interest income subject to taxation. Interest payments are taxable when
received or accrued. The inflation adjustment to the principal is subject to tax
in the year the adjustment is made, not at maturity of the security when the
cash from the repayment of principal is received. If an upward adjustment has
been made, investors in non-tax-deferred accounts will pay taxes on this amount
currently. Decreases in the indexed principal can be deducted only from current
or previous interest payments reported as income.
Inflation-indexed
U.S. Treasury securities therefore have a potential cash flow mismatch to an
investor, because investors must pay taxes on the inflation-adjusted principal
before the repayment of principal is received. It is possible that, particularly
for high income tax bracket investors, inflation-indexed U.S. Treasury
securities would not generate enough cash in a given year to cover the tax
liability they could create. This is similar to the current tax treatment for
zero-coupon bonds and other discount securities. If inflation-indexed U.S.
Treasury securities are sold prior to maturity, capital losses or gains are
realized in the same manner as traditional bonds.
Investors
in a fund will receive dividends that represent both the interest payments and
the principal adjustments of the inflation-indexed securities held in the fund’s
portfolio. An investment in a fund may, therefore, be a means to avoid the cash
flow mismatch associated with a direct investment in inflation-indexed
securities. For more information about taxes and their effect on you as an
investor in the funds, see Taxes,
page 51.
U.S.
Government Agencies
A
number of U.S. government agencies and instrumentalities other than the U.S.
Treasury may issue inflation-indexed securities. Some U.S. government agencies
have issued inflation-indexed securities whose design mirrors that of the
inflation-indexed U.S. Treasury securities described above.
Other
Entities
Entities
other than the U.S. Treasury or U.S. government agencies and instrumentalities
may issue inflation-indexed securities. While some entities have issued
inflation-linked securities whose design mirrors that of the inflation-indexed
U.S. Treasury securities
described
above, others utilize different structures. For example, the principal value of
these securities may be adjusted with reference to the Consumer Price Index, but
the semiannual coupon interest payments are made at a fixed percentage of the
original issue principal. Alternatively, the principal value may remain fixed,
but the coupon interest payments may be adjusted with reference to the Consumer
Price Index.
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.
Inverse
Floaters
An
inverse floater is a type of derivative instrument that bears an interest rate
that moves inversely to market interest rates. As market interest rates rise,
the interest rate on inverse floaters goes down, and vice versa. Generally, this
is accomplished by expressing the interest rate on the inverse floater as an
above-market fixed rate of interest, reduced by an amount determined by
reference to a market-based or bond-specific floating interest rate (as well as
by any fees associated with administering the inverse floater
program).
Inverse
floaters may be issued in conjunction with an equal amount of Dutch Auction
floating-rate bonds (floaters), or a market-based index may be used to set the
interest rate on these securities. A Dutch Auction is an auction system in which
the price of the security is gradually lowered until it meets a responsive bid
and is sold. Floaters and inverse floaters may be brought to market (1) by a
broker-dealer who purchases fixed-rate bonds and places them in a trust; or (2)
by an issuer seeking to reduce interest expenses by using a floater/inverse
floater structure in lieu of fixed-rate bonds.
In
the case of a broker-dealer structured offering (where underlying fixed-rate
bonds have been placed in a trust), distributions from the underlying bonds are
allocated to floater and inverse floater holders in the following
manner:
(i)Floater
holders receive interest based on rates set at a six-month interval or at a
Dutch Auction, which is typically held every 28 to 35 days. Current and
prospective floater holders bid the minimum interest rate that they are willing
to accept on the floaters, and the interest rate is set just high enough to
ensure that all of the floaters are sold.
(ii)Inverse
floater holders receive all of the interest that remains, if any, on the
underlying bonds after floater interest and auction fees are paid. The interest
rates on inverse floaters may be significantly reduced, even to zero, if
interest rates rise.
Procedures
for determining the interest payment on floaters and inverse floaters brought to
market directly by the issuer are comparable, although the interest paid on the
inverse floaters is based on a presumed coupon rate that would have been
required to bring fixed-rate bonds to market at the time the floaters and
inverse floaters were issued.
Where
inverse floaters are issued in conjunction with floaters, inverse floater
holders may be given the right to acquire the underlying security (or to create
a fixed-rate bond) by calling an equal amount of corresponding floaters. The
underlying security may then be held or sold. However, typically, there are time
constraints and other limitations associated with any right to combine interests
and claim the underlying security.
Floater
holders subject to a Dutch Auction procedure generally do not have the right to
put back their interests to the issuer or to a third party. If a Dutch Auction
fails, the floater holder may be required to hold its position until the
underlying bond matures, during which time interest on the floater is capped at
a predetermined rate.
The
secondary market for floaters and inverse floaters may be limited. The market
value of inverse floaters tends to be significantly more volatile than the
market value of fixed-rate bonds.
Investing
in Emerging Market Countries
Strategic
Allocation: Conservative, Strategic Allocation: Moderate, and Strategic
Allocation: Aggressive may invest a minority portion of their holdings in
securities of issuers in emerging market (developing) countries. The funds
consider a security to be an emerging markets security if its issuer is located
outside the following developed countries list, which is subject to change:
Australia, Austria, Belgium, Bermuda, Canada, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New
Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United
Kingdom and the United States. In determining an issuer’s location, the
portfolio managers may consider various factors including where the company is
headquartered, where the company’s principal operations are located, where a
majority of the company’s revenues are derived, where the principal trading
market is located and the country in which the company was legally
organized.
Investing
in securities of issuers in emerging market countries involves exposure to
significantly higher risk than investing in countries with developed
markets.Risks of investing in emerging markets countries may relate to lack of
liquidity, market manipulation, and
limited
reliable access to capital. Emerging market countries may have economic
structures that generally are less diverse and mature, and political systems
that can be expected to be less stable than those of developed countries.
Securities prices in emerging market countries can be significantly more
volatile than in developed countries, reflecting the greater uncertainties of
investing in lesser developed markets and economies. In particular, emerging
market countries may have relatively unstable governments, and may present the
risk of nationalization of businesses, expropriation, confiscatory taxation or
in certain instances, reversion to closed-market, centrally planned economies.
Such countries may also have less protection of property rights than developed
countries.
The
economies of emerging market countries may be based predominantly on only a few
industries or may be dependent on revenues from particular commodities or on
international aid or developmental assistance, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. In addition, securities markets in
emerging market countries may trade a relatively small number of securities and
may be unable to respond effectively to increases in trading volume, potentially
resulting in a lack of liquidity and in volatility in the price of securities
traded on those markets. Also, securities markets in emerging market countries
typically offer less regulatory protection for investors.
Investment
in Issuers with Limited Operating Histories
Each
fund may invest up to 5% of its assets in the equity securities of issuers with
limited operating histories. The managers consider an issuer to have a limited
operating history if that issuer has a record of less than three years of
continuous operation. The managers 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 managers may base their 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.
LIBOR
Transition Risk
The
London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate intended to
be representative of the rate at which major international banks who are members
of the British Bankers Association lend to one another over short-terms.
Following manipulation allegations, financial institutions have started the
process of phasing out the use of LIBOR. The transition process to a
replacement rate or rates may lead to increased volatility or illiquidity in
markets for instruments that currently rely on LIBOR. The transition may also
result in a change in the value of certain instruments the fund holds or a
change in the cost of temporary borrowing for the fund. As LIBOR is
discontinued, the LIBOR replacement rate may be lower than market expectations,
which could have an adverse impact on the value of preferred and debt-securities
with floating or fixed-to-floating rate coupons. The transition away from LIBOR
could result in losses to the fund.
Loan
Participation Notes
In
terms of their functioning and investment risk, loan participation notes (LPNs)
are comparable to an investment in “normal” bonds. In return for the
investor's commitment of capital, the issuer makes regular interest payments
and, at maturity or in accordance with an agreed upon amortization schedule, the
note is repaid at par.
However,
in contrast to “normal” bonds, there are three parties involved in the issuance
of an LPN. The legal issuer, typically a bankruptcy-remote, limited purpose
entity, issues notes to investors and uses the proceeds received from investors
to make loans to the borrower-with each loan generally having substantially
identical payment terms to the related note issued by the issuer. The borrower
is typically an operating company, and the issuer’s obligations under a note are
typically limited to the extent of any capital repayments and interest payments
made by the borrower under the related loan. Accordingly, the investor generally
assumes the credit risk of the underlying borrower. The loan participation
note structure is generally used to provide the borrower more efficient
financing in the capital markets than the borrower would be able to obtain if it
issued notes directly.
In
the event of a default by the borrower of an LPN, the fund may experience delays
in receiving payments of interest and principal while the note issuer enforces
and liquidates the underlying collateral, and there is no guarantee that the
underlying collateral will cover the principal and interest owed to the fund
under the LPN.
Loan
Participations
The
funds may purchase loan participations, which represent interests in the cash
flow generated by commercial loans. Each loan participation requires three
parties: a participant (or investor), a lending bank and a borrower. The
investor purchases a share in a loan originated by a lending bank, and this
participation entitles the investor to a percentage of the principal and
interest payments made by the borrower.
Loan
participations are attractive because they typically offer higher yields than
other money market instruments. However, along with these higher yields come
certain risks, not the least of which is the risk that the borrower will be
unable to repay the loan. Generally, because the lending bank does not guarantee
payment, the investor is directly exposed to risk of default by the borrower. In
addition, the investor is not a direct creditor of the borrower. The
participation represents an interest in assets owned by the lending bank. If the
lending bank becomes insolvent, the investor could be considered an unsecured
creditor of the bank instead of the holder of a participating interest in a
loan. Because of these risks, the manager must carefully consider the
creditworthiness of both the borrower and the lender.
Another
concern is liquidity. Because there is no established secondary market for loan
participations, a fund’s ability to sell them for cash is limited. Some
participation agreements place limitations on the investor’s right to resell the
loan participation, even when a buyer can be found.
Loans
of Portfolio Securities
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,
however, this limitation does not apply to purchases of debt securities in
accordance with the fund’s investment objectives, policies and limitations, or
to repurchase agreements with respect to portfolio
securities.
Cash
received from the borrower as collateral through loan transactions may be
invested in other eligible securities. Investing this cash subjects that
investment to market appreciation or depreciation. If a borrower defaults on a
securities loan because of insolvency or other reasons, the lending fund could
experience delays or costs in recovering the securities it loaned; if the value
of the loaned securities increased over the value of the collateral, the fund
could suffer a loss. To minimize the risk of default on securities loans, the
advisor adheres to guidelines prescribed by the Board of Directors governing
lending of securities. These guidelines strictly govern
(1)the
type and amount of collateral that must be received by the fund;
(2)the
circumstances under which additions to that collateral must be made by
borrowers;
(3)the
return to be received by the fund on the loaned securities;
(4)the
limitations on the percentage of fund assets on loan; and
(5)the
credit standards applied in evaluating potential borrowers of portfolio
securities.
In
addition, the guidelines require that the fund have the option to terminate any
loan of a portfolio security at any time and set requirements for recovery of
securities from borrowers.
Master
Limited Partnerships
The
funds may invest in master limited partnerships (MLPs). MLPs are publicly traded
limited partnerships or limited liability companies treated as partnerships for
U.S. federal income tax purposes. In order to be treated as a partnership for
U.S. federal income tax purposes, an MLP must derive at least 90% of its gross
income for each taxable year from “qualifying income.” Qualifying income
includes interest, dividends, real property rents, gains from the sale of real
property, and income and gains derived from the exploration, development, mining
or production, processing, refining, transportation, or the marketing of any
mineral or natural resource, industrial source carbon dioxide, or the
transportation or storage of certain fuels, including alcohol fuel and biodiesel
fuel. The partnership structure and qualifying income rules generally eliminate
federal tax liability at the entity level, enabling an MLP to return a high
percentage of its earnings to its partners. MLPs may, however, be subject to
state taxation in certain jurisdictions, which may reduce the amount of income
an MLP pays investors.
The
risk of investing in MLP units involves risks that differ from an investment in
equity securities of a company. For example, holders of MLP units have limited
control and voting rights on matters affecting the partnership, risks related to
potential conflicts of interest, cash flow risks, and dilution risks.
Investments in MLP units also present special tax risks, including the risk that
the MLP will fail to be treated as a partnership for U.S. federal income tax
purposes. An MLP that is not treated as a partnership for tax purposes may be
obligated to pay U.S. federal income tax (as well as state and local taxes) at
an entity level on its taxable income, and distributions would also be taxable.
Adverse tax consequences may reduce the amount of cash available for
distribution by the MLP and the value of the fund’s investment in the MLP.
Consequently, the value of the fund’s shares and cash available for
distributions could be materially reduced.
MLPs
engaged in the energy sector, which has historically experienced significant
price volatility, are susceptible to adverse economic, environmental, business,
and regulatory conditions. Energy sector MLPs are subject to additional risks
including fluctuations in commodity prices, reduced supply and demand for energy
commodities, as well as depletion of natural resource reserves and changes in
the regulatory environment that may adversely impact profitability. MLPs that
engage in particular energy industry activities (such as midstream MLPs,
exploration and production MLPs, propane MLPs, marine shipping MLPs, and natural
resource MLPs) are subject to additional risks specific to the products and
processes in which they are involved.
Mortgage-Backed
Securities
Background
A
mortgage-backed security represents an ownership interest in a pool of mortgage
loans. The loans are made by financial institutions to finance home and other
real estate purchases. As the loans are repaid, investors receive payments of
both interest and principal.
Like
fixed-income securities such as U.S. Treasury bonds, mortgage-backed securities
pay a stated rate of interest during the life of the security. However, unlike a
bond, which returns principal to the investor in one lump sum at maturity,
mortgage-backed securities return principal to the investor in increments during
the life of the security.
Because
the timing and speed of principal repayments vary, the cash flow on
mortgage-backed securities is irregular. If mortgage holders sell their homes,
refinance their loans, prepay their mortgages or default on their loans, the
principal is distributed pro rata to investors.
As
with other fixed-income securities, the prices of mortgage-backed securities
fluctuate in response to changing interest rates; when interest rates fall, the
prices of mortgage-backed securities rise, and vice versa. Changing interest
rates have additional significance for mortgage-backed securities investors,
however, because they influence prepayment rates (the rates at which mortgage
holders prepay their mortgages), which in turn affect the yields on
mortgage-backed securities. When interest rates decline, prepayment rates
generally increase. Mortgage holders take advantage of the opportunity to
refinance their mortgages at lower rates with lower monthly payments. When
interest rates rise, mortgage holders are less inclined to refinance their
mortgages. The effect of prepayment activity on yield depends on whether the
mortgage-backed security was purchased at a premium or at a
discount.
A
fund may receive principal sooner than it expected because of accelerated
prepayments. Under these circumstances, the fund might have to reinvest returned
principal at rates lower than it would have earned if principal payments were
made on schedule. Conversely, a mortgage-backed security may exceed its
anticipated life if prepayment rates decelerate unexpectedly. Under these
circumstances, a fund might miss an opportunity to earn interest at higher
prevailing rates.
GNMA
Certificates
The
Government National Mortgage Association (GNMA) is a wholly owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934 (Housing Act), as amended,
authorizes GNMA to guarantee the timely payment of interest and repayment of
principal on certificates that are backed by a pool of mortgage loans insured by
the Federal Housing Administration under the Housing Act, or by Title V of the
Housing Act of 1949 (FHA Loans), or guaranteed by the Department of Veterans
Affairs under the Servicemen’s Readjustment Act of 1944 (VA Loans), as amended,
or by pools of other eligible mortgage loans. The Housing Act provides that the
full faith and credit of the U.S. government is pledged to the payment of all
amounts that may be required to be paid under any guarantee. GNMA has unlimited
authority to borrow from the U.S. Treasury in order to meet its obligations
under this guarantee.
GNMA
certificates represent a pro rata interest in one or more pools of the following
types of mortgage loans: (a) fixed-rate level payment mortgage loans; (b)
fixed-rate graduated payment mortgage loans (GPMs); (c) fixed-rate growing
equity mortgage loans (GEMs); (d) fixed-rate mortgage loans secured by
manufactured (mobile) homes (MHs); (e) mortgage loans on multifamily residential
properties under construction (CLCs); (f) mortgage loans on completed
multifamily projects (PLCs); (g) fixed-rate mortgage loans that use escrowed
funds to reduce the borrower’s monthly payments during the early years of the
mortgage loans (buydown mortgage loans); and (h) mortgage loans that provide for
payment adjustments based on periodic changes in interest rates or in other
payment terms of the mortgage loans.
Fannie
Mae Certificates
The
Federal National Mortgage Association (FNMA or Fannie Mae) is a federally
chartered and privately owned corporation established under the Federal National
Mortgage Association Charter Act. Fannie Mae was originally established in 1938
as a U.S. government agency designed to provide supplemental liquidity to the
mortgage market and was reorganized as a stockholder-owned and privately managed
corporation by legislation enacted in 1968. Fannie Mae acquires capital from
investors who would not ordinarily invest in mortgage loans directly and thereby
expands the total amount of funds available for housing. This money is used to
buy home mortgage loans from local lenders, replenishing the supply of capital
available for mortgage lending.
Fannie
Mae certificates represent a pro rata interest in one or more pools of FHA
Loans, VA Loans, or, most commonly, conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by a government agency) of the
following types: (a) fixed-rate level payment mortgage loans; (b) fixed-rate
growing equity mortgage loans; (c) fixed-rate graduated payment mortgage loans;
(d) adjustable-rate mortgage loans; and (e) fixed-rate mortgage loans secured by
multifamily projects.
Fannie
Mae certificates entitle the registered holder to receive amounts representing a
pro rata interest in scheduled principal and interest payments (at the
certificate’s pass-through rate, which is net of any servicing and guarantee
fees on the underlying mortgage loans), any principal prepayments, and a
proportionate interest in the full principal amount of any foreclosed or
otherwise liquidated mortgage loan. The full and timely payment of interest and
repayment of principal on each Fannie Mae certificate is guaranteed by Fannie
Mae; this guarantee is not backed by the full faith and credit of the U.S.
government. See Current
Status of Fannie Mae and Freddie Mac
below.
Freddie
Mac Certificates
The
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) is a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970 (FHLMC Act), as amended. Freddie Mac was established
primarily for the purpose of increasing the availability of mortgage credit. Its
principal activity consists of purchasing first-lien conventional residential
mortgage loans (and participation interests in such mortgage loans) and
reselling these loans in the form of mortgage-backed securities, primarily
Freddie Mac certificates.
Freddie
Mac certificates represent a pro rata interest in a group of mortgage loans (a
Freddie Mac certificate group) purchased by Freddie Mac. The mortgage loans
underlying Freddie Mac certificates consist of fixed- or adjustable-rate
mortgage loans with original terms to maturity of between 10 and 30 years,
substantially all of which are secured by first-liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet
standards set forth in the FHLMC Act. A Freddie Mac certificate group may
include whole loans, participation interests in whole loans, undivided interests
in whole loans, and participations composing another Freddie Mac certificate
group.
Freddie
Mac guarantees to each registered holder of a Freddie Mac certificate the timely
payment of interest at the rate provided for by the certificate. Freddie Mac
also guarantees ultimate collection of all principal on the related mortgage
loans, without any offset or deduction, but generally does not guarantee the
timely repayment of principal. Freddie Mac may remit principal at any time after
default on an underlying mortgage loan, but no later than 30 days following (a)
foreclosure sale, (b) payment of a claim by any mortgage insurer, or (c) the
expiration of any right of redemption, whichever occurs later, and in any event
no later than one year after demand has been made upon the mortgager for
accelerated payment of principal. Obligations guaranteed by Freddie Mac are not
backed by the full faith and credit pledge of the U.S. government. See
Current
Status of Fannie Mae and Freddie Mac
below.
Current
Status of Fannie Mae and Freddie Mac
Since
September 2008, Fannie Mae and Freddie Mac have operated under a conservatorship
administered by the Federal Housing Finance Agency (FHFA). In addition, the U.S.
Treasury has entered into senior preferred stock purchase agreements (SPSPAs) to
provide additional financing to Fannie Mae and Freddie Mac. Although the SPSPAs
are intended to provide Fannie Mae and Freddie Mac with the necessary cash
resources to meet their obligations, Fannie Mae and Freddie Mac continue to
operate as going concerns while in conservatorship, and each remains liable for
all of its obligations, including its guaranty obligations, associated with its
mortgage-backed securities.
The
future status and role of Fannie Mae or Freddie Mac could be impacted by, among
other things, the actions taken and restrictions placed on Fannie Mae or Freddie
Mac by the FHFA in its role as conservator, the restrictions placed on Fannie
Mae’s or Freddie Mac’s operations and activities under the senior preferred
stock purchase agreements, market responses to developments at Fannie Mae or
Freddie Mac, and future legislative, regulatory, or legal action that alters the
operations, ownership, structure and/or mission of Fannie Mae or Freddie Mac,
each of which may, in turn, impact the value of, and cash flows on, any
securities guaranteed by Fannie Mae and Freddie Mac.
To-Be-Announced
Mortgage-Backed Securities
To-be-announced
(TBA) commitments are forward agreements for the purchase or sale of securities,
which are described in greater detail under the heading When-Issued
and Forward Commitment Agreements.
The funds may gain exposure to TBA mortgage-backed securities typically are debt
securities structured by agencies such as Fannie Mae and Freddie Mac. In a
typical TBA mortgage transaction, certain terms (such as price) are fixed, with
delayed payment and delivery on an agreed upon future settlement date. The
specific mortgage-backed securities to be delivered are not typically identified
at the trade date but the delivered security must meet specified terms (such as
issuer, interest rate, and underlying mortgage terms). Consequently, TBA
mortgage-backed transactions involve increased interest rate risk because the
underlying mortgages may be less favorable at delivery than anticipated. TBA
mortgage contracts also involve a risk of loss if the value of the underlying
security to be purchased declines prior to delivery date. The yield obtained for
such securities may be higher or lower than yields available in the market on
delivery date. The funds may also take short positions in TBA investments. To
enter a short sale of a TBA security, a fund effectively agrees to sell a
security it does not own at a future date and price. The funds generally
anticipate closing short TBA positions before delivery of the respective
security is required, however if the fund is unable to close a position, the
fund would have to purchase the securities needed to settle the short sale. Such
purchases could be at a different price than anticipated, and the fund would
lose or gain money based on the acquisition price.
The
funds may also take short positions in TBA investments. To enter a short sale of
a TBA security, a fund effectively agrees to sell a security it does not own at
a future date and price. The funds generally anticipate closing short TBA
positions before delivery of the respective security is required, however if the
fund is unable to close a position, the fund would have to purchase the
securities needed to settle the short sale. Such purchases could be at a
different price than anticipated, and the fund would lose or gain money based on
the acquisition price.
Credit
Risk Transfer Securities
Credit
risk transfer securities (CRTs) transfer the credit risk related to certain
types of mortgage-backed securities to the owner of the credit risk transfer.
Government entities, such as Fannie Mae or Freddie Mac, primarily issue CRTs.
CRTs trade in an active over the counter market facilitated by well-known
investment banks. Though an active OTC market for trading exists, CRTs may be
less liquid than exchange traded securities. CRTs are unguaranteed and unsecured
fixed or floating rate general obligations. Holders of CRTs receive compensation
for providing credit protection to the issuer. The issuer of the CRT selects the
pool of mortgage loans based on that entity’s eligibility criteria, and the
performance of the CRTs will be directly affected by the selection of such
underlying mortgage loans. The risks associated with an investment in a CRT
differ from the risks of investing in mortgage-backed securities issued by
government entities or issued by private issuers because some or all of the
mortgage default or credit risk associated with the underlying mortgage loans is
transferred to investors. Accordingly, investors in CRTs could lose some or all
of their investment if the underlying mortgage loans default.
Collateralized
Mortgage Obligations (CMOs)
A
CMO is a multiclass bond backed by a pool of mortgage pass-through certificates
or mortgage loans. CMOs may be collateralized by (a) GNMA, Fannie Mae or Freddie
Mac pass-through certificates; (b) unsecured mortgage loans insured by the
Federal Housing Administration or guaranteed by the Department of Veterans’
Affairs; (c) unsecuritized conventional mortgages; or (d) any combination
thereof.
In
structuring a CMO, an issuer distributes cash flow from the underlying
collateral over a series of classes called tranches. Each CMO is a set of two or
more tranches, with average lives and cash flow patterns designed to meet
specific investment objectives. The average life expectancies of the different
tranches in a four-part deal, for example, might be two, five, seven and 20
years.
As
payments on the underlying mortgage loans are collected, the CMO issuer pays the
coupon rate of interest to the bondholders in each tranche. At the outset,
scheduled and unscheduled principal payments go to investors in the first
tranches. Investors in later tranches do not begin receiving principal payments
until the prior tranches are paid off. This basic type of CMO is known as a
sequential pay or plain vanilla CMO.
Some
CMOs are structured so that the prepayment or market risks are transferred from
one tranche to another. Prepayment stability is improved in some tranches if
other tranches absorb more prepayment variability.
The
final tranche of a CMO often takes the form of a Z-bond, also known as an
accrual bond or accretion bond. Holders of these securities receive no cash
until the earlier tranches are paid in full. During the period that the other
tranches are outstanding, periodic interest payments are added to the initial
face amount of the Z-bond but are not paid to investors. When the prior tranches
are retired, the Z-bond receives coupon payments on its higher principal balance
plus any principal prepayments from the underlying mortgage loans. The existence
of a Z-bond tranche helps stabilize cash flow patterns in the other tranches. In
a changing interest rate environment, however, the value of the Z-bond tends to
be more volatile.
As
CMOs have evolved, some classes of CMO bonds have become more prevalent. The
planned amortization class (PAC) and targeted amortization class (TAC), for
example, were designed to reduce prepayment risk by establishing a sinking-fund
structure. PAC and TAC bonds assure to varying degrees that investors will
receive payments over a predetermined period under various prepayment scenarios.
Although PAC and TAC bonds are similar, PAC bonds are better able to provide
stable cash flows under various prepayment scenarios than TAC bonds because of
the order in which these tranches are paid.
The
existence of a PAC or TAC tranche can create higher levels of risk for other
tranches in the CMO because the stability of the PAC or TAC tranche is achieved
by creating at least one other tranche — known as a companion bond, support or
non-PAC bond — that absorbs the variability of principal cash flows. Because
companion bonds have a high degree of average life variability, they generally
pay a higher yield. A TAC bond can have some of the prepayment variability of a
companion bond if there is also a PAC bond in the CMO issue.
Floating-rate
CMO tranches (floaters) pay a variable rate of interest that is usually tied to
a reference rate, such as the Secured Overnight Financing Rate (SOFR).
Institutional investors with short-term liabilities, such as commercial banks,
often find floating-rate CMOs attractive investments. Super floaters (which
float a certain percentage above a reference rate) and inverse floaters (which
float inversely to a reference rate) are variations on the floater structure
that have highly variable cash flows.
Stripped
Mortgage-Backed Securities
Stripped
mortgage-backed securities are created by segregating the cash flows from
underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security’s
principal or interest payments. Mortgage-backed securities may be partially
stripped so that each investor class receives some interest and some principal.
When securities are completely stripped, however, all of the interest is
distributed to holders of one type of security, known as an interest-only
security, or IO, and all of the principal is distributed to holders of another
type of security known as a principal-only security, or PO. Strips can be
created in a pass-through structure or as tranches of a CMO.
The
market values of IOs and POs are very sensitive to interest rate and prepayment
rate fluctuations. POs, for example, increase (or decrease) in value as interest
rates decline (or rise). The price behavior of these securities also depends on
whether the mortgage
collateral
was purchased at a premium or discount to its par value. Prepayments on discount
coupon POs generally are much lower than prepayments on premium coupon POs. IOs
may be used to hedge a fund’s other investments because prepayments cause the
value of an IO strip to move in the opposite direction from other
mortgage-backed securities.
Commercial
Mortgage-Backed Securities (CMBS)
CMBS
are securities created from a pool of commercial mortgage loans, such as loans
for hotels, shopping centers, office buildings, apartment buildings, and the
like. Interest and principal payments from these loans are passed on to the
investor according to a particular schedule of payments. They may be issued by
U.S. government agencies or by private issuers. The credit quality of CMBS
depends primarily on the quality of the underlying loans and on the structure of
the particular deal. Generally, deals are structured with senior and subordinate
classes. Multiple classes may permit the issuance of securities with payment
terms, interest rates, or other characteristics differing both from those of
each other and those of the underlying assets. Examples include classes having
characteristics such as floating interest rates or scheduled amortization of
principal. Rating agencies rate the individual classes of the deal based on the
degree of seniority or subordination of a particular class and other factors.
The value of these securities may change because of actual or perceived changes
in the creditworthiness of individual borrowers, their tenants, the servicing
agents, or the general state of commercial real estate and other
factors.
Adjustable
Rate Mortgage Securities
Adjustable
rate mortgage securities (ARMs) have interest rates that reset at periodic
intervals. Acquiring ARMs permits a fund to participate in increases in
prevailing current interest rates through periodic adjustments in the coupons of
mortgages underlying the pool on which ARMs are based. In addition, when
prepayments of principal are made on the underlying mortgages during periods of
rising interest rates, a fund can reinvest the proceeds of such prepayments at
rates higher than those at which they were previously invested. Mortgages
underlying most ARMs, however, have limits on the allowable annual or lifetime
increases that can be made in the interest rate that the mortgagor pays.
Therefore, if current interest rates rise above such limits over the period of
the limitation, a fund holding an ARM does not benefit from further increases in
interest rates. Moreover, when interest rates are in excess of coupon rates
(i.e., the rates being paid by mortgagors) of the mortgages, ARMs behave more
like fixed income securities and less like adjustable rate securities and are
subject to the risks associated with fixed income securities. In addition,
during periods of rising interest rates, increases in the coupon rate of
adjustable rate mortgages generally lag current market interest rates slightly,
thereby creating the potential for capital depreciation on such
securities.
Mortgage
Dollar Rolls
The
funds may enter into mortgage dollar rolls in which a fund sells mortgage-backed
securities to financial institutions for delivery in the current month and
simultaneously contracts to repurchase similar securities on a specified future
date. During the period between the sale and repurchase (the “roll period”), the
fund forgoes principal and interest paid on the mortgage-backed securities. The
fund is compensated by the difference between the current sales price and the
forward price for the future purchase (often referred to as the “drop”), as well
as by the interest earned on the cash proceeds of the initial sale. The fund
will use the proceeds generated from the transaction to invest in other
securities that are permissible investments for the fund. Such investments may
have a leveraging effect, increasing the volatility of the fund.
Generally,
the funds intend to physically settle dollar roll transactions within 35 days of
their trade dates. If a dollar roll cannot be physically settled in this time,
it will be treated as a derivatives transaction for purposes of the fund’s
derivative risk management program. The derivative risk management program is
described in greater detail in the Derivative
Instruments
section.
A
fund could suffer a loss if the contracting party fails to perform the future
transaction and the fund is therefore unable to buy back the mortgage-backed
securities it initially sold. The fund also takes the risk that the
mortgage-backed securities that it repurchases at a later date will have less
favorable market characteristics than the securities originally
sold.
Municipal
Obligations
Tax-exempt
and taxable municipal obligations are generally issued by state and local
governments or government entities. Interest payments from municipal obligations
are generally exempt from federal income tax. Interest payments from certain
municipal obligations, however, are subject to federal income tax because of the
degree of non-government involvement in the transaction or because federal tax
code limitations on the issuance of tax-exempt bonds that benefit private
entities have been exceeded. Some typical examples of these taxable municipal
obligations include industrial revenue bonds and economic development bonds
issued by state or local governments to aid private enterprise. The interest on
a taxable municipal bond is often exempt from state taxation in the issuing
state. The funds do not expect to be eligible to pass through to shareholders
the tax-exempt character of interest on municipal obligations.
Municipal
Bonds
Municipal
bonds, which generally have maturities of more than one year when issued, are
designed to meet longer-term capital needs. These securities have two principal
classifications: general obligation bonds and revenue bonds.
General
Obligation (GO) bonds are issued by states, counties, cities, towns and regional
districts to fund a variety of public projects, including construction of and
improvements to schools, highways, and water and sewer systems. GO bonds are
backed by the issuer’s
full
faith and credit based on its ability to levy taxes for the timely payment of
interest and repayment of principal, although such levies may be
constitutionally or statutorily limited as to rate or amount.
Revenue
Bonds are not backed by an issuer’s taxing authority; rather, interest and
principal are secured by the net revenues from a project or facility. Revenue
bonds are issued to finance a variety of capital projects, including
construction or refurbishment of utility and waste disposal systems, highways,
bridges, tunnels, air and seaport facilities, schools and
hospitals.
Industrial
Development Bonds (IDBs), a type of revenue bond, are issued by or on behalf of
public authorities to finance privately operated facilities. These bonds are
used to finance business, manufacturing, housing, athletic and pollution control
projects, as well as public facilities such as mass transit systems, air and
seaport facilities and parking garages. Payment of interest and repayment of
principal on an IDB depend solely on the ability of the facility’s operator to
meet financial obligations, and on the pledge, if any, of the real or personal
property financed. The interest earned on IDBs may be subject to the federal
alternative minimum tax.
Some
longer-term municipal bonds allow an investor to “put” or sell the security at a
specified time and price to the issuer or other “put provider.” If a put
provider fails to honor its commitment to purchase the security, the fund may
have to treat the security’s final maturity as its effective maturity,
lengthening the fund’s weighted average maturity and increasing the volatility
of the fund.
Before
the 2008 financial crisis, municipal bond insurers insured approximately half of
newly issued municipal securities. Since the crisis, the number of municipal
bond insurers has dropped, and the role of bond insurance in the municipal
markets has declined significantly. Currently, there are only a few companies
actively writing such policies, and municipal market penetration is less than
10%.
Municipal
Notes
Municipal
notes are issued by state and local governments or government entities to
provide short-term capital or to meet cash flow needs.
Tax
Anticipation Notes (TANs) are issued in anticipation of seasonal tax revenues,
such as ad valorem property, income, sales, use and business taxes, and are
payable from these future taxes. TANs usually are general obligations of the
issuer. General obligations are backed by the issuer’s full faith and credit
based on its ability to levy taxes for the timely payment of interest and
repayment of principal, although such levies may be constitutionally or
statutorily limited as to rate or amount.
Revenue
Anticipation Notes (RANs) are issued with the expectation that receipt of future
revenues, such as federal revenue sharing or state aid payments, will be used to
repay the notes. Typically, these notes also constitute general obligations of
the issuer.
Bond
Anticipation Notes (BANs) are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds provide
the money for repayment of the notes.
Revenue
anticipation warrants, or reimbursement warrants, are issued to meet the cash
flow needs of state governments at the end of a fiscal year and in the early
weeks of the following fiscal year. These warrants are payable from unapplied
money in the state’s General Fund, including the proceeds of RANs issued
following enactment of a state budget or the proceeds of refunding warrants
issued by the state.
Other
Investment Companies
Each
of the funds may invest in other investment companies, such as closed-end
investment companies, unit investment trusts, exchange-traded funds (ETFs) and
other open-end investment companies, provided that the investment is consistent
with the fund’s investment policies and restrictions. Under the Investment
Company Act, each fund’s investment in such securities, subject to certain
exceptions, currently is limited to:
•3%
of the total voting stock of any one investment company;
•5%
of the fund’s total assets with respect to any one investment company;
and
•10%
of the fund’s total assets in the aggregate.
Such
exceptions may include reliance on Rule 12d1-4 of the Investment Company Act.
Rule 12d1-4, subject to certain requirements, would permit a fund to invest in
affiliated investment companies (other mutual funds and ETFs advised by American
Century) and unaffiliated investment companies in excess of the limitations
described above.
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.
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.
ETFs
are a type of fund bought and sold on a securities exchange. An ETF trades like
common stock and may be actively managed or index-based. 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, to gain exposure to specific
asset classes or sectors, or as a substitute for investing directly in
securities. The risks of owning an ETF generally reflect the risks of owning the
underlying securities. Additionally, because the price of ETF shares is based on
market price rather than net asset value (NAV), shares may trade at a price
greater than NAV (a premium)
or
less than NAV (a discount). A fund may also incur brokerage commissions, as well
as the cost of the bid/ask spread, when purchasing or selling ETF shares.
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 a 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. Restricted
securities include securities that cannot be sold to the public without
registration under the Securities Act of 1933 or the availability of an
exemption from registration, or that are “not readily marketable” because they
are subject to other legal or contractual delays in or restrictions on resale.
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 advisor will
determine the liquidity of such securities pursuant to the fund’s Liquidity Risk
Management Program, approved by the Board of Trustees in accordance with Rule
22e-4.
Because
the secondary market for such securities is limited to certain qualified
institutional investors, the liquidity of such securities may be limited
accordingly and a fund may, from time to time, hold a Rule 144A or other
security that is illiquid. In such an event, the portfolio managers will
consider appropriate remedies to minimize the effect on such fund’s liquidity.
Each of the funds may invest no more than 15% of the value of its assets in
illiquid securities.
Short
Sales
A
fund engages in short selling when it sells a security it does not own. To sell
a security short, a fund must borrow the security from someone else to deliver
it to the buyer. That fund then replaces the borrowed security by purchasing it
at the market price at or before the time of replacement. Until it replaces the
security, the fund repays the person that lent it the security for any interest
or dividends that may have been paid or accrued during the period of the loan.
Each 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
short sale transactions, a fund’s gain is limited to the price at which it sold
the security short; its loss is limited only by the maximum price it must pay to
acquire the security less the price at which the security was sold. In theory,
losses from short sales may be unlimited. In order to borrow the security, a
fund may be required to pay compensation to the lender for securities that are
difficult to borrow due to demand or other factors. Short sales also cause a
fund to incur brokerage fees and other transaction costs. Therefore, the amount
of any gain a fund may receive from a short sale transaction is decreased and
the amount of any loss increased by the amount of compensation to the lender,
accrued interest or dividends and transaction costs a fund may be required to
pay.
There
is no guarantee that a fund will be able to close out a short position at any
particular time or at a particular price. During the time that a fund is short a
security, it is subject to the risk that the lender of the security will
terminate the loan at a time when the fund is unable to borrow the same security
from another lender. If that occurs, the fund may be “bought in” at the price
required to purchase the security needed to close out the short position, which
may be a disadvantageous price.
Short-Term
Securities
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:
•Securities
issued or guaranteed by the U.S. government and its agencies and
instrumentalities
•Commercial
Paper
•Certificates
of Deposit and Euro Dollar Certificates of Deposit
•Bankers’
Acceptances
•Short-term
notes, bonds, debentures or other debt instruments
•Repurchase
agreements
•Money
market funds
Structured
Investments
A
structured investment is a security whose value or performance is linked to an
underlying index or other security or asset class. Structured investments
involve the transfer of specified financial assets to a special purpose entity,
generally a corporation or trust, or the deposit of financial assets with a
custodian; and the issuance of securities or depositary receipts backed by, or
representing interests in, those assets. Structured investments may be organized
and operated to restructure the investment characteristics of the underlying
security. The cash flow on the underlying instruments may be apportioned among
the newly issued structured investments to create securities with different
investment characteristics, such as varying maturities, payment priorities and
interest rate provisions, and the extent of such payments made with respect to
structured investments is dependent on the extent of the cash flow on the
underlying instruments.
Structured
investments are generally individually negotiated agreements or traded over the
counter, and as such, there is no active trading market for such investments.
Thus structured investments may be less liquid than other securities. Because
structured investments typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments. In
addition, structured investments are subject to the risks that the issuers of
the underlying securities may be unable or unwilling to repay principal and
interest (credit risk), and that issuers of the underlying securities may
request to reschedule or restructure outstanding debt and to extend additional
loan amounts (prepayment or extension risk).
Tender
Option Bonds
Tender
Option Bonds (TOBs) were created to increase the supply of high-quality,
short-term tax-exempt obligations, and thus they are of particular interest to
money market funds. However, The funds may purchase these instruments.
TOBs
are created by municipal bond dealers who purchase long-term tax-exempt bonds in
the secondary market, place the certificates in trusts, and sell interests in
the trusts with puts or other liquidity guarantees attached. The credit quality
of the resulting synthetic short-term instrument is based on the put provider’s
short-term rating and the underlying bond’s long-term rating.
There
is some risk that a remarketing agent will renege on a tender option agreement
if the underlying bond is downgraded or defaults. Because of this, the portfolio
managers monitor the credit quality of bonds underlying the fund’s TOB holdings
and intend to sell or put back any TOB if the rating on the underlying bond
falls below the second-highest rating category designated by a rating
agency.
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. Occasionally,
Congressional negotiations regarding increasing the U.S. statutory debt ceiling
cause uncertainty in the market. Uncertainty, or a default on U.S. government
debt, could cause the credit rating of the U.S. government to be downgraded,
increase volatility in debt and equity markets, result in higher interest rates,
reduce prices of U.S. Treasury securities, or increase the costs of certain
kinds of debt.
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 and the Resolution
Funding Corporation.
Some
agency securities are backed by the full faith and credit pledge 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; and the
Eleventh District Federal Home Loan Bank Cost of Funds Index (EDCOFI).
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.
Utilities
The
portfolio managers consider a company to be engaged in the utilities industry if
•the
company’s securities are listed in at least one index that is made up
exclusively of companies engaged in one or more of certain industries
(electricity, natural gas, telecommunications services, cable television, water
or sanitation services); or
•the
company derives 50% or more of its revenues or net profits from the ownership or
operation of facilities used to provide electricity, natural gas,
telecommunications services, cable television, water or sanitation
services.
Performance
of utility-related investments depends in part on how favorably investors
perceive this sector of the market relative to other sectors (such as
transportation or technology). Of course, investor perceptions of the utilities
industry are driven not only by comparisons with other market sectors but by
trends and events within the utilities industry. The following is a brief
outline of risk factors associated with investment in the utilities
industry.
•Regulatory
Risks.
Regulators (primarily at the state level) monitor and control public utility
company revenues and costs. Regulators can limit profits and dividends paid to
investors; they also may restrict a company’s access to new markets. Some
analysts observe that state regulators have become increasingly active in
developing and promoting energy policy through the regulatory
process.
•Natural
Resource Risks.
Swift and unpredictable changes in the price and supply of natural resources can
hamper utility company profitability. These changes may be caused by political
events, energy conservation programs, the success of exploration projects, or
tax and other regulatory policies of various governments.
•Environmental
Risks.
There are considerable costs associated with environmental compliance, nuclear
waste cleanup and safety regulation. For example, coal-burning utilities are
under pressure to curtail sulfur emissions, and utilities in general
increasingly are called upon by regulators to bear environmental costs, which
may not be easily recovered through rate increases or business growth. Changing
weather patterns and natural disasters affect consumer demand for utility
services (e.g., electricity, heat and air conditioning), which, in turn, affects
utility revenues.
•Technology
and Competitive Risks.
The introduction and phase-in of new technologies can affect a utility company’s
competitive strength. The race by long-distance telephone providers to
incorporate fiber optic technology is one example of competitive risk within the
utilities industry. The increasing role of independent power producers (IPPs) in
the natural gas and electric utility segments of the utilities industry is
another example of competitive risk. Typically, IPPs wholesale power to
established local providers, but there is a trend toward letting them sell power
directly to industrial consumers. Co-generation facilities, such as those of
landfill operators that produce methane gas as a byproduct of their core
business, pose another competitive challenge to gas and electric utilities. In
addition to offering a less expensive source of power, these companies may
receive more favorable regulatory treatment than utilities seeking to expand
facilities that consume nonrenewable energy sources.
•Interest
Rate Risks.
Utility companies usually finance capital expenditures (e.g., new plant
construction) by issuing long-term debt. Rising long-term interest rates
increase interest expenses and reduce company earnings.
Variable-
and Floating-Rate Securities
Variable-
and floating-rate securities, including variable-rate demand obligations (VRDOs)
and floating-rate notes (FRNs), provide for periodic adjustments to the interest
rate. The adjustments are generally based on an index-linked formula, or
determined through a remarketing process.
These
types of securities may be combined with a put or demand feature that permits
the fund to demand payment of principal plus accrued interest from the issuer or
a financial institution. Examples of VRDOs include the variable-rate demand note
(VRDN) and variable rate demand preferreds (VRDP). VRDNs combine a demand
feature with an interest rate reset mechanism designed to result in a market
value for the security that approximates par. VRDNs are generally designed to
meet the requirements of money market fund Rule 2a-7. VRDPs are issued by a
closed-end fund that in turn invests primarily in portfolios of bonds. They
feature a floating rate dividend set via a weekly remarketing and have a fixed
term, mandatory redemption, and an unconditional par put option.
When-Issued
and Forward Commitment Agreements
The
funds may sometimes purchase new issues of securities on a when-issued or
forward commitment (including on a to-be-announced (TBA)) 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 a 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.
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.
Generally,
the funds intend to physically settle when-issued and forward commitments within
35 days of their trade dates. If such a transaction cannot be physically settled
in this time, it will be treated as a derivatives transaction for purposes of
the fund’s derivative risk management program. The derivative risk management
program is described in greater detail in the Derivative
Instruments
section.
Zero-Coupon,
Step-Coupon and Pay-In-Kind Securities
Zero-coupon,
step-coupon and pay-in-kind securities are debt securities that do not make
regular cash interest payments. Zero-coupon and step-coupon securities are sold
at a deep discount to their face value. Pay-in-kind securities pay interest
through the issuance of additional securities. Because such securities do not
pay current cash income, the price of these securities can be volatile when
interest rates fluctuate. While these securities do not pay current cash income,
federal income tax law requires the holders of zero-coupon, step-coupon and
pay-in-kind securities to include in income each year the portion of the
original issue discount and other noncash income on such securities accrued
during that year. In order to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code and avoid certain excise tax,
the funds are required to make distributions of income accrued for each year.
Accordingly, the funds may be required to dispose of other portfolio securities,
which may occur in periods of adverse market prices, in order to generate cash
to meet these distribution requirements.
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.
For
purposes of a fund’s investment policies, the party identified as the “issuer”
of a municipal security depends on the form and conditions of the security. When
the assets and revenues of a political subdivision are separate from those of
the government that created the subdivision and the security is backed only by
the assets and revenues of the subdivision, the subdivision is deemed the sole
issuer. Similarly, in the case of an Industrial Development Bond, if the bond
were backed only by the assets and revenues of a non-governmental user, the
non-governmental user would be deemed the sole issuer. If, in either case, the
creating government or some other entity were to guarantee the security, the
guarantee would be considered a separate security and treated as an issue of the
guaranteeing entity.
Fundamental
Investment Policies
The
funds’ fundamental investment policies are set forth below. These investment
policies, the investment objective of each fund, as set forth in the applicable
fund’s 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. Under
the Investment Company Act, the vote of a majority of the outstanding votes of
shareholders means, the vote of (A) 67 percent or more of the voting securities
present at a shareholder meeting, if the holders of more than 50 percent of the
outstanding voting securities are present or represented by proxy; or (B) more
than 50 percent of the outstanding voting securities, whichever is
less.
|
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| |
|
Subject |
Policy |
| Senior
Securities |
A
fund may not issue senior securities, except as permitted under the
Investment Company Act. |
| Borrowing |
A
fund may not borrow money, except that a fund may borrow for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33⅓% of the fund’s total assets (including the amount borrowed)
less liabilities (other than borrowings). |
| Lending |
A
fund may not lend any security or make any other loan if, as a result,
more than 33⅓% of the fund’s total assets would be lent to other parties,
except (i) through the purchase of debt securities in accordance with its
investment objective, policies and limitations or (ii) by engaging in
repurchase agreements with respect to portfolio securities. |
| Real
Estate |
A
fund may not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments. This policy shall not
prevent a fund from investing in securities or other instruments backed by
real estate or securities of companies that deal in real estate or are
engaged in the real estate business. |
| Concentration |
A
fund may not concentrate its investments in securities of issuers in a
particular industry (other than securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities). |
| Underwriting |
A
fund may not act as an underwriter of securities issued by others, except
to the extent that the fund may be considered an underwriter within the
meaning of the Securities Act of 1933 in the disposition of restricted
securities. |
| Commodities |
A
fund may not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments, provided that this
limitation shall not prohibit a fund from purchasing or selling options
and futures contracts or from investing in securities or other instruments
backed by physical commodities. |
| Control |
A
fund may not invest for purposes of exercising control over
management. |
For
purposes of the investment policy relating to senior securities, a fund may
borrow from any bank provided that immediately after any such borrowing there is
asset coverage of at least 300% for all borrowings of such fund. In the event
that such asset coverage falls below 300%, the fund shall, within three days
thereafter (not including Sundays and holidays) or such longer period as the SEC
may prescribe by rules and regulations, reduce the amount of its borrowings to
an extent that the asset coverage of such borrowings is at least
300%.
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 cost of short-term
bank loans. Interfund loans and borrowing 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 for other
short-term instruments (such as repurchase agreements). The funds may have to
borrow from a bank at a higher interest rate if an interfund loan is called or
not renewed. Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
For
purposes of the investment policy relating to concentration, a fund shall not
purchase any securities that would cause 25% or more of the value of the fund’s
net assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that
(a)there
is no limitation with respect to obligations issued or guaranteed by the U.S.
government, any state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions and repurchase agreements secured by such obligations
(except that an Industrial Development Bond backed only by the assets and
revenues of a non-governmental user will be deemed to be an investment in the
industry represented by such user),
(b)wholly
owned finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the activities of
their parents,
(c)utilities
will be divided according to their services, for example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a separate
industry, and
(d)personal
credit and business credit businesses will be considered separate
industries.
In
addition, each fund considers the industries of the holdings of the other
American Century-advised funds in which it invests to assess industry
concentration.
Nonfundamental
Investment Policies
In
addition, the funds are subject to the following investment policies that are
not fundamental. These policies may be changed by the Board of
Directors.
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| |
|
Subject |
Policy |
| Leveraging |
A
fund may not purchase additional investment securities at any time during
which outstanding borrowings exceed 5% of the total assets of the
fund. |
| Liquidity |
A
fund may not purchase any security or enter into a repurchase agreement
if, as a result, more than 15% of its net assets would be invested in
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. |
| Short
Sales |
A
fund may not sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in futures contracts, options, and
other derivative instruments are not deemed to constitute selling
securities short. |
| Margin |
A
fund may not purchase securities on margin, except to obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits in connection with
transactions involving futures, options (puts, calls, etc.), swaps, short
sales, forward contracts, commitment agreements, and other similar
investment techniques shall not be deemed to constitute purchasing
securities on margin. |
Futures
&
Options |
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. |
Issuers
with
Limited
Operating
History |
A
fund may invest a portion of its assets in the equity securities of
issuers with limited operating histories. See Investment
In Issuers with Limited Operating Histories
under Fund
Investments and Risks.
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. |
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.
The
portfolio turnover rate of each fund for its most recent fiscal year is included
in the Fund
Summary
section of that fund’s prospectus. The portfolio turnover rate for each fund’s
last five fiscal years (or a shorter period if the fund is less than five years
old) is shown in the Financial
Highlights
tables in the prospectus.
With
respect to each fund, the managers will sell securities without regard to the
length of time the security has been held. Accordingly, each fund’s portfolio
turnover rate may be substantial.
The
portfolio managers intend to purchase a given security whenever they believe it
will contribute to the stated objective of a particular fund. In order to
achieve each fund’s investment objective, the portfolio managers 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 managers
may sell a portfolio security if they believe that the security is not
fulfilling its purpose, because, among other things, it did not live up to the
managers’ 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, an asset allocation fund
may decrease its position in such category and increase its position in one or
both of the other asset categories, and when a general rise in price levels is
anticipated, a fund may increase its position in such category and decrease its
position in the other categories. However, the asset allocation funds will,
under most circumstances, be essentially fully invested within the operating
ranges set forth in the prospectus.
Because
investment decisions are based on a particular security’s anticipated
contribution to a fund’s investment objective, the managers believe the rate of
portfolio turnover is irrelevant when they determine that a change is required
to achieve 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 a fund, if any, because short-term capital
gains are characterized as ordinary income.
Because
the managers do not take portfolio turnover rate into account in making
investment decisions, (1) the managers have 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. For
example, portfolio turnover rate for each fund decreased during the most recent
fiscal year due to decreased changes to fund holdings compared to greater
changes made as a result of varying market conditions within the two preceding
fiscal years.
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
Month-end
full portfolio holdings for each fund will generally be made available for
distribution 15 days after the end of each calendar quarter for each of the
preceding three months. This disclosure is in addition to the portfolio
disclosure in annual and semiannual shareholder reports and the quarter-end
portfolio disclosures on Form N-PORT. Such disclosures are filed with the
Securities and Exchange Commission within 60 days of each fiscal quarter end and
also posted on americancentury.com at approximately the same time the filings
are made. The distribution of holdings after the above time periods is not
limited.
On
a monthly basis, top 10 holdings (on an absolute basis and relative to the
appropriate benchmark) for each fund will generally be made available for
distribution 7 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 will be made available
for distribution 7 days after the end of each month, or as soon thereafter as
possible, which timeframe may vary by fund. Certain characteristics, as
determined by the advisor, will be posted on americancentury.com monthly 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 in annual and semiannual
shareholder reports and on Form N-PORT. These funds will make long and short
holdings as of the end of a calendar quarter available for distribution 15 days
after the end of each calendar quarter. These funds may also make limited
disclosures as noted in the Single Event Requests section below. The
distribution of holdings after the above time periods is not
limited.
Examples
of securities (both long and short) currently or previously held in a portfolio
may be included in presentations or other marketing documents as soon as
available. The inclusion of such examples is at the relevant portfolio’s team
discretion.
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.
Those
parties who have entered into non-disclosure agreements as of June 30, 2024, are
as follows:
•Aetna
Inc.
•Alight
Solutions LLC
•AllianceBernstein
L.P.
•American
Fidelity Assurance Co.
•Ameritas
Life Insurance Corporation
•AMP
Capital Investors Limited
•Annuity
Investors Life Insurance Company
•Aon
Hewitt Investment Consulting
•Athene
Annuity & Life Assurance Company
•AUL/American
United Life Insurance Company
•Bell
Globemedia Publishing
•Bellwether
Consulting, LLC
•BNY
Mellon Performance & Risk Analytics, LLC
•Brighthouse
Life Insurance Company
•Callan
Associates, Inc.
•Calvert
Asset Management Company, Inc.
•Cambridge
Associates, LLC
•Capital
Cities, LLC
•CBIZ,
Inc.
•Charles
Schwab & Co., Inc.
•Choreo,
LLC
•Clearwater
Analytics, LLC
•Cleary
Gull Inc.
•Commerce
Bank N.A.
•Connecticut
General Life Insurance Company
•Corestone
Investment Managers AG
•Corning
Incorporated
•Curcio
Webb LLC
•Deutsche
AM Distributors, Inc.
•Eckler,
Ltd.
•Electra
Information Systems, Inc.
•Empower
Plan Services, LLC
•Equitable
Investment Management Group, LLC
•EquiTrust
Life Insurance Company
•Farm
Bureau Life Insurance Company
•Fidelity
Workplace Services, LLC
•FIL
Investment Management
•Finance-Doc
Multimanagement AG
•Fund
Evaluation Group, LLC
•Government
Employees Pension Service
•GSAM
Strategist Portfolios, Inc.
•The
Guardian Life Insurance Company of America
•Intel
Corporation
•InvesTrust
Consulting, LLC
•Iron
Capital Advisors
•JLT
Investment Management Limited
•John
Hancock Distributors LLC
•Kansas
City Life Insurance Company
•Kiwoom
Asset Management
•Kmotion,
Inc.
•Korea
Investment Management Co. Ltd.
•Korea
Teachers Pension
•Legal
Super Pty Ltd.
•The
Lincoln National Life Insurance Company
•Lipper
Inc.
•Marquette
Associates
•Massachusetts
Mutual Life Insurance Company
•Mercer
Investment Management, Inc.
•Merian
Global Investors Limited
•Merrill
Lynch
•Midland
National Life Insurance Company
•Minnesota
Life Insurance Company
•Modern
Woodmen of America
•Montana
Board of Investments
•Morgan
Stanley Wealth Management
•Morningstar
Investment Management LLC
•Morningstar,
Inc.
•Morningstar
Investment Services, Inc.
•Mutual
of America Life Insurance Company
•National
Life Insurance Company
•Nationwide
Financial
•NEPC
•The
Newport Group
•Nomura
Asset Management U.S.A. Inc.
•Nomura
Securities International, Inc.
•The
Northern Trust Company
•Northwestern
Mutual Life Insurance Co.
•NYLIFE
Distributors, LLC
•Pacific
Life Insurance Company
•Principal
Life Insurance Company
•Prudential
Financial, Inc.
•RidgeWorth
Capital Management, Inc.
•Rocaton
Investment Advisors, LLC
•RVK,
Inc.
•Säästöpankki
(The Savings Banks)
•Security
Benefit Life Insurance Co.
•Shinhan
Asset Management
•State
Street Global Exchange
•State
Street Global Markets Canada Inc.
•Stellantis
•Symetra
Life Insurance Company
•Tokio
Marine Asset Management Co., Ltd.
•Truist
Bank
•UBS
Financial Services, Inc.
•UBS
Wealth Management
•Univest
Company
•Valic
Financial Advisors Inc.
•VALIC
Retirement Services Company
•Vestek
Systems, Inc.
•Voya
Retirement Insurance and Annuity Company
•Wells
Fargo Bank, N.A.
•Wilshire
Advisors LLC
•WTW
•Zeno
Consulting Group, LLC
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 (both long and short) quarterly as soon as reasonably
available;
(2)Full
holdings (long only) monthly as soon as reasonably available;
(3)Top
10 holdings monthly as soon as reasonably available; and
(4)Portfolio
attributes (such as sector or country weights), characteristics and performance
attribution monthly as soon as reasonably available.
The
types, frequency and timing of disclosure to such parties vary.
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. In these circumstances, top
15 long and short holdings may be disclosed 7 days after the end of each month.
Such disclosure may be presented in paired trades, such as by showing a long
holding in one sector or security and a corresponding short holding in another
sector or security together to show a long/short strategy. 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.
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. In addition, the funds’ investment advisor may use
analytical systems provided by third party data aggregators who have access to
the funds’ portfolio holdings daily, with no lag. These data aggregators enter
into separate non-disclosure agreements after authorization by an appropriate
officer of the advisor. The agreements with service providers and data
aggregators generally require that they treat the funds’ portfolio holdings
information confidentially until the public distribution date and represent that
the information will be used only for the legitimate services it provides (i.e.,
not for trading).
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, including
procedures to address conflicts between the interests of shareholders and those
of the advisor and its affiliates. 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. In the event
that a request for portfolio holdings or characteristics creates a potential
conflict of interest that is not addressed by the safeguards and procedures
described above, the advisor’s procedures require that such requests may only be
granted with the approval of the advisor’s legal department and the relevant
chief investment officers. 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
individuals listed below serve as directors of the funds. Each director will
continue to serve in this capacity until death, retirement, resignation or
removal from office. The board has adopted a mandatory retirement age for
directors who are not “interested persons,”
as
that term is defined in the Investment Company Act (independent directors).
Independent directors shall retire on December 31 of the year in which they
reach their 75th
birthday.
Jonathan
S. Thomas is an “interested person” because he currently serves as President and
Chief Executive Officer of American Century Companies, Inc. (ACC), the parent
company of American Century Investment Management, Inc. (ACIM or the advisor).
The other directors (more than three-fourths of the total number) are
independent. They are not employees, directors or officers of, and have no
financial interest in, ACC or any of its wholly owned, direct or indirect,
subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS)
and American Century Services, LLC (ACS), and they do not have any other
affiliations, positions or relationships that would cause them to be considered
“interested persons” under the Investment Company Act. The directors serve in
this capacity for seven (in the case of Jonathan S. Thomas, 16; and Thomas W.
Bunn, 8) registered investment companies in the American Century Investments
family of funds.
The
following table presents additional information about the directors. The mailing
address for each director is 4500 Main Street, Kansas City, Missouri
64111.
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| Name
(Year of Birth) |
Position(s)
Held with Funds |
Length
of Time Served |
Principal
Occupation(s) During Past 5 Years |
Number
of American Century Portfolios Overseen by Director |
Other
Directorships Held During Past 5 Years |
| Independent
Directors |
|
|
| |
Brian
Bulatao
(1964) |
Director |
Since
2022 |
Chief
Administrative Officer, Activision
Blizzard, Inc.
(2021 to 2024); Under Secretary of State for Management,
U.S. Department of State
(2018 to 2021) |
56 |
None |
| Thomas
W. Bunn (1953) |
Director |
Since
2017 |
Retired |
112 |
None |
Chris
H. Cheesman
(1962) |
Director |
Since
2019 |
Retired |
56 |
Alleghany
Corporation (2021
to 2022) |
Barry
Fink
(1955) |
Director |
Since
2012 (independent since 2016) |
Retired |
56 |
None |
|
Rajesh
K. Gupta (1960) |
Director |
Since
2019 |
Partner
Emeritus, SeaCrest
Investment Management
and SeaCrest
Wealth Management
(2019 to present) |
56 |
None |
Lynn
M. Jenkins
(1963) |
Director |
Since
2019 |
Senior
Policy Advisor, Capital
Hill Policy Group
(2020 to present); Consultant, LJ
Strategies
(2019 to 2023) |
56 |
MGP
Ingredients, Inc. (2019
to 2021) |
Jan
M. Lewis
(1957) |
Director
and Board Chair |
Since
2011 (Board Chair since 2022) |
Retired |
56 |
None |
Gary
C. Meltzer
(1963) |
Director |
Since
2022 |
Advisor,
Pontoro
(2021 to present); Executive Advisor, Consultant and Investor,
Harris
Ariel Advisory LLC
(2020 to present); Managing Partner, PricewaterhouseCoopers
LLP
(1985 to 2020) |
56 |
SoFi
Technologies, Inc.; Apollo Realty Income Solutions, Inc.; ExcelFin
Acquisition Corp. (2021 to 2024) |
| Interested
Director |
|
|
| |
Jonathan
S. Thomas
(1963) |
Director
|
Since
2007 |
President
and Chief Executive Officer, ACC
(2007 to present). Also serves as Director, ACC
and
other ACC
subsidiaries |
142 |
None |
Qualifications
of Directors
Generally,
no one factor was decisive in the selection of the directors to the board.
Qualifications considered by the board to be important to the selection and
retention of directors include the following: (i) the individual’s business and
professional experience and accomplishments; (ii) the individual’s educational
background and accomplishments; (iii) the individual’s experience and expertise
performing senior policy-making functions in business, government, education,
accounting, law and/or administration; (iv) how the individual’s expertise and
experience would contribute to the mix of relevant skills and experience on the
board; (v) the individual’s
ability
to work effectively with the other members of the board; and (vi) the
individual’s ability and willingness to make the time commitment necessary to
serve as an effective director. In addition, the individuals’ ability to review
and critically evaluate information, their ability to evaluate fund service
providers, their ability to exercise good business judgment on behalf of fund
shareholders, their prior service on the board, and their familiarity with the
funds are considered important assets.
When
assessing potential new directors, the board has a policy of considering
individuals from various and diverse backgrounds. Such diverse backgrounds may
include differences in professional experience, education, individual skill sets
and other individual attributes. Additional information about each director’s
individual educational and professional experience (supplementing the
information provided in the table above) follows and was considered as part of
his or her nomination to, or retention on, the board.
Brian
Bulatao:
BS in Engineering Management, United States Military Academy at West Point; MBA
from Harvard Business School; formerly, Chief Operating Officer, Central
Intelligence Agency, former military service followed by experience at McKinsey
& Co. (global management consulting) and in the private equity industry;
experience in senior management positions in government and the private
sector
Thomas
W. Bunn: BS
in Business Administration, Wake Forest University; MBA in Finance, University
of North Carolina at Chapel Hill; formerly Vice Chairman and President,
KeyCorp (banking services); 31 years of experience in investment,
commercial and corporate banking; managing directorship roles with Bank of
America
Chris
H. Cheesman:
BS in Business Administration (Accounting), Hofstra University; 32 years of
experience in global financial services at AllianceBernstein; formerly, auditor
with Price Waterhouse; Certified Public Accountant
Barry
Fink:
BA in English and History, Binghamton University; Juris Doctorate, University of
Michigan; formerly held leadership roles including chief operating officer with
American Century Investments; formerly held leadership roles during a 20-year
career with Morgan Stanley Investment Management; formerly asset management and
securities law attorney at Seward & Kissel; serves on the Board of Directors
of ICI Mutual Insurance Company
Rajesh
K. Gupta: BS
in Quantitative Analysis, New York University, Stern School of Business; MBA in
Finance, New York University, Stern School of Business; formerly, Chief
Executive Officer and Chief Investment Officer, SeaCrest Investment Management;
formerly, Chief Executive Office and Chief Investment Officer, SeaCrest Wealth
Management; formerly held leadership roles during 19-year career with Morgan
Stanley Investment Management
Lynn
M. Jenkins: BS
in Accounting, Weber State University; AA in Business, Kansas State University;
formerly, United States Representative; formerly, Kansas State Treasurer, Kansas
State Senator and Kansas State Representative; 20 years of experience in finance
and accounting, including as a certified public accountant
Jan
M. Lewis:
BS in Civil Engineering, University of Nebraska and MBA, Rockhurst College;
Graduate Certificate in Financial Markets and Institutions, Boston University;
formerly, President and Chief Executive Officer, Catholic Charities of Northeast
Kansas (human services organization); formerly, President, BUCON, Inc.
(full-service design-build construction company); 20 years of experience with
Butler Manufacturing Company (metal buildings producer) and its
subsidiaries
Gary
C. Meltzer:
BS in Accounting, Binghamton University; Certified Public Accountant; formerly
held a variety of roles during 35 years of experience as business advisor and
independent auditor providing high quality audits and value-added services with
PricewaterhouseCoopers LLP
Jonathan
S. Thomas:
BA in Economics, University of Massachusetts; MBA, Boston College; formerly held
senior leadership roles with Fidelity Investments, Boston Financial Services,
Bank of America and Morgan Stanley; serves on the Board of Governors of the
Investment Company Institute
Responsibilities
of the Board
The
board is responsible for overseeing the advisor’s management and operations of
the funds pursuant to the management agreements. Directors also have significant
responsibilities under the federal securities laws. Among other things,
they:
•oversee
the performance of the funds;
•oversee
the quality of the advisory and shareholder services provided by the advisor and
other service providers to the funds;
•review
annually the fees paid to the advisor for its services;
•monitor
potential conflicts of interest between the funds and their affiliates,
including the advisor;
•oversee
custody of assets and the valuation of securities; and
•oversee
the funds’ compliance program.
In
performing their duties, board members receive detailed information about the
funds, the advisor and other service providers to the funds regularly throughout
the year, and meet at least quarterly with management of the advisor to review
reports about fund operations. The directors’ role is to provide oversight and
not to provide day-to-day management.
The
board has all powers necessary or convenient to carry out its responsibilities.
Consequently, the board 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’ shareholders.
They may increase or reduce the number of board members and may, subject to the
Investment
Company Act, fill board vacancies. Board members also may elect and remove such
officers and appoint and terminate such agents as they consider appropriate.
They may establish and terminate committees consisting of two or more directors
who may exercise the powers and authority of the board as determined by the
directors. They may, in general, delegate such authority as they consider
desirable to any officer of the funds, to any board committee and to any agent
or employee of the funds or to any custodian, transfer agent, investor servicing
agent, principal underwriter or other service provider for a
fund.
To
communicate with the board, or a member of the board, a shareholder should send
a written communication addressed to the attention of the corporate secretary
(the “Corporate Secretary”) at American Century funds, P.O. Box 418210, Kansas
City, Missouri 64141-9210. Shareholders who prefer to communicate by email may
send their comments to [email protected]. The Corporate
Secretary will forward all such communications to each member of the Compliance
and Shareholder Services Committee, or if applicable, the individual director(s)
and/or committee chair named in the correspondence. However, if a shareholder
communication is addressed exclusively to the funds’ independent directors, the
Corporate Secretary will forward the communication to the Compliance and
Shareholder Services Committee chair, who will determine the appropriate
action.
Board
Leadership Structure and Standing Board Committees
Jan
M. Lewis currently serves as the independent board chair and has served in such
capacity since 2022. All of the board’s members except for Jonathan S. Thomas
are independent directors. The independent directors meet separately, as needed
and at least in conjunction with each quarterly meeting of the board, to oversee
fund activities, review contractual arrangements with service providers, review
fund performance and meet periodically with the funds’ Chief Compliance Officer
and fund auditors. They are advised by independent legal counsel. No independent
director may serve as an officer or employee of a fund. The board has also
established several committees, as described below. The board believes that the
current leadership structure, with independent directors filling all but one
position on the board, with an independent director serving as board chair, and
with the board committees comprised only of independent directors is appropriate
and allows for independent oversight of the funds.
The
board has an Audit Committee that approves the funds’ (or corporation’s)
engagement of the independent registered public accounting firm and recommends
approval of such engagement to the funds’ board. The committee also oversees the
activities of the accounting firm, receives regular reports regarding fund
accounting, oversees securities valuation by the advisor as valuation designee
and receives regular reports from the advisor’s internal audit department. The
Audit Committee meets with the corporation’s independent auditors to review and
approve the scope and results of their professional services; to review the
procedures for evaluating the adequacy of the corporation’s accounting controls;
to consider the range of audit fees; and to make recommendations to the board
regarding the engagement of the funds’ independent auditors.The committee
currently consists of Chris H. Cheesman (chair), Barry Fink, Lynn M. Jenkins and
Gary C. Meltzer. The committee met four times during the funds’ previous fiscal
year ended July 31, 2024.
The
board has a Governance Committee that is responsible for reviewing board
procedures and committee structures. The committee also considers and recommends
individuals for nomination as directors. The names of potential director
candidates may be drawn from a number of sources, including members of the
board, management and shareholders. Shareholders may submit director nominations
at any time to the Corporate Secretary, American Century funds, P.O. Box 418210,
Kansas City, MO 64141-9210. When submitting nominations, shareholders should
include the name, age and address of the candidate, as well as a detailed resume
of the candidate’s qualifications and a signed statement from the candidate of
his/her willingness to serve on the board. Shareholders submitting nominations
should also include information concerning the number of fund shares and length
of time held by the shareholder, and if applicable, similar information for the
potential candidate. All nominations submitted by shareholders will be forwarded
to the chair of the Governance Committee for consideration. The Corporate
Secretary will maintain copies of such materials for future reference by the
committee when filling board positions.
If
this process yields more than one desirable candidate, the committee will rank
them by order of preference depending on their qualifications and the funds’
needs. The candidate(s) may then be contacted to evaluate their interest and be
interviewed by the full committee. Based upon its evaluation and any appropriate
background checks, the committee will decide whether to recommend a candidate’s
nomination to the board.
The
Governance Committee also may recommend the creation of new committees, evaluate
the membership structure of new and existing committees, consider the frequency
and duration of board and committee meetings and otherwise evaluate the
responsibilities, processes, resources, performance and compensation of the
board. The committee currently consists of Barry Fink (chair), Brian Bulatao,
Lynn M. Jenkins, Jan M. Lewis and Gary C. Meltzer. The committee met three times
during the funds’ previous fiscal year ended July 31, 2024.
The
board also has a Compliance and Shareholder Services Committee, which reviews
the results of the funds’ compliance testing program, meets regularly with the
funds’ Chief Compliance Officer, reviews shareholder communications, reviews
quarterly reports regarding the quality of shareholder service provided by the
advisor, and monitors implementation of the funds’ Code of Ethics. The committee
currently consists of Thomas W. Bunn (chair), Brian Bulatao, Rajesh K. Gupta and
Jan M. Lewis. The committee met four times during the funds’ previous fiscal
year ended July 31, 2024.
The
board has a Fund Performance Review Committee that meets quarterly to review the
investment activities and strategies used to manage fund assets and monitor
investment performance. The committee regularly receives reports from the
advisor’s chief investment officer, portfolio managers and other investment
personnel concerning the funds’ efforts to achieve their investment objectives.
The committee also receives information regarding fund trading activities and
monitors derivative usage. The committee does not review individual security
selections. The committee currently consists of Rajesh K. Gupta (chair), Brian
Bulatao, Thomas W. Bunn, Chris H. Cheesman, Barry Fink, Lynn M. Jenkins, Jan M.
Lewis and Gary C. Meltzer. The committee met four times during the funds’
previous fiscal year ended July 31, 2024.
Risk
Oversight by the Board
As
previously disclosed, the board oversees the advisor’s management of the funds
and meets at least quarterly with management of the advisor to review reports
and receive information regarding fund operations. Risk oversight relating to
the funds is one component of the board’s oversight and is undertaken in
connection with the duties of the board. As described above, the board’s
committees assist the board in overseeing various types of risks relating to the
funds, including, but not limited to, investment risk, operational risk and
enterprise risk. The board receives regular reports from each committee
regarding the committee’s areas of oversight responsibility and, through those
reports and its regular interactions with management of the advisor during and
between meetings, provides oversight of the advisor’s risk management processes.
In addition, the board receives information regarding, and has discussions with
senior management of the advisor about, the advisor’s enterprise risk management
systems and strategies, including an annual review of the advisor’s risk
management practices. There can be no assurance that all elements of risk, or
even all elements of material risk, will be disclosed to or identified by the
board, or that the advisor’s risk management systems and strategies, and the
board’s oversight thereof, will mitigate all elements of risk, or even all
elements of material risk to the funds.
Board
Compensation
Each
independent director receives compensation for service as a member of the board.
Under the terms of each management agreement with the advisor, the funds are
responsible for paying such fees and expenses. None of the interested directors
or officers of the funds receive compensation from the funds. For the fiscal
year ended July 31, 2024, each independent director received the following
compensation for his or her service to the funds and the American Century
Investments family of funds.
|
|
|
|
|
|
|
|
| |
|
Name
of Director |
Total
Compensation for Service as Director of the Funds1 |
Total
Compensation for Service as Directors for the American
Century
Investments Family of Funds2 |
| Independent
Directors |
| |
| Brian
Bulatao |
$2,542 |
$331,500 |
| Thomas
W. Bunn |
$2,682 |
$479,738 |
| Chris
H. Cheesman |
$2,682 |
$349,500 |
| Barry
Fink |
$2,682 |
$349,500 |
| Rajesh
K. Gupta |
$2,682 |
$349,500 |
| Lynn
M. Jenkins |
$2,542 |
$331,500 |
| Jan
M. Lewis |
$3,127 |
$406,500 |
| Gary
C. Meltzer |
$2,542 |
$331,500 |
|
Stephen
E. Yates3 |
$1,080 |
$204,125 |
1 Includes
compensation paid to the directors for the fiscal year ended July 31, 2024, and
also includes amounts deferred at the election of the directors under the
American Century Mutual Funds’ Independent Directors’ Deferred Compensation
Plan.
2 Includes
compensation paid to each director for his or her service as director/trustee
for seven (in the case of Mr. Bunn, eight) investment companies in the American
Century Investments family of funds. The total amount of deferred compensation
included in the table is as follows: Mr. Bunn, $115,106; and Ms. Jenkins,
$132,600.
3 Mr.
Yates retired from the board on December 31, 2023.
None
of the funds currently provides any pension or retirement benefits to the
directors except pursuant to the American Century Mutual Funds’ Independent
Directors’ Deferred Compensation Plan adopted by the corporation. 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 accounts established in the names of the directors. The amounts
credited to each account then increase or decrease, as the case may be, in
accordance with the performance of one or more American Century funds selected
by the directors. 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
funds from time to time.
Generally,
deferred fees are not payable to a director until the distribution date elected
by the director in accordance with the terms of the plan. Such distribution date
may be a date on or after the director’s retirement date, but may be an earlier
date if the director agrees not to make any additional deferrals after such
distribution date. Distributions may commence prior to the elected payment date
for
certain
reasons specified in the plan, such as unforeseeable emergencies, death or
disability. 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
met all payment obligations under the plan. 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, 2023, as shown in the
table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Name
of Director |
| |
Jonathan
S.
Thomas |
Brian
Bulatao |
Thomas
W. Bunn |
Chris
Cheesman |
Barry
Fink |
|
Dollar
Range of Equity Securities in the Funds: |
| Strategic
Allocation: Conservative |
A |
A |
A |
A |
A |
| Strategic
Allocation: Moderate |
A |
A |
A |
A |
A |
| Strategic
Allocation: Aggressive |
A |
A |
A |
D |
A |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment
Companies Overseen by Director in Family of Investment
Companies |
E |
A |
E |
E |
E |
Ranges:
A—none, B—$1-$10,000, C—$10,001-$50,000, D—$50,001-$100,000, E—More than
$100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Name
of Director |
|
|
Rajesh
Gupta |
Lynn
M. Jenkins |
Jan
M. Lewis |
Gary
C. Meltzer |
|
Dollar
Range of Equity Securities in the Funds: |
|
|
| |
| Strategic
Allocation: Conservative |
A |
A |
A |
A |
| Strategic
Allocation: Moderate |
A |
A |
C |
A |
| Strategic
Allocation: Aggressive |
A |
A |
A |
A |
|
Aggregate
Dollar Range of Equity Securities
in
all Registered Investment Companies Overseen by Director in Family of
Investment Companies |
E |
E |
E |
A |
Ranges:
A—none, B—$1-$10,000, C—$10,001-$50,000, D—$50,001-$100,000, E—More than
$100,000
Beneficial
Ownership of Affiliates by Independent Directors
No
independent director or his or her immediate family members beneficially owned
shares of the advisor, the funds’ principal underwriter or any other person
directly or indirectly controlling, controlled by, or under common control with
the advisor or the funds’ principal underwriter as of December 31,
2023.
The
following table presents certain information about the executive officers of the
funds. Each officer serves as an officer for 16 investment companies in the
American Century family of funds. 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. The mailing
address for each officer listed below is 4500 Main Street, Kansas City, Missouri
64111.
|
|
|
|
|
|
|
|
| |
|
Name
(Year
of
Birth)
|
Offices
with
the
Funds
|
Principal
Occupation(s) During the Past Five Years
|
Patrick
Bannigan
(1965)
|
President
since 2019 |
Executive
Vice President and Director, ACC
(2012 to present); Chief Financial Officer, Chief Accounting Officer and
Treasurer, ACC
(2015 to present). Also serves as President, ACS;
Vice President, ACIM;
Chief Financial Officer, Chief Accounting Officer and/or Director,
ACIM,
ACS
and other ACC
subsidiaries |
|
|
|
|
|
|
|
|
| |
|
Name
(Year
of
Birth)
|
Offices
with
the
Funds
|
Principal
Occupation(s) During the Past Five Years
|
R.
Wes Campbell
(1974) |
Chief
Financial
Officer and Treasurer
since 2018; Vice President since
2023 |
Vice
President, ACS
(2020 to present); Investment Operations and Investment Accounting,
ACS
(2000 to present) |
Amy
D. Shelton
(1964) |
Chief
Compliance
Officer and Vice President since 2014 |
Chief
Compliance Officer, American Century funds,
(2014
to present); Chief Compliance Officer, ACIM
(2014 to present); Chief Compliance Officer, ACIS
(2009 to present). Also serves as Vice President, ACIS |
John
Pak
(1968) |
General
Counsel and
Senior Vice President since 2021 |
General
Counsel and Senior Vice President, ACC
(2021 to present). Also serves as General Counsel and Senior Vice
President, ACIM,
ACS
and ACIS.
Chief Legal Officer of Investment and Wealth Management, The
Bank of New York Mellon
(2014 to 2021) |
Cihan
Kasikara
(1974) |
Vice
President since 2023 |
Senior
Vice President, ACS
(2022 to present); Treasurer, ACS
(2023 to present); Vice President, ACS
(2020 to 2022); Vice President, Franklin
Templeton
(2015 to 2020) |
| Kathleen
Gunja Nelson (1976) |
Vice
President since 2023 |
Vice
President, ACS
(2017 to present) |
Ward
D.
Stauffer
(1960) |
Secretary
since 2005 |
Attorney,
ACC
(2003 to present) |
The
funds, their investment advisor, principal underwriter and, if applicable,
subadvisor 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.
The
advisor is responsible for exercising the voting rights associated with the
securities purchased and/or held by the funds. The funds’ Board of Directors has
approved the advisor’s proxy voting policies to govern the advisor’s proxy
voting activities.
A
copy of the advisor’s proxy voting policies is attached hereto as Appendix
E.
Information regarding how the advisor voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is available at
americancentury.com/docs or may be requested free of charge by calling toll-free
at 1-800-345-2021. The advisor’s proxy voting record also is available on the
SEC’s website at sec.gov.
A
list of the funds’ principal shareholders is provided in Appendix
A.
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. The Stowers
Institute for Medical Research (SIMR) controls ACC by virtue of its beneficial
ownership of more than 25% of the voting securities of ACC. SIMR is part of a
not-for-profit biomedical research organization dedicated to finding the keys to
the causes, treatments and prevention of disease.
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 each prospectus under the heading Management.
Each
class of each fund is subject to a contractual unified management fee based on a
percentage of the daily net assets of such class. For more information about the
unified management fee, see The
Investment Advisor
under the heading Management
in each fund’s 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 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), as well as
exchange-traded funds managed by the advisor, that use very similar investment
teams and strategies (strategy assets). 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 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
|
|
Strategic
Allocation: Conservative
|
Investor,
A, C and R |
1.00%
of first $500 million
0.95% of next $500 million
0.90% of next $2
billion
0.85% of next $2 billion
0.80% over $5 billion |
| |
I
and R5 |
0.80%
of first $500 million
0.75% of next $500 million
0.70% of next $2
billion
0.65% of next $2 billion
0.60% over $5 billion |
| |
R6 |
0.65%
of first $500 million
0.60% of next $500 million
0.55% of next $2
billion
0.50% of next $2 billion
0.45% over $5 billion |
|
Strategic
Allocation: Moderate
|
Investor,
A, C and R |
1.10%
of first $1 billion
1.00% of next $2 billion
0.95% of next $2
billion
0.90% over $5 billion |
| |
I
and R5 |
0.90%
of first $1 billion
0.80% of next $2 billion
0.75% of next $2
billion
0.70% over $5 billion |
|
| R6 |
0.75%
of first $1 billion
0.65% of next $2 billion
0.60% of next $2
billion
0.55% over $5 billion |
|
Strategic
Allocation: Aggressive
|
Investor,
A, C and R |
1.15%
of first $1 billion
1.05% of next $1 billion
1.00% of next $1
billion
0.95% of next $2 billion
0.90% over $5 billion |
| |
I
and R5 |
0.95%
of first $1 billion
0.85% of next $1 billion
0.80% of next $1
billion
0.75% of next $2 billion
0.70% over $5 billion |
| |
R6 |
0.80%
of first $1 billion
0.70% of next $1 billion
0.65% of next $1
billion
0.60% of next $2 billion
0.55% over $5
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 for a period of two years from its effective date (unless sooner
terminated in accordance with its terms) and shall continue in effect from year
to year thereafter for each fund so long as such continuance is approved at
least annually by:
(1)either
the funds’ Board of Directors, or a majority of the outstanding voting
securities of such fund (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 agreements state that the funds’ Board of Directors or a majority of
the outstanding voting securities of each class of such fund 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 agreements state that the advisor shall not be liable to the funds or
their shareholders for anything other than willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and
duties.
The
management agreements also provide 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. 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 managers at the time of execution
and orders entered on the fixed income order management system. 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 periods ended July 31,
2024, 2023 and 2022 are indicated in the following table.
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unified
Management Fees |
|
| |
|
Fund |
2024 |
2023 |
2022 |
| Strategic
Allocation: Conservative |
$1,906,6621 |
$2,018,5072 |
$2,469,5373 |
| Strategic
Allocation: Moderate |
$4,378,0424 |
$4,423,3395 |
$5,333,4226 |
| Strategic
Allocation: Aggressive |
$3,185,1157 |
$3,167,0878 |
$3,711,5569 |
1
Amount
shown reflects waiver by advisor of $943,542 in management fees.
2
Amount
shown reflects waiver by advisor of $971,486 in management fees.
3
Amount
shown reflects waiver by advisor of $1,151,190 in management fees.
4
Amount
shown reflects waiver by advisor of $3,114,184 in management fees.
5 Amount
shown reflects waiver by advisor of $3,095,076 in management fees.
6 Amount
shown reflects waiver by advisor of $3,638,707 in management fees.
7 Amount
shown reflects waiver by advisor of $3,479,798 in management fees.
8 Amount
shown reflects waiver by advisor of $3,414,733 in management fees.
9 Amount
shown reflects waiver by advisor of $3,964,066 in management fees.
Accounts
Managed
The
portfolio managers listed in the funds’ prospectus are responsible for the
day-to-day management of various accounts, as indicated by the following table.
None of these accounts has an advisory fee based on the performance of the
account.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accounts
Managed (As of July 31, 2024)
|
| |
|
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)
|
| Radu
Gabudean |
Number
of Accounts |
30 |
96 |
14 |
| |
Assets |
$19.5
billion1 |
$27.2
billion |
$7.4
million |
| Brian
L. Garbe |
Number
of Accounts |
29 |
30 |
14 |
|
| Assets |
$19.3
billion1 |
$15.5
billion |
$7.4
million |
| Vidya
Rajappa |
Number
of Accounts |
30 |
96 |
14 |
|
| Assets |
$19.5
billion1 |
$27.2
billion |
$7.4
million |
| Richard
Weiss |
Number
of Accounts |
30 |
97 |
14 |
| |
Assets |
$19.5
billion1 |
$27.4
billion |
$7.4
million |
| Scott
Wilson |
Number
of Accounts |
29 |
96 |
14 |
| |
Assets |
$19.3
billion1 |
$27.2
billion |
$7.4
million |
1 Includes
$324.0 million in Strategic Allocation: Conservative; $754.1 million in
Strategic Allocation: Moderate; and $663.0 million in Strategic Allocation:
Aggressive.
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, such as one portfolio buying or selling a security while another
portfolio has a differing, potentially opposite position in such security. This
may include one portfolio taking a short position in the security of an issuer
that is held long in another portfolio (or vice versa). Other potential
conflicts may arise with respect to the allocation of investment opportunities,
which are discussed in more detail below. 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,
disciplined equity, global growth equity, global value equity, global fixed
income, multi-asset strategies, exchange traded funds, and Avantis Investors
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. In addition, American Century
Investments maintains an ethical wall that restricts real time access to
information regarding any portfolio’s transaction activities and positions to
team members that have responsibility for a given portfolio or are within the
same equity investment discipline. The ethical wall is intended to aid in
preventing the misuse of portfolio holdings information and trading activity in
the other disciplines.
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. A
centralized trading desk executes all fixed income securities transactions for
Avantis ETFs and mutual funds. For all other funds in the American Century
complex portfolio teams are responsible for executing fixed income 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. There is an ethical wall
between the Avantis trading desk and all other American Century traders. The
Advisor’s Global Head of Trading monitors all trading activity for best
execution and to make sure no set of clients is being systematically
disadvantaged.
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, 2024, 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.
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 which is determined by a combination of factors. One
factor is investment performance of funds a portfolio manager manages. The
mutual funds’ investment performance is generally measured by a combination of
one-, three- and five-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.
|
|
|
|
|
|
|
|
| |
|
Fund |
Benchmarks |
Peer
Group |
|
Strategic
Allocation: Conservative |
Custom1 |
Morningstar
Allocation--30% to 50% Equity |
|
Strategic
Allocation: Moderate |
Custom1 |
Morningstar
Allocation--50% to 70% Equity |
|
Strategic
Allocation: Aggressive |
Custom1 |
Morningstar
Allocation--70% to 85% Equity |
1 The
fund’s benchmark is a custom blended benchmark comprised of various market
indexes that represent the asset types such fund holds (weighted according to
such fund’s asset mix).
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 managed portfolios or ETFs. If the performance of a managed account or ETF is
considered for purposes of compensation, it is generally measured via the same
criteria as an American Century Investments mutual fund (i.e., relative to the
performance of a benchmark and/or peer group).
For
American Century Investments funds managed according to certain investment
disciplines: global growth equity, global value equity, disciplined equity,
global fixed income, and multi-asset strategies — a second factor in the bonus
calculation relates to performance. The performance of American Century ETFs may
also be included for certain investment disciplines. 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-, three- and five-year
performance (equal or asset weighted) depending on the portfolio manager’s
responsibilities and products managed, and the composite for certain portfolio
managers may include multiple disciplines.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 discretionary and may be tied to
factors such as profitability, or individual performance goals, such as research
projects and/or 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 such as
profitability. Grants can appreciate/depreciate in value based on the
performance of the ACC stock during the restriction period (generally three to
four 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 fund’s portfolio managers as of July 31, 2024, the
funds’ most recent fiscal year end. Certain portfolio managers serve on teams
that oversee a number of funds in the same broad investment strategy and are not
expected to invest in each fund.
|
|
|
|
|
|
|
|
| |
| Ownership
of Securities |
| |
|
Aggregate
Dollar Range of Securities in Fund
|
|
Strategic
Allocation: Conservative
|
| |
Radu
Gabudean |
A |
|
| Brian
L. Garbe |
A |
|
| Vidya
Rajappa |
A |
| |
Richard
Weiss |
A |
| |
Scott
Wilson |
A |
|
Strategic
Allocation: Moderate
|
| |
Radu
Gabudean |
A |
|
| Brian
L. Garbe |
A |
|
| Vidya
Rajappa |
A |
| |
Richard
Weiss |
A |
| |
Scott
Wilson |
A |
|
Strategic
Allocation: Aggressive
|
| |
Radu
Gabudean |
A |
|
| Brian
L. Garbe |
A |
|
| Vidya
Rajappa |
A |
| |
Richard
Weiss |
A |
| |
Scott
Wilson |
A |
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.
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 40.
Proceeds
from purchases of fund shares may pass through accounts maintained by the
transfer agent at Commerce Bank, N.A. or UMB Bank, n.a. before being held at the
fund’s custodian. Redemption proceeds also may pass from the custodian to the
shareholder through such bank accounts.
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.
The
advisor has entered into an Administration Agreement with State Street Bank and
Trust Company (SSB) 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 SSB a monthly
fee as compensation for these services that is based on the total net assets of
accounts in the American Century complex serviced by SSB. ACS does pay SSB for
some additional services on a per fund basis. While ACS continues to serve as
the administrator of the funds, SSB provides sub-administrative services that
were previously undertaken by ACS.
The
funds’ shares are distributed by American Century Investment Services, Inc.
(ACIS), a registered broker-dealer. ACIS 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 40. ACIS does not earn commissions for distributing fund
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.
State
Street Bank and Trust Company (SSB), One Congress Street, Suite 1, Boston,
Massachusetts 02114-2016, serves as custodian of the funds’ cash and securities
under a Master Custodian Agreement with the corporation. Foreign securities, if
any, are held by foreign banks participating in a network coordinated by SSB.
The custodian takes 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 custodian and may purchase or
sell certain securities from or to the custodian.
State
Street Bank and Trust Company (SSB) serves as securities lending agent for the
funds pursuant to a Securities Lending Administration Agreement with the
advisor. The following table provides the amounts of income and
fees/compensation related to the funds’ securities lending activities during the
most recent fiscal year:
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Strategic
Allocation: Conservative |
Strategic
Allocation: Moderate |
Strategic
Allocation: Aggressive |
| Gross
income from securities lending activities |
$85,146 |
$334,211 |
$333,355 |
| Fees
and/or compensation paid by the fund for securities lending activities and
related services: |
|
| |
| Fees
paid to securities lending agent from a revenue split |
$2,104 |
$11,893 |
$11,266 |
| Fees
paid for any cash collateral management service (including fees deducted
from a pooled cash collateral reinvestment vehicle) that are not included
in the revenue split |
$512 |
$1,783 |
$1,906 |
| Administrative
fees not included in the revenue split |
$0 |
$0 |
$0 |
| Indemnification
fee not included in the revenue split |
$0 |
$0 |
$0 |
| Rebate
(paid to borrower) |
$63,549 |
$213,230 |
$217,964 |
| Other
fees not included in revenue split |
$0 |
$0 |
$0 |
| Aggregate
fees/compensation for securities lending activities |
$66,165 |
$226,906 |
$231,136 |
| Net
income from securities lending activities |
$18,981 |
$107,305 |
$102,219 |
As
the funds’ securities lending agent, SSB provides the following services:
locating borrowers for fund securities, executing loans of portfolio securities
pursuant to terms and parameters defined by the advisor and the Board of
Directors, monitoring the daily value of the loaned securities and collateral,
requiring additional collateral as necessary, managing cash collateral, and
providing certain limited recordkeeping and accounting services.
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 auditing the
annual financial statements and financial highlights for each fund.
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
•efficiency
and accuracy of the broker-dealer’s clearance and settlement
processes
•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 periodic basis, members of the advisor’s portfolio management team assess the
quality and value of research and brokerage services provided by each
broker-dealer that provides execution services and research to the advisor for
its clients’ accounts. The results of the periodic assessments are used to add
or remove brokers from the approved brokers list, if needed, and to set research
budgets for the following period. Execution-only brokers are used where deemed
appropriate.
For
the fiscal years ended July 31, 2024, 2023 and 2022, the brokerage commissions
including, as applicable, futures commissions, of each fund are listed in the
following table.
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fund |
2024 |
2023 |
2022 |
| Strategic
Allocation: Conservative |
$37,853 |
$44,801 |
$61,379 |
| Strategic
Allocation: Moderate |
$105,496 |
$109,777 |
$143,049 |
| Strategic
Allocation: Aggressive |
$103,194 |
$99,082 |
$135,756 |
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. For example, brokerage commissions for each fund
for the most recent fiscal year decreased due to a decrease in portfolio
turnover rate compared to the two years preceding the most recent fiscal
year.
As
of the end of its most recently completed fiscal year, each of the funds listed
below owned securities of its regular brokers or dealers (as defined by Rule
10b-1 under the Investment Company Act) or of their parent
companies.
|
|
|
|
|
|
|
|
| |
|
Fund |
Broker,
Dealer or Parent |
Value
of Securities Owned
As of July 31, 2024 |
| Strategic
Allocation: Conservative |
WELLS
FARGO & CO |
$3,047,439 |
|
| JPMorgan
Chase & Co |
$2,737,306 |
|
| UBS
AG |
$750,077 |
|
| BANK
OF AMERICA CORP |
$375,076 |
| |
MORGAN
STANLEY |
$172,567 |
| |
Ameriprise
Financial Inc |
$77,843 |
|
| CITIGROUP
INC |
$41,711 |
| Strategic
Allocation: Moderate |
WELLS
FARGO & CO |
$5,072,316 |
|
| JPMorgan
Chase & Co |
$3,787,438 |
|
| UBS
AG |
$1,000,102 |
| |
BANK
OF AMERICA CORP |
$595,014 |
| |
MORGAN
STANLEY |
$578,079 |
|
| Ameriprise
Financial Inc |
$264,063 |
| |
CITIGROUP
INC |
$62,566 |
| Strategic
Allocation: Aggressive |
WELLS
FARGO & CO |
$3,508,116 |
|
| JPMorgan
Chase & Co |
$2,722,447 |
|
| UBS
AG |
$750,076 |
|
| MORGAN
STANLEY |
$541,853 |
| |
BANK
OF AMERICA CORP |
$516,317 |
|
| Ameriprise
Financial Inc |
$247,290 |
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 of 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 or class represent a beneficial interest in the principal,
earnings and profit (or losses) of investments and other assets held for each
series or class. Within their respective series or class, 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.
The
corporation’s Board of Directors has adopted a multiple class plan pursuant to
Rule 18f-3 under the Investment Company Act. The plan is described in the
prospectus of any fund that offers more than one class. Pursuant to such plan,
the funds may issue the following classes of shares: Investor Class, I Class, Y
Class, A Class, C Class, R Class, R5 Class and R6 Class. Not all funds offer all
classes.
The
Investor Class is made available to investors directly from American Century
Investments and/or through some financial intermediaries. Additional information
regarding eligibility for Investor Class shares may be found in the funds’
prospectuses. The I Class is made available to institutional shareholders or
through financial intermediaries that provide various shareholder and
administrative services. Y Class shares are available through financial
intermediaries that offer fee-based advisory programs. The A and C Classes also
are 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
R5 and R6 Classes are generally available only to participants in
employee-sponsored retirement plans where a financial intermediary provides
recordkeeping services to plan participants. The classes have different unified
management fees as a result of their separate arrangements for shareholder
services. In addition, the A, C and R Class shares each are subject to a
separate Master Distribution and Individual Shareholder Services Plan (the A
Class Plan, C Class Plan and R 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’ A, C and R Classes have approved and entered into the A
Class Plan, C Class Plan and R 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. 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 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 a
majority of the 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).
The
Share Class Plans
As
described in the prospectuses, the A, C and R Class shares of the funds are made
available to persons purchasing through broker-dealers, banks, insurance
companies and other financial intermediaries that provide various
administrative, shareholder and distribution services. In addition, the A, C and
R Classes are made available to participants in employer-sponsored retirement
plans. 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 would otherwise
be performed by the funds’ transfer agent may be performed by a plan sponsor (or
its agents) or by a financial intermediary for A, C and 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 A, C and R Class Plans. Pursuant to the plans, the
following fees are paid and described further below.
A
Class
The
A Class pays the funds’ distributor 0.25% annually of the average daily net
asset value of the A Class shares. The distributor may use these fees to pay for
certain ongoing shareholder and administrative services and for distribution
services, including past distribution services. This payment is fixed at 0.25%
and is not based on expenses incurred by the distributor.
C
Class
The
C Class pays the funds’ distributor 1.00% annually of the average daily net
asset value of the funds’ C Class shares, 0.25% of which is paid for certain
ongoing individual shareholder and administrative services and 0.75% of which is
paid for distribution services, including past distribution services. This
payment is fixed at 1.00% and is not based on expenses incurred by the
distributor.
R
Class
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 and for distribution
services, including past distribution services. This payment is fixed at 0.50%
and is not based on expenses incurred by the distributor.
During
the funds’ fiscal year ended July 31, 2024, the aggregate amount of fees paid
under each class plan is listed in the table below.
|
|
|
|
|
|
|
|
|
|
|
| |
| |
A
Class |
C
Class |
R
Class |
| Strategic
Allocation: Conservative |
$182,487 |
$53,909 |
$44,664 |
| Strategic
Allocation: Moderate |
$641,815 |
$134,193 |
$127,527 |
| Strategic
Allocation: Aggressive |
$362,400 |
$135,545 |
$69,593 |
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 A, C and R Class shares for the services
described below. No portion of these payments is used by the distributor to pay
for advertising, printing costs or interest expenses.
Payments
may be made for a variety of individual shareholder services, including, but not
limited to:
(a)providing
individualized and customized investment advisory services, including the
consideration of shareholder profiles and specific goals;
(b)creating
investment models and asset allocation models for use by shareholders in
selecting appropriate funds;
(c)conducting
proprietary research about investment choices and the market in
general;
(d)periodic
rebalancing of shareholder accounts to ensure compliance with the selected asset
allocation;
(e)consolidating
shareholder accounts in one place;
(f)paying
service fees for providing personal, continuing services to investors, as
contemplated by the Conduct Rules of FINRA; and
(g)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 A, C and/or 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 A, C and/or 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’ A, C and/or 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 sales seminars and payments in the form of transactional and
compensation or promotional incentives;
(l)profit
on the foregoing; and
(m)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.
The
net asset value (NAV) for each class of each fund is calculated by adding the
value of all portfolio securities and other assets attributable to the class,
deducting liabilities, and dividing the result by the number of shares of the
class outstanding. Expenses and interest earned on portfolio securities are
accrued daily.
All
classes of the funds except the A Class are offered at their NAV. The A Class of
the funds is offered at its public offering price, which is the NAV plus the
appropriate sales charge. This calculation may be expressed as a
formula:
Offering
Price = NAV/(1 – Sales Charge as a % of Offering Price)
For
example, if the NAV of a fund’s A Class shares is $5.00, the public offering
price would be $5/(1-5.75%) = $5.31.
Each
fund’s NAV is calculated as of the close of regular trading on the New York
Stock Exchange (NYSE) each day the NYSE is open for business. The NYSE usually
closes at 4 p.m. Eastern time. The NYSE typically observes the following
holidays: New Year’s Day, Martin Luther King Jr. Day, Presidents’ Day, Good
Friday, Memorial Day, Juneteenth National Independence 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.
Equity
securities (including exchange-traded funds) and other equity instruments for
which market quotations are readily available are valued at the last reported
official closing price or sale price as of the time of valuation. Futures
contracts are generally valued at the settlement price as provided by the
exchange or clearing corporation. Portfolio securities primarily traded on
foreign securities exchanges that are open later than the NYSE are valued at the
last sale price reported at the time the NAV is determined.
Trading
in equity securities on European and Asian 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. Model-derived fair value factors
may be applied to the market quotations of certain foreign equity securities
whose last closing price was before the time the NAV was determined. Factors are
based on observable market data and are generally provided by an independent
pricing service. Such factors are designed to estimate the price of the foreign
equity security that would have prevailed at the time the NAV is determined.
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’ NAVs 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.
When
market quotations are not readily available or are believed by the valuation
designee to be unreliable, securities and other assets are valued at fair value
as determined in accordance with its policies and procedures.
Debt
securities and swap agreements are generally valued using evaluated prices
obtained from approved independent pricing services or at the most recent mean
of the bid and asked prices provided by investment dealers in accordance with
the valuation policies and procedures.
Pricing
services will generally provide evaluated prices based on accepted industry
conventions, which may require the pricing service to exercise its own
discretion. Evaluated prices are commonly derived through utilization of market
models that take into consideration various market factors, assumptions, and
security characteristics including, but not limited to; trade data, quotations
from broker-dealers and active market makers, relevant yield curve and spread
data, related sector levels, creditworthiness, trade data or market information
on comparable securities and other relevant security-specific information.
Pricing services may exercise discretion including, but not limited to;
selecting and designing the valuation methodology, determining the source and
relevance of inputs and assumptions, and assessing price challenges received
from its clients. Pricing services may provide prices when market quotations are
not available or when certain pricing inputs may be stale. The use of different
models or inputs may result in different pricing services determining a
different price for the same security. Pricing services generally value
fixed-income securities assuming orderly transactions of an institutional round
lot size but may consider trades of smaller sizes in their models. The fund may
hold or transact in such securities in smaller lot sizes, sometimes referred to
as “odd-lots.” Securities may trade at different prices when transacted in
different lot sizes. The methods used by the pricing services and the valuations
so established are reviewed by the valuation designee under the oversight of the
Board of Directors.
There
are a number of pricing services available, and the valuation designee, on the
basis of ongoing evaluation of these services, may use other pricing services or
discontinue the use of any pricing service in whole or in
part.
Securities
maturing within 60 days of the valuation date may also be valued at cost, plus
or minus any amortized discount or premium, unless it is determined, based on
established guidelines and procedures that this would not result in fair
valuation of a given security.
Other
assets and securities for which market quotations or the methods described above
are not readily available are valued in good faith in accordance with the
valuation designee’s procedures.
The
value of any security or other asset denominated in a currency other than U.S.
dollars is then converted to U.S. dollars at the prevailing foreign exchange
rate at the time the fund’s NAV is determined. Securities that are neither
listed on a securities exchange or traded over the counter may be priced using
the mean of the bid and asked prices obtained from an independent broker who is
an established market maker in the security.
Each
fund intends to qualify annually as a regulated investment company (RIC) under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). RICs
generally are not subject to federal and state income taxes. To qualify as a RIC
a fund must, among other requirements, distribute substantially all of its net
investment income and net realized capital gains (if any) to investors each
year. If a fund were not eligible to be treated as a RIC, it would be liable for
taxes at the fund level on all of its income, significantly reducing its
distributions to investors and eliminating investors’ ability to treat
distributions received from the fund in the same manner in which they were
realized by the fund. Under certain circumstances, the Code allows funds to cure
deficiencies that would otherwise result in the loss of RIC status, including by
paying a fund-level tax.
To
qualify as a RIC, a fund must meet certain requirements of the Code, among which
are requirements relating to sources of its income and diversification of its
assets. A fund is also required to distribute 90% of its investment company
taxable income each year. Additionally, a fund must declare dividends by
December 31 of each year equal to at least 98% of ordinary income (as of
December 31) and 98.2% of capital gains (as of October 31) to avoid the
nondeductible 4% federal excise tax on any undistributed
amounts.
A
fund’s transactions in foreign currencies, forward contracts, options and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the fund, defer fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also may require a fund to mark-to-market certain types of the positions in its
portfolio (i.e., treat them as if they were sold), which may cause the fund to
recognize income without receiving cash with which to make distributions in
amounts necessary to satisfy the distribution requirements of the Code for
relief from income and excise taxes. A fund will monitor its transactions and
may make such tax elections as fund management deems appropriate with respect to
these transactions.
A
fund’s investment in foreign securities may be subject 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. Any foreign
taxes paid by a fund will reduce its dividend distributions to
investors.
Under
the Code, gains or losses attributable to fluctuations in exchange rates that
occur between the time a fund accrues income or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time a
fund actually collects such receivables or pays such liabilities generally are
treated as ordinary income or loss. Similarly, in disposing of debt securities
denominated in foreign currencies, certain forward currency contracts, or other
instruments, gains or losses attributable to fluctuations in the value of a
foreign currency between the date the security, contract, or other instrument is
acquired and the date it is disposed of are also usually treated as ordinary
income or loss. Under Section 988 of the Code, these gains or losses may
increase or decrease the amount of a fund’s investment company taxable income
distributed to shareholders as ordinary income. This treatment could increase or
decrease a fund’s ordinary income distributions, which may cause some or all of
a fund’s previously distributed income to be classified as a return of
capital.
If
a fund purchases the securities of certain foreign investment funds or trusts
called passive foreign investment companies (PFICs), 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. Alternatively, 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.
A
fund's investment in affiliated funds and ETFs could affect the amount, timing
and character of distributions from the funds, and therefore may increase the
amount of taxes payable by shareholders.
As
of July 31, 2024, Strategic Allocation: Conservative Fund, Strategic Allocation:
Moderate Fund and Strategic Allocation: Aggressive Fund had no capital loss
carryovers. When a fund has a capital loss carryover, it does not make capital
gains distributions until the loss has been offset. The Regulated Investment
Company Modernization Act of 2010 allows the funds to carry forward capital
losses incurred in future taxable years for an unlimited period.
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.
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 same
rate as long-term capital gains. Qualified dividend income is a dividend
received by a fund from the stock of a domestic or qualifying foreign
corporation, provided that the fund has held the stock for a required holding
period and the stock was not on loan at the time of the dividend. 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 when
distributed 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.
Each
fund may use the “equalization method” of accounting to allocate a portion of
its earnings and profits to redemption proceeds. Although using this method
generally will not affect a fund’s total returns, it may reduce the amount that
a fund would otherwise distribute to continuing shareholders by reducing the
effect of redemptions of fund shares on fund distributions to
shareholders.
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, postponing the recognition of such loss for federal income
tax purposes.
A
3.8% Medicare contribution tax is imposed on net investment income, including
interest, dividends and capital gains, provided you meet specified income
levels.
Distributions
by the funds also may be subject to state and local taxes, even if all or a
substantial part of those 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 own state.
The
information above is only a summary of some of the tax considerations affecting
the funds and their U.S. 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.
Each
of the funds’ financial statements and financial highlights for the period ended
July 31, 2024 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’ Form
N-CSR
for the period ended July 31, 2024 are incorporated herein by
reference.
As
of October 31, 2024, the following shareholders owned more than 5% of the
outstanding shares of a class of the funds. The table shows shares owned of
record, unless otherwise noted.
|
|
|
|
|
|
|
|
| |
|
Fund/Class
|
Shareholder
|
Percentage
of Outstanding
Shares
Owned of Record
|
|
Strategic
Allocation: Conservative
|
| Investor
Class |
|
| Charles
Schwab & Co Inc
San Francisco, CA |
6% |
| I
Class |
|
| American
Enterprise Investment Svc
Minneapolis, MN |
25% |
|
| National
Financial Services LLC
Jersey City, NJ |
23% |
|
| Charles
Schwab & Co Inc
San Francisco, CA |
18% |
|
|
Ascensus
Trust Co
Fargo,
ND
Includes
5.85% for the benefit of Grassland Dairy Products Profit
Sha |
11% |
| |
Empower
Trust FBO Employee Benefits Clients 401K
Greenwood Vlg, CO |
7% |
| A
Class |
|
|
| UMB
Bank NA
Topeka, KS |
16% |
| |
State
St Bk/Tr as Ttee and/or Cust FBO ADP Access Product
Boston,
MA |
14% |
| |
American
Enterprise Investment Svc
Minneapolis, MN |
11% |
| |
Pershing
LLC
Jersey City, NJ |
8% |
|
| National
Financial Services LLC
Jersey City, NJ |
6% |
| C
Class |
|
| |
American
Enterprise Investment Svc
Minneapolis, MN |
46% |
|
| National
Financial Services LLC
Jersey City, NJ |
12% |
|
| Pershing
LLC
Jersey City, NJ |
9% |
| |
Raymond
James
St. Petersburg, FL |
7% |
| R
Class |
|
|
| State
St Bk/Tr as Ttee and/or Cust FBO ADP Access Product
Boston,
MA |
78% |
| R5
Class |
|
|
|
American
Century Investment Management Inc
Kansas
City, MO
Shares
owned of record and beneficially |
100% |
|
|
|
|
|
|
|
|
| |
|
Fund/Class
|
Shareholder
|
Percentage
of Outstanding
Shares
Owned of Record
|
| Strategic
Allocation: Conservative |
| R6
Class |
|
|
|
Matrix
Trust Company as Agent for Newport Trust Company
Folsom,
CA
Includes
11.74% registered for the benefit of Flex-N-Gate Corp 401(K) Plan and
6.68% registered for the benefit of I U P A T of Western PA Annuity
Fund |
23% |
|
|
Empower
Trust FBO Employee Benefits Clients 401K
Greenwood
Vlg, CO
Includes
5.80% registered for the benefit of Empower Benefit Plans |
15% |
|
| John
Hancock Trust Co LLC
Boston, MA |
15% |
|
| National
Financial Services LLC
Jersey City, NJ |
7% |
|
Strategic
Allocation: Moderate
|
| Investor
Class |
| |
Amer
United Life Ins Co
Indianapolis,
IN
Includes
5.02% registered for the benefit of Group Retirement Annuity
II |
7% |
| I
Class |
|
|
Wells
Fargo Bank NA Cust
Greenwood
Vlg, CO
Includes
46.93% registered for the benefit of Penn State Health 401K and 9.41%
registered for the benefit of Penn State Health Tx Shelt
Annu |
60% |
|
| Bluescope
Foundation North America
Kansas City, MO |
9% |
| |
National
Financial Services LLC
Jersey City, NJ |
7% |
| A
Class |
|
|
| American
Enterprise Investment Svc
Minneapolis, MN |
15% |
|
| Pershing
LLC
Jersey City, NJ |
13% |
|
| UMB
Bank NA
Topeka, KS |
12% |
|
| State
St Bk/Tr as Ttee and/or Cust FBO ADP Access Product
Boston,
MA |
12% |
| C
Class |
|
| |
American
Enterprise Investment Svc
Minneapolis, MN |
43% |
| |
Pershing
LLC
Jersey City, NJ |
12% |
|
| Wells
Fargo Clearing Services LLC
Saint Louis, MO |
7% |
| R
Class |
|
| |
State
St Bk/Tr as Ttee and/or Cust FBO ADP Access Product
Boston,
MA |
66% |
|
|
Mid
Atlantic Trust Company
Pittsburgh,
PA
Includes
6.58% registered for the benefit of City Auto Wreckers 401(K) Profit Sh
and 6.39% registered for the benefit of LT Gordon Fence Co
Inc |
21% |
| R5
Class |
|
|
|
American
Century Investment Management Inc
Kansas
City, MO
Shares
owned of record and beneficially |
100% |
|
|
|
|
|
|
|
|
| |
|
Fund/Class
|
Shareholder
|
Percentage
of Outstanding
Shares
Owned of Record
|
|
Strategic
Allocation: Moderate
|
| R6
Class |
|
|
|
Empower
Trust FBO Employee Benefits Clients 401K
Greenwood
Vlg, CO |
19% |
|
| National
Financial Services LLC
Jersey City, NJ |
14% |
|
| John
Hancock Trust Co LLC
Boston, MA |
13% |
|
|
Matrix
Trust Company
Folsom,
CA
Includes
5.96% registered for the benefit of Newport Trust Company Flex-N-Gate Corp
401(K) Plan |
10% |
|
| State
St Bk/Tr as Ttee and/or Cust FBO ADP Access Product
Boston,
MA |
8% |
|
|
Amer
United Life Ins Co
Indianapolis,
IN
Includes
6.75% registered for the benefit of Group Retirement Annuity SEP Acct
II |
8% |
|
|
Reliance
Trust Company
Atlanta,
GA
Includes
5.28% registered for the benefit of T Rowe Price Retirement Plan
Clients |
7% |
|
Strategic
Allocation: Aggressive
|
| Investor
Class |
|
| |
Amer
United Life Ins Co
Indianapolis,
IN
Includes
5.41% registered for the benefit of Group Retirement Annuity
II |
7% |
|
| Charles
Schwab & Co Inc
San Francisco, CA |
7% |
|
| National
Financial Services LLC
Jersey City, NJ |
6% |
| I
Class |
|
|
| Charles
Schwab & Co Inc
San Francisco, CA |
29% |
|
| American
Enterprise Investment Svc
Minneapolis, MN |
21% |
| |
National
Financial Services LLC
Jersey City, NJ |
21% |
|
| Bluescope
Foundation North America
Kansas City, MO |
11% |
| A
Class |
|
| |
American
Enterprise Investment Svc
Minneapolis, MN |
25% |
|
| Pershing
LLC
Jersey City, NJ |
10% |
| |
American
United Life
Indianapolis,
IN
Includes
5.29% registered for the benefit of Group Retirement Annuity
II |
9% |
|
| UMB
Bank
Topeka, KS |
7% |
|
| National
Financial Services LLC
Jersey City, NJ |
6% |
|
| State
St Bk/Tr as Ttee and/or Cust FBO ADP Access Product
Boston,
MA |
6% |
|
|
|
|
|
|
|
|
| |
|
Fund/Class
|
Shareholder
|
Percentage
of Outstanding
Shares
Owned of Record
|
| Strategic
Allocation: Aggressive |
| C
Class |
|
| |
American
Enterprise Investment Svc
Minneapolis, MN |
57% |
|
| LPL
Financial
San Diego, CA |
11% |
|
| Pershing
LLC
Jersey City, NJ` |
9% |
| R
Class |
|
| |
State
St Bk/Tr as Ttee and/or Cust FBO ADP Access Product
Boston,
MA |
45% |
|
|
Mid
Atlantic Trust Company
Pittsburgh,
PA
Includes
9.23% registered for the benefit of City Auto Wreckers 401(K) Profit
Sh |
13% |
|
|
Grace
Niklas FBO Grace Niklas 401K Profit Sharing Plan & Trust
Hingham,
MA
Shares
owned of record and beneficially |
10% |
| R5
Class |
|
|
|
American
Century Investment Management Inc
Kansas
City, MO
Shares
owned of record and beneficially |
74% |
|
| State
St Bk/Tr as Ttee and/or Cust FBO ADP Access Product
Boston,
MA |
26% |
| R6
Class |
|
|
|
Matrix
Trust Company
Folsom,
CA
Includes
14.13% registered for the benefit of Newport Trust Company Flex-N-Gate
401(K) Plan |
22% |
|
| John
Hancock Trust Co LLC
Boston, MA |
21% |
|
|
Empower
Trust
Greenwood
Vlg, CO
Includes
12.64% registered for the benefit of Employee Benefits Clients
401K |
20% |
|
| National
Financial Services LLC
Jersey City, NJ |
7% |
A
shareholder owning 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 the
corporation. As of October 31, 2024, the officers and directors of the funds, as
a group, owned less than 1% of any class of the funds’ outstanding
shares.
Sales
Charges
The
sales charges applicable to the A and C Classes of the funds are described in
the prospectuses for those classes in the section titled Investing
Through a Financial Intermediary.
Shares
of the A Class are subject to an initial sales charge, which declines as the
amount of the purchase increases. Additional information regarding reductions
and waivers of the A Class sales charge may be found in the funds’
prospectuses.
Shares
of the A and C Classes are subject to a contingent deferred sales charge (CDSC)
upon redemption of the shares in certain circumstances. The specific charges and
when they apply are described in the relevant prospectuses. The CDSC may be
waived for certain redemptions by some shareholders, as described in the
prospectuses.
An
investor may terminate his relationship with an intermediary at any time. If the
investor does not establish a relationship with a new intermediary and transfer
any accounts to that new intermediary, such accounts may be exchanged to the
Investor Class of the fund, if such class is available. The investor will be the
shareholder of record of such accounts. In this situation, any applicable CDSCs
will be charged when the exchange is made.
The
aggregate CDSCs paid to the distributor in the fiscal year ended July 31, 2024,
are listed in the table below.
|
|
|
|
|
| |
|
Strategic
Allocation: Conservative |
|
| C
Class |
$943 |
|
Strategic
Allocation: Moderate |
|
| A
Class |
$57 |
| C
Class |
$1,335 |
|
Strategic
Allocation: Aggressive |
|
| C
Class |
$1,761 |
Payments
to Dealers
The
funds’ distributor expects to pay dealer commissions to the financial
intermediaries who sell A and/or C Class shares of the fund at the time of such
sales. Payments for A Class shares will be as follows:
|
|
|
|
|
| |
|
Purchase
Amount |
Dealer
Commission as a % of Offering Price |
| <
$50,000 |
5.00% |
| $50,000
- $99,999 |
4.00% |
| $100,000
- $249,999 |
3.25% |
| $250,000
- $499,999 |
2.00% |
| $500,000
- $999,999 |
1.75% |
| $1,000,000
- $3,999,999 |
1.00% |
| $4,000,000
- $9,999,999 |
0.50% |
| >
$10,000,000 |
0.25% |
No
dealer commission will be paid on purchases by employer-sponsored retirement
plans. For this purpose, employer-sponsored retirement plans do not include SEP
IRAs, SIMPLE IRAs or SARSEPs. Payments will equal 1.00% of the purchase price of
the C Class shares sold by the intermediary. The distributor will retain the
12b-1 fee paid by the C Class of funds for the first 12 months after the shares
are purchased. This fee is intended in part to permit the distributor to recoup
a portion of on-going sales commissions to dealers plus financing costs, if any.
Beginning with the first day of the 13th month, the distributor will make the C
Class distribution and individual shareholder services fee payments described
above to the financial intermediaries involved on a quarterly basis. In
addition, C Class purchases and A Class purchases greater than $1,000,000 are
subject to a CDSC as described in the prospectuses.
From
time to time, the distributor may make additional payments to dealers, including
but not limited to payment assistance for conferences and seminars, provision of
sales or training programs for dealer employees and/or the public (including, in
some cases, payment for travel expenses for registered representatives and other
dealer employees who participate), advertising and sales campaigns about a fund
or funds, and assistance in financing dealer-sponsored events. Other payments
may be offered as well, and all such payments will be consistent with applicable
law, including the then-current rules of the Financial Industry Regulatory
Authority. Such payments will not change the price paid by investors for shares
of the funds.
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.
Employer-Sponsored
Retirement Plans
Certain
group employer-sponsored retirement plans that hold a single account for all
plan participants with the fund, or that are part of a retirement plan or
platform offered by banks, broker-dealers, financial advisors or insurance
companies, or serviced by retirement recordkeepers are eligible to purchase
Investor, A, C , R, R5 and R6 Class shares. Employer-sponsored retirement plans
are not eligible to purchase I or Y Class shares. However, employer-sponsored
retirement plans that were invested in the I Class prior to April 10, 2017 may
make additional purchases. A and C Class purchases are available at net asset
value with no dealer commission paid to the financial professional and do not
incur a CDSC. A, C and R Class shares purchased in employer-sponsored retirement
plans are subject to applicable distribution and service (12b-1) fees, which the
financial intermediary begins receiving immediately at the time of purchase.
American Century Investments does not impose minimum initial investment amount,
plan size or participant number requirements by class for employer-sponsored
retirement plans; however, financial intermediaries or plan recordkeepers may
require plans to meet different requirements.
Examples
of employer-sponsored retirement plans include the following:
•401(a)
plans
•pension
plans
•profit
sharing plans
•401(k)
plans (including plans with a Roth 401(k) feature, SIMPLE 401(k) plans and Solo
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 plans with a Roth 403(b) feature)
•nonqualified
deferred compensation plans
•nonqualified
excess benefit plans
•nonqualified
retirement plans
Traditional
and Roth IRAs are not considered employer-sponsored retirement plans, and SIMPLE
IRAs, SEP IRAs and SARSEPs are collectively referred to as Business IRAs.
Business IRAs that (i) held shares of an A Class fund prior to March 1, 2009
that received sales charge waivers or (ii) held shares of an Advisor Class fund
that was renamed A Class on March 1, 2010, may permit additional purchases by
new and existing participants in A Class shares without an initial sales
charge.
R
Class IRA Accounts established prior to August 1, 2006 may make additional
purchases.
Waiver
of Minimum Initial Investment Amounts — I Class
A
financial intermediary, upon receiving prior approval from American Century
Investments, may waive applicable minimum initial investment amounts per
shareholder for I Class shares in the following situations:
•Broker-dealers,
banks, trust companies, registered investment advisors and other financial
intermediaries may make I Class shares available with no initial investment
minimum in fee based advisory programs or accounts where such program or account
is traded omnibus by the financial intermediary;
•Qualified
Tuition Programs under Section 529 that have entered into an agreement with the
distributor; and
•Certain
other situations deemed appropriate by American Century
Investments.
As
described in the prospectuses, the funds invest in fixed-income securities.
Those investments, however, are subject to certain credit quality restrictions,
as noted in the prospectuses and in this statement of additional information.
The following are examples of the rating categories referenced in the prospectus
disclosure.
|
|
|
|
|
| |
| Ratings
of Corporate and Municipal Debt Securities |
| Standard
& Poor’s Long-Term Issue Credit Ratings* |
| Category |
Definition |
| AAA |
An
obligation rated ‘AAA’ has the highest rating assigned by Standard &
Poor’s. The obligor’s capacity to meet its financial commitment on the
obligation is extremely strong. |
| AA |
An
obligation rated ‘AA’ differs from the highest-rated obligations only to a
small degree. The obligor’s capacity to meet its financial commitment on
the obligation is very strong. |
| A |
An
obligation rated ‘A’ is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its
financial commitment on the obligation is still strong. |
| BBB |
An
obligation rated ‘BBB’ exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. |
| BB;B;
CCC; CC; and C |
Obligations
rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant
speculative characteristics. ‘BB’ indicates the least degree of
speculation and ‘C’ the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions. |
| BB |
An
obligation rated ‘BB’ is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor’s inadequate capacity to meet its financial
commitment on the obligation. |
| B |
An
obligation rated ‘B’ is more vulnerable to nonpayment than obligations
rated ‘BB’, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor’s capacity or
willingness to meet its financial commitment on the
obligation. |
| CCC |
An
obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation. |
| CC |
An
obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The
‘CC’ rating is used when a default has not yet occurred, but Standard
& Poor’s expects default to be a virtual certainty, regardless of the
anticipated time to default. |
| C |
An
obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared to obligations that are rated higher. |
| D |
An
obligation rated ‘D’ is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the ‘D’ rating category is used when
payments on an obligation are not made on the date due, unless Standard
& Poor’s believes that such payments will be made within five business
days in the absence of a stated grace period or within the earlier of the
stated grace period or 30 calendar days. The ‘D’ rating also will be used
upon the filing of a bankruptcy petition or the taking of similar action
and where default on an obligation is a virtual certainty, for example due
to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if
it is subject to a distressed exchange offer. |
| NR |
This
indicates that no rating has been requested, or that there is insufficient
information on which to base a rating, or that Standard & Poor’s does
not rate a particular obligation as a matter of
policy. |
*The
ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating
categories.
|
|
|
|
|
| |
| Moody’s
Investors Service, Inc. Global Long-Term Rating Scale |
| Category |
Definition |
| Aaa |
Obligations
rated Aaa are judged to be of the highest quality, subject to the lowest
level of credit risk. |
| Aa |
Obligations
rated Aa are judged to be of high quality and are subject to very low
credit risk. |
| A |
Obligations
rated A are judged to be upper-medium grade and are subject to low credit
risk. |
| Baa |
Obligations
rated Baa are judged to be medium-grade and subject to moderate credit
risk and as such may possess certain speculative
characteristics. |
| Ba |
Obligations
rated Ba are judged to be speculative and are subject to substantial
credit risk. |
| B |
Obligations
rated B are considered speculative and are subject to high credit
risk. |
| Caa |
Obligations
rated Caa are judged to be speculative of poor standing and are subject to
very high credit risk. |
| Ca |
Obligations
rated Ca are highly speculative and are likely in, or very near, default,
with some prospect of recovery of principal and interest. |
| C |
Obligations
rated C are the lowest rated and are typically in default, with little
prospect for recovery of principal or
interest. |
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The
modifier
1 indicates that the obligation ranks in the higher end of its generic rating
category; the modifier 2 indicates a
mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of that generic
rating category. Additionally, a
“(hyb)”
indicator is appended to all ratings of hybrid securities issued by banks,
insurers, finance companies, and securities
firms.
|
|
|
|
|
| |
| Fitch
Investors Service, Inc. Long-Term Ratings |
| Category |
Definition |
| AAA |
Highest
credit quality. ‘AAA’
ratings denote the lowest expectation of credit risk. They are assigned
only in cases of exceptionally strong capacity for payment of financial
commitments. This capacity is highly unlikely to be adversely affected by
foreseeable events. |
| AA |
Very
high credit quality. ‘AA’
ratings denote expectations of very low credit risk. They indicate very
strong capacity for payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events. |
| A |
High
credit quality. ‘A’
ratings denote expectations of low credit risk. The capacity for payment
of financial commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to adverse business or economic
conditions than is the case for higher ratings. |
| BBB |
Good
credit quality. ‘BBB’
ratings indicate that expectations of credit risk are currently low. The
capacity for payment of financial commitments is considered adequate but
adverse business or economic conditions are more likely to impair this
capacity. |
| BB |
Speculative.
‘BB’
ratings indicate an elevated vulnerability to credit risk, particularly in
the event of adverse changes in business or economic conditions over time;
however, business or financial alternatives may be available to allow
financial commitments to be met. |
| B |
Highly
speculative. ‘B’
ratings indicate that material credit risk is present. |
| CCC |
Substantial
credit risk. ‘CCC’
ratings indicate that substantial credit risk is
present. |
| CC |
Very
high levels of credit risk. ‘CC’
ratings indicate very high levels of credit risk. |
| C |
Exceptionally
high levels of credit risk. ‘C’
indicates exceptionally high levels of credit
risk. |
Defaulted
obligations typically are not assigned ‘RD’ or ‘D’ ratings, but are instead
rated in the ‘B’ to ‘C’ rating categories, depending upon their recovery
prospects and other relevant characteristics. This approach better aligns
obligations that have comparable overall expected loss but varying vulnerability
to default and loss.
Notes:
The modifiers “+” or “-“ may be appended to a rating to denote relative status
within major rating categories. Such suffixes are not added to the ‘AAA’
obligation rating category, or to corporate finance obligation ratings in the
categories below ‘CCC’.
|
|
|
|
|
| |
| Standard
& Poor’s Corporate Short-Term Note Ratings |
| Category |
Definition |
| A-1 |
A
short-term obligation rated ‘A-1’ is rated in the highest category by
Standard & Poor’s. The obligor’s capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor’s capacity to meet its financial commitment on these obligations
is extremely strong. |
| A-2 |
A
short-term obligation rated ‘A-2’ is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity
to meet its financial commitment on the obligation is
satisfactory. |
| A-3 |
A
short-term obligation rated ‘A-3’ exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. |
| B |
A
short-term obligation rated ‘B’ is regarded as vulnerable and has
significant speculative characteristics. The obligor currently has the
capacity to meet its financial commitments; however, it faces major
ongoing uncertainties which could lead to the obligor’s inadequate
capacity to meet its financial commitments. |
| C |
A
short-term obligation rated ‘C’ is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the
obligation. |
| D |
A
short-term obligation rated ‘D’ is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the ‘D’ rating category is
used when payments on an obligation are not made on the date due, unless
Standard & Poor’s believes that such payments will be made within any
stated grace period. However, any stated grace period longer than five
business days will be treated as five business days. The ‘D’ rating also
will be used upon the filing of a bankruptcy petition or the taking of a
similar action and where default on an obligation is a virtual certainty,
for example due to automatic stay provisions. An obligation’s rating is
lowered to ‘D’ if it is subject to a distressed exchange offer.
|
|
|
|
|
|
| |
| Moody’s
Global Short-Term Rating Scale |
| Category |
Definition |
| P-1 |
Issuers
(or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations. |
| P-2 |
Issuers
(or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations. |
| P-3 |
Issuers
(or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term obligations. |
| NP |
Issuers
(or supporting institutions) rated Not Prime do not fall within any of the
Prime rating categories. |
|
|
|
|
|
| |
| Fitch
Investors Service, Inc. Short-Term Ratings |
| Category |
Definition |
| F1 |
Highest
short-term credit quality. Indicates
the strongest intrinsic capacity for timely payment of financial
commitments; may have an added “+” to denote any exceptionally strong
credit feature. |
| F2 |
Good
short-term credit quality. Good
intrinsic capacity for timely payment of financial
commitments. |
| F3 |
Fair
short-term credit quality. The
intrinsic capacity for timely payment of financial commitments is
adequate. |
| B |
Speculative
short-term credit quality. Minimal
capacity for timely payment of financial commitments, plus heightened
vulnerability to near term adverse changes in financial and economic
conditions. |
| C |
High
short-term default risk. Default
is a real possibility. |
| RD |
Restricted
default. Indicates
an entity that has defaulted on one or more of its financial commitments,
although it continues to meet other financial obligations. Typically
applicable to entity ratings only. |
| D |
Default
Indicates
a broad-based default event for an entity, or the default of a short-term
obligation. |
|
|
|
|
|
| |
| Standard
& Poor’s Municipal Short-Term Note Ratings |
| Category |
Definition |
| SP-1 |
Strong
capacity to pay principal and interest. An issue determined to possess a
very strong capacity to pay debt service is given a plus (+) designation.
|
| SP-2 |
Satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes. |
| SP-3 |
Speculative
capacity to pay principal and interest. |
|
|
|
|
|
| |
| Moody’s
US Municipal Short-Term Debt Ratings |
| Category |
Definition |
| MIG
1 |
This
designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.
|
| MIG
2 |
This
designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group. |
| MIG
3 |
This
designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to
be less well-established. |
| SG |
This
designation denotes speculative-grade credit quality. Debt instruments in
this category may lack sufficient margins of protection.
|
|
|
|
|
|
| |
| Moody’s
Demand Obligation Ratings |
| Category |
Definition |
| VMIG
1 |
This
designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely
payment of purchase price upon demand. |
| VMIG
2 |
This
designation denotes strong credit quality. Good protection is afforded by
the strong short-term credit strength of the liquidity provider and
structural and legal protections that ensure the timely payment of
purchase price upon demand. |
| VMIG
3 |
This
designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely
payment of purchase price upon demand. |
| SG |
This
designation denotes speculative-grade credit quality. Demand features
rated in this category may be supported by a liquidity provider that does
not have an investment grade short-term rating or may lack the structural
and/or legal protections necessary to ensure the timely payment of
purchase price upon demand. |
American
Century Investment Management, Inc. (the “Adviser”) is the investment manager
for a variety of advisory clients, including the American Century family of
funds. In such capacity, the Adviser has been delegated the authority to vote
proxies with respect to investments held in the accounts it manages. The
following is a statement of the proxy voting policies that have been adopted by
the Adviser. In the exercise of proxy voting authority which has been delegated
to it by particular clients, the Adviser will apply the following policies in
accordance with, and subject to, any specific policies that have been adopted by
the client and communicated to and accepted by the Adviser in
writing.
I. General
Principles
In
providing the service of voting client proxies, the Adviser is guided by general
fiduciary principles, must act prudently, solely in the interest of its clients,
and must not subordinate client interests to unrelated objectives. Except as
otherwise indicated in these Policies, the Adviser will vote all proxies with
respect to investments held in the client accounts it manages. The Adviser will
attempt to consider all factors of its vote that could affect the value of the
investment. Although in most instances the Adviser will vote proxies
consistently across all client accounts, the votes will be based on the best
interests of each client. As a result, accounts managed by the Adviser may at
times vote differently on the same proposals. Examples of when an account’s vote
might differ from other accounts managed by the Adviser include, but are not
limited to, proxy contests and proposed mergers. In short, the Adviser will vote
proxies in the manner that it believes will do the most to maximize shareholder
value.
II. Specific
Proxy Matters
A. Routine
Matters
1. Election
of Directors
a) Generally.
The
Adviser will generally support the election of directors that result in a board
made up of a majority of independent directors. In general, the Adviser will
vote in favor of management’s director nominees if they are running unopposed.
The Adviser believes that management is in the best possible position to
evaluate the qualifications of directors and the needs and dynamics of a
particular board. The Adviser of course maintains the ability to vote against
any candidate whom it feels is not qualified or if there are specific concerns
about the individual, such as allegations of criminal wrongdoing or breach of
fiduciary responsibilities. Additional information the Adviser may consider
concerning director nominees include, but is not limited to, whether (i) there
is an adequate explanation for repeated absences at board meetings, (ii) the
nominee receives non-board fee compensation, or (iii) there is a family
relationship between the nominee and the company’s chief executive officer or
controlling shareholder, and/or (iv) the nominee has sufficient time and
commitment to serve effectively in light of the nominee’s service on other
public company boards. When management’s nominees are opposed in a proxy
contest, the Adviser will evaluate which nominees’ publicly-announced management
policies and goals are most likely to maximize shareholder value, as well as the
past performance of the incumbents.
b) Committee
Service. The
Adviser will withhold votes for non-independent directors who serve on the audit
and/or compensation committees of the board.
c) Classification
of Boards. The
Adviser will support proposals that seek to declassify boards. Conversely, the
Adviser will oppose efforts to adopt classified board structures.
d) Majority
Independent Board. The
Adviser will support proposals calling for a majority of independent directors
on a board. The Adviser believes that a majority of independent directors can
help to facilitate objective decision making and enhances accountability to
shareholders.
e) Majority
Vote Standard for Director Elections.
The
Adviser will vote in favor of proposals calling for directors to be elected by
an affirmative majority of the votes cast in a board election, provided that the
proposal allows for a plurality voting standard in the case of contested
elections. The Adviser may consider voting against such shareholder proposals
where a company’s board has adopted an alternative measure, such as a director
resignation policy, that provides a meaningful alternative to the majority
voting standard and appropriately addresses situations where an incumbent
director fails to receive the support of the majority of the votes cast in an
uncontested election.
f) Withholding
Campaigns. The
Adviser will support proposals calling for shareholders to withhold votes for
directors where such actions will advance the principles set forth in paragraphs
(1)
through
(5) above.
2. Ratification
of Selection of Auditors
The
Adviser will generally rely on the judgment of the issuer’s audit committee in
selecting the independent auditors who will provide the best service to the
company. The Adviser believes that independence of the auditors is paramount and
will vote against auditors whose independence appears to be impaired. The
Adviser will vote against proposed auditors in those circumstances where (1) an
auditor has a financial interest in or association with the company, and is
therefore not independent; (2) non-audit fees comprise more than 50% of the
total fees paid by the company to the audit firm; or (3) there is reason to
believe that the independent auditor has previously rendered an opinion to the
issuer that is either inaccurate or not indicative of the company’s financial
position.
B. Compensation
Matters
1. Executive
Compensation
a) Advisory
Vote on Compensation. The
Adviser believes there are more effective ways to convey concerns about
compensation than through an advisory vote on compensation (such as voting
against specific excessive incentive plans or withholding votes from
compensation committee members). The Adviser will consider and vote on a
case-by-case basis on say-on-pay proposals and will generally support management
proposals unless there are inadequate risk-mitigation features or other specific
concerns exist, including if the Adviser concludes that executive compensation
is (i) misaligned with shareholder interests, (ii) unreasonable in amount, or
(iii) not in the aggregate meaningfully tied to the company’s
performance.
b) Frequency
of Advisory Votes on Compensation. The
Adviser generally supports the triennial option for the frequency of say-on-pay
proposals, but will consider management recommendations for an alternative
approach.
2. Equity
Based Compensation Plans
The
Adviser believes that equity-based incentive plans are economically significant
issues upon which shareholders are entitled to vote. The Adviser recognizes that
equity-based compensation plans can be useful in attracting and maintaining
desirable employees. The cost associated with such plans must be measured if
plans are to be used appropriately to maximize shareholder value. The Adviser
will conduct a case-by-case analysis of each stock option, stock bonus or
similar plan or amendment, and generally approve management’s recommendations
with respect to adoption of or amendments to a company’s equity-based
compensation plans, provided that the total number of shares reserved under all
of a company’s plans is reasonable and not excessively dilutive.
The
Adviser will review equity-based compensation plans or amendments thereto on a
case-by-case basis. Factors that will be considered in the determination include
the company’s overall capitalization, the performance of the company relative to
its peers, and the maturity of the company and its industry; for example,
technology companies often use options broadly throughout its employee base
which may justify somewhat greater dilution.
Amendments
which are proposed in order to bring a company’s plan within applicable legal
requirements will be reviewed by the Adviser’s legal counsel; amendments to
executive bonus plans to comply with IRS Section 162(m) disclosure requirements,
for example, are generally approved.
The
Adviser will generally vote against the adoption of plans or plan amendments
that:
•Provide
for immediate vesting of all stock options in the event of a change of control
of the company without reasonable safeguards against abuse (see “Anti-Takeover
Proposals” below);
•Reset
outstanding stock options at a lower strike price unless accompanied by a
corresponding and proportionate reduction in the number of shares designated.
The Adviser will generally oppose adoption of stock option plans that explicitly
or historically permit repricing of stock options, regardless of the number of
shares reserved for issuance, since their effect is impossible to
evaluate;
•Establish
restriction periods shorter than three years for restricted stock
grants;
•Do
not reasonably associate awards to performance of the company; or
•Are
excessively dilutive to the company.
C. Anti-Takeover
Proposals
In
general, the Adviser will vote against any proposal, whether made by management
or shareholders, which the Adviser believes would materially discourage a
potential acquisition or takeover. In most cases an acquisition or
takeover
of a particular company will increase share value. The adoption of anti-takeover
measures may prevent or frustrate a bid from being made, may prevent
consummation of the acquisition, and may have a negative effect on share price
when no acquisition proposal is pending. The items below discuss specific
anti-takeover proposals.
1. Cumulative
Voting
The
Adviser will vote in favor of any proposal to adopt cumulative voting and will
vote against any proposal to eliminate cumulative voting that is already in
place, except in cases where a company has a staggered board. Cumulative voting
gives minority shareholders a stronger voice in the company and a greater chance
for representation on the board. The Adviser believes that the elimination of
cumulative voting constitutes an anti-takeover measure.
2. Staggered
Board
If
a company has a “staggered board,” its directors are elected for terms of more
than one year and only a segment of the board stands for election in any year.
Therefore, a potential acquiror cannot replace the entire board in one year even
if it controls a majority of the votes. Although staggered boards may provide
some degree of continuity and stability of leadership and direction to the board
of directors, the Adviser believes that staggered boards are primarily an
anti-takeover device and will vote against establishing them and for eliminating
them. However, the Adviser does not necessarily vote against the re-election of
directors serving on staggered boards.
3. “Blank
Check” Preferred Stock
Blank
check preferred stock gives the board of directors the ability to issue
preferred stock, without further shareholder approval, with such rights,
preferences, privileges and restrictions as may be set by the board. In response
to a hostile takeover attempt, the board could issue such stock to a friendly
party or “white knight” or could establish conversion or other rights in the
preferred stock which would dilute the common stock and make an acquisition
impossible or less attractive. The argument in favor of blank check preferred
stock is that it gives the board flexibility in pursuing financing, acquisitions
or other proper corporate purposes without incurring the time or expense of a
shareholder vote. Generally, the Adviser will vote against blank check preferred
stock. However, the Adviser may vote in favor of blank check preferred if the
proxy statement discloses that such stock is limited to use for a specific,
proper corporate objective as a financing instrument.
4. Elimination
of Preemptive Rights
When
a company grants preemptive rights, existing shareholders are given an
opportunity to maintain their proportional ownership when new shares are issued.
A proposal to eliminate preemptive rights is a request from management to revoke
that right.
While
preemptive rights will protect the shareholder from having its equity diluted,
it may also decrease a company’s ability to raise capital through stock
offerings or use stock for acquisitions or other proper corporate purposes.
Preemptive rights may therefore result in a lower market value for the company’s
stock. In the long term, shareholders could be adversely affected by preemptive
rights. The Adviser generally votes against proposals to grant preemptive
rights, and for proposals to eliminate preemptive rights.
5. Non-targeted
Share Repurchase
A
non-targeted share repurchase is generally used by company management to prevent
the value of stock held by existing shareholders from deteriorating. A
non-targeted share repurchase may reflect management’s belief in the favorable
business prospects of the company. The Adviser finds no disadvantageous effects
of a non-targeted share repurchase and will generally vote for the approval of a
non-targeted share repurchase subject to analysis of the company’s financial
condition.
6. Increase
in Authorized Common Stock
The
issuance of new common stock can also be viewed as an anti-takeover measure,
although its effect on shareholder value would appear to be less significant
than the adoption of blank check preferred. The Adviser will evaluate the amount
of the proposed increase and the purpose or purposes for which the increase is
sought. If the increase is not excessive and is sought for proper corporate
purposes, the increase will be approved. Proper corporate purposes might
include, for example, the creation of additional stock to accommodate a stock
split or stock dividend, additional stock required for a proposed acquisition,
or additional stock required to be reserved upon exercise of employee stock
option plans or employee stock purchase plans. Generally, the Adviser will vote
in favor of an increase in authorized common stock of up to 100%; increases in
excess of 100% are evaluated on a case-by-case basis, and will be voted
affirmatively
if
management has provided sound justification for the increase.
7. “Supermajority”
Voting Provisions or Super Voting Share Classes
A
“supermajority” voting provision is a provision placed in a company’s charter
documents which would require a “supermajority” (ranging from 66 to 90%) of
shareholders and shareholder votes to approve any type of acquisition of the
company. A super voting share class grants one class of shareholders a greater
per-share vote than those of shareholders of other voting classes. The Adviser
believes that these are standard anti-takeover measures and will generally vote
against them. The supermajority provision makes an acquisition more
time-consuming and expensive for the acquiror. A super voting share class favors
one group of shareholders disproportionately to economic interest. Both are
often proposed in conjunction with other anti-takeover measures.
8. “Fair
Price” Amendments
This
is another type of charter amendment that would require an offeror to pay a
“fair” and uniform price to all shareholders in an acquisition. In general, fair
price amendments are designed to protect shareholders from coercive, two-tier
tender offers in which some shareholders may be merged out on disadvantageous
terms. Fair price amendments also have an anti-takeover impact, although their
adoption is generally believed to have less of a negative effect on stock price
than other anti-takeover measures. The Adviser will carefully examine all fair
price proposals. In general, the Adviser will vote against fair price proposals
unless the Adviser concludes that it is likely that the share price will not be
negatively affected and the proposal will not have the effect of discouraging
acquisition proposals.
9. Limiting
the Right to Call Special Shareholder Meetings.
The
corporation statutes of many states allow minority shareholders at a certain
threshold level of ownership (frequently 10%) to call a special meeting of
shareholders. This right can be eliminated (or the threshold increased) by
amendment to the company’s charter documents. The Adviser believes that the
right to call a special shareholder meeting is significant for minority
shareholders; the elimination of such right will be viewed as an anti-takeover
measure and the Adviser will generally vote against proposals attempting to
eliminate this right and for proposals attempting to restore it.
10. Poison
Pills or Shareholder Rights Plans
Many
companies have now adopted some version of a poison pill plan (also known as a
shareholder rights plan). Poison pill plans generally provide for the issuance
of additional equity securities or rights to purchase equity securities upon the
occurrence of certain hostile events, such as the acquisition of a large block
of stock.
The
basic argument against poison pills is that they depress share value, discourage
offers for the company and serve to “entrench” management. The basic argument in
favor of poison pills is that they give management more time and leverage to
deal with a takeover bid and, as a result, shareholders may receive a better
price. The Adviser believes that the potential benefits of a poison pill plan
are outweighed by the potential detriments. The Adviser will generally vote
against all forms of poison pills.
The
Adviser will, however, consider on a case-by-case basis poison pills that are
very limited in time and preclusive effect. The Adviser will generally vote in
favor of such a poison pill if it is linked to a business strategy that will -
in our view - likely result in greater value for shareholders, if the term is
less than three years, and if shareholder approval is required to reinstate the
expired plan or adopt a new plan at the end of this term.
11. Golden
Parachutes
Golden
parachute arrangements provide substantial compensation to executives who are
terminated as a result of a takeover or change in control of their company. The
existence of such plans in reasonable amounts probably has only a slight
anti-takeover effect. In voting, the Adviser will evaluate the specifics of the
plan presented.
12. Reincorporation
Reincorporation
in a new state is often proposed as one part of a package of anti-takeover
measures. Several states (such as Pennsylvania, Ohio and Indiana) now provide
some type of legislation that greatly discourages takeovers. Management believes
that Delaware in particular is beneficial as a corporate domicile because of the
well-developed body of statutes and case law dealing with corporate
acquisitions.
The
Adviser will examine reincorporation proposals on a case-by-case basis.
Generally, if the Adviser believes that the reincorporation will result in
greater protection from takeovers, the reincorporation
proposal
will be opposed. The Adviser will also oppose reincorporation proposals
involving jurisdictions that specify that directors can recognize
non-shareholder interests over those of shareholders. When reincorporation is
proposed for a legitimate business purpose and without the negative effects
identified above, the Adviser will generally vote affirmatively.
13. Confidential
Voting
Companies
that have not previously adopted a “confidential voting” policy allow management
to view the results of shareholder votes. This gives management the opportunity
to contact those shareholders voting against management in an effort to change
their votes.
Proponents
of secret ballots argue that confidential voting enables shareholders to vote on
all issues on the basis of merit without pressure from management to influence
their decision. Opponents argue that confidential voting is more expensive and
unnecessary; also, holding shares in a nominee name maintains shareholders’
confidentiality. The Adviser believes that the only way to insure anonymity of
votes is through confidential voting, and that the benefits of confidential
voting outweigh the incremental additional cost of administering a confidential
voting system. Therefore, the Adviser will generally vote in favor of any
proposal to adopt confidential voting.
14. Opting
In or Out of State Takeover Laws
State
takeover laws typically are designed to make it more difficult to acquire a
corporation organized in that state. The Adviser believes that the decision of
whether or not to accept or reject offers of merger or acquisition should be
made by the shareholders, without unreasonably restrictive state laws that may
impose ownership thresholds or waiting periods on potential acquirors.
Therefore, the Adviser will generally vote in favor of opting out of restrictive
state takeover laws.
D. Transaction
Related Proposals
The
Adviser will review transaction related proposals, such as mergers,
acquisitions, and corporate reorganizations, on a case-by-case basis, taking
into consideration the impact of the transaction on each client account. In some
instances, such as the approval of a proposed merger, a transaction may have a
differential impact on client accounts depending on the securities held in each
account. For example, whether a merger is in the best interest of a client
account may be influenced by whether an account holds, and in what proportion,
the stock of both the acquirer and the acquiror. In these circumstances, the
Adviser may determine that it is in the best interests of the accounts to vote
the accounts’ shares differently on proposals related to the same
transaction.
E. Other
Matters
1. Proposals
Involving Environmental, Social, and Governance (“ESG”) Matters
The
Adviser believes that certain ESG issues can potentially impact an issuer's
long-term financial performance and has developed an analytical framework, as
well as a proprietary assessment tool, to integrate risks and opportunities
stemming from ESG issues into our investment process. This ESG integration
process extends to our proxy voting practices in that our Sustainable Research
Team analyzes on a case-by-case basis the financial materiality and potential
risks or economic impact of the ESG issues underpinning proxy proposals and
makes voting recommendations based thereon for the Adviser's consideration. The
Sustainable Research Team evaluates ESG-related proposals based on a rational
linkage between the proposal, its potential economic impact, and its potential
to maximize long-term shareholder value.
Where
the economic effect of such proposals is unclear and there is not a specific
written client-mandate, the Adviser believes it is generally impossible to know
how to vote in a manner that would accurately reflect the views of the Adviser’s
clients, and, therefore, the Adviser will generally rely on management’s
assessment of the economic effect if the Adviser believes the assessment is not
unreasonable.
Shareholders
may also introduce proposals which are the subject of existing law or
regulation. Examples of such proposals would include a proposal to require
disclosure of a company’s contributions to political action committees or a
proposal to require a company to adopt a non-smoking workplace policy. The
Adviser believes that such proposals may be better addressed outside the
corporate arena and, absent a potential economic impact, will generally vote
with management’s recommendation. In addition, the Adviser will generally vote
against any proposal which would require a company to adopt practices or
procedures which go beyond the requirements of existing, directly applicable
law.
2. Anti-Greenmail
Proposals
“Anti-greenmail”
proposals generally limit the right of a corporation, without a shareholder
vote, to pay a premium or buy out a 5% or greater shareholder. Management often
argues that they should not be
restricted
from negotiating a deal to buy out a significant shareholder at a premium if
they believe it is in the best interest of the company. Institutional
shareholders generally believe that all shareholders should be able to vote on
such a significant use of corporate assets. The Adviser believes that any
repurchase by the company at a premium price of a large block of stock should be
subject to a shareholder vote. Accordingly, it will generally vote in favor of
anti-greenmail proposals.
3. Indemnification
The
Adviser will generally vote in favor of a corporation’s proposal to indemnify
its officers and directors in accordance with applicable state law.
Indemnification arrangements are often necessary in order to attract and retain
qualified directors. The adoption of such proposals appears to have little
effect on share value.
4. Non-Stock
Incentive Plans
Management
may propose a variety of cash-based incentive or bonus plans to stimulate
employee performance. In general, the cash or other corporate assets required
for most incentive plans is not material, and the Adviser will vote in favor of
such proposals, particularly when the proposal is recommended in order to comply
with IRC Section 162(m) regarding salary disclosure requirements. Case-by-case
determinations will be made of the appropriateness of the amount of shareholder
value transferred by proposed plans.
5. Director
Tenure
These
proposals ask that age and term restrictions be placed on the board of
directors. The Adviser believes that these types of blanket restrictions are not
necessarily in the best interests of shareholders and therefore will vote
against such proposals, unless they have been recommended by
management.
6. Directors’
Stock Options Plans
The
Adviser believes that stock options are an appropriate form of compensation for
directors, and the Adviser will generally vote for director stock option plans
which are reasonable and do not result in excessive shareholder dilution.
Analysis of such proposals will be made on a case-by-case basis, and will take
into account total board compensation and the company’s total exposure to stock
option plan dilution.
7. Director
Share Ownership
The
Adviser will generally vote against shareholder proposals which would require
directors to hold a minimum number of the company’s shares to serve on the Board
of Directors, in the belief that such ownership should be at the discretion of
Board members.
8. Non-U.S.
Proxies
The
Adviser will generally evaluate non-U.S. proxies in the context of the voting
policies expressed herein but will also, where feasible, take into consideration
differing laws, regulations, and practices in the relevant foreign market in
determining if and how to vote. There may also be circumstances when
practicalities and costs involved with non-U.S. investing make it
disadvantageous to vote shares. For instance, the Adviser generally does not
vote proxies in circumstances where share blocking restrictions apply, when
meeting attendance is required in person, or when current share ownership
disclosure is required.
III. Use
of Proxy Advisory Services
The
Adviser may retain proxy advisory firms to provide services in connection with
voting proxies, including, without limitation, to provide information on
shareholder meeting dates and proxy materials, translate proxy materials printed
in a foreign language, provide research on proxy proposals and voting
recommendations in accordance with the voting policies expressed herein, provide
systems to assist with casting the proxy votes, and provide reports and assist
with preparation of filings concerning the proxies voted.
Prior
to the selection of a proxy advisory firm and periodically thereafter, the
Adviser will consider whether the proxy advisory firm has the capacity and
competency to adequately analyze proxy issues and the ability to make
recommendations based on material accurate information in an impartial manner.
Such considerations may include some or all of the following (i) periodic
sampling of votes cast through the firm’s systems to determine that votes are in
accordance with the Adviser’s policies and its clients best interests, (ii)
onsite visits to the proxy advisory firm’s office and/or discussions with the
firm to determine whether the firm continues to have the resources (e.g.,
staffing, personnel, technology, etc.) capacity and competency to carry out its
obligations to the Adviser, (iii) a review of the firm’s policies and
procedures, with a focus on those relating to identifying and addressing
conflicts of interest and monitoring that current and accurate information is
used
in
creating recommendations, (iv) requesting that the firm notify the Adviser if
there is a change in the firm’s material policies and procedures, particularly
with respect to conflicts, or material business practices (e.g., entering or
exiting new lines of business), and reviewing any such change, and (v) in case
of an error made by the firm, discussing the error with the firm and determining
whether appropriate corrective and preventative action is being taken. In the
event the Adviser discovers an error in the research or voting recommendations
provided by the firm, it will take reasonable steps to investigate the error and
seek to determine whether the firm is taking reasonable steps to reduce similar
errors in the future.
While
the Adviser takes into account information from many different sources,
including independent proxy advisory services, the decision on how to vote
proxies will be made in accordance with these policies.
IV.
Monitoring Potential Conflicts of Interest
Corporate
management has a strong interest in the outcome of proposals submitted to
shareholders. As a consequence, management often seeks to influence large
shareholders to vote with their recommendations on particularly controversial
matters. In the vast majority of cases, these communications with large
shareholders amount to little more than advocacy for management’s positions and
give the Adviser’s staff the opportunity to ask additional questions about the
matter being presented. Companies with which the Adviser has direct business
relationships could theoretically use these relationships to attempt to unduly
influence the manner in which the Adviser votes on matters for its clients. To
ensure that such a conflict of interest does not affect proxy votes cast for the
Adviser’s clients, our proxy voting personnel regularly catalog companies with
whom the Adviser has significant business relationships; all discretionary
(including case-by-case) voting for these companies will be voted by the client
or an appropriate fiduciary responsible for the client (e.g., a committee of the
independent directors of a fund or the trustee of a retirement
plan).
In
addition, to avoid any potential conflict of interest that may arise when one
American Century fund owns shares of another American Century fund, the Adviser
will “echo vote” such shares, if possible. Echo voting means the Adviser will
vote the shares in the same proportion as the vote of all of the other holders
of the fund’s shares. So, for example, if shareholders of a fund cast 80% of
their votes in favor of a proposal and 20% against the proposal, any American
Century fund that owns shares of such fund will cast 80% of its shares in favor
of the proposal and 20% against. When this is not possible where American
Century funds are the only shareholders, the shares of the underlying fund will
be voted in the same proportion as the vote of the shareholders of a
corresponding American Century policy portfolio for proposals common to both
funds. In the case where there is no policy portfolio or the policy portfolio
does not have a common proposal, shares will be voted in consultation with a
committee of the independent directors.
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The
voting policies expressed above are of course subject to modification in certain
circumstances and will be reexamined from time to time. With respect to matters
that do not fit in the categories stated above, the Adviser will exercise its
best judgment as a fiduciary to vote in the manner which will most enhance
shareholder value.
Case-by-case
determinations will be made by the Adviser’s staff, which is overseen by the
General Counsel of the Adviser, in consultation with equity managers. Electronic
records will be kept of all votes made.
Notes
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American
Century Investments
americancentury.com
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Retail
Investors
P.O. Box 419200
Kansas City,
Missouri 64141-6200
1-800-345-2021 or 816-531-5575 |
Financial
Professionals
P.O. Box 419385
Kansas City, Missouri
64141-6385
1-800-345-6488 |
Investment
Company Act File No. 811-08532
CL-SAI-91812 2412
