ck0001293210-20240731
December
1, 2024
American
Century Investments
Statement
of Additional Information
American
Century Asset Allocation Portfolios, Inc.
|
|
|
|
|
|
|
|
| |
|
One
Choice®
In
Retirement Portfolio |
One
Choice®
2045 Portfolio |
One
Choice®
Blend+ 2015 Portfolio |
| Investor
Class (ARTOX) |
Investor
Class (AROIX) |
Investor
Class (AAAFX) |
| I
Class (ATTIX) |
I
Class (AOOIX) |
I
Class (AAAHX) |
| A
Class (ARTAX) |
A
Class (AROAX) |
A
Class (AAAJX) |
| C
Class (ATTCX) |
C
Class (AROCX) |
R
Class (AAAKX) |
| R
Class (ARSRX) |
R
Class (ARORX) |
R6
Class (AAALX) |
| R6
Class (ARDTX) |
R6
Class (ARDOX) |
|
|
|
| |
|
One
Choice®
2025 Portfolio |
One
Choice®
2050 Portfolio |
One
Choice®
Blend+ 2020 Portfolio |
| Investor
Class (ARWIX) |
Investor
Class (ARFVX) |
Investor
Class (AAAMX) |
| I
Class (ARWFX) |
I
Class (ARFSX) |
I
Class (AAAOX) |
| A
Class (ARWAX) |
A
Class (ARFMX) |
A
Class (AABEX) |
| C
Class (ARWCX) |
C
Class (ARFDX) |
R
Class (AABGX) |
| R
Class (ARWRX) |
R
Class (ARFWX) |
R6
Class (AABHX) |
| R6
Class (ARWDX) |
R6
Class (ARFEX) |
|
|
|
| |
|
One
Choice®
2030 Portfolio |
One
Choice®
2055 Portfolio |
One
Choice®
Blend+ 2025 Portfolio |
| Investor
Class (ARCVX) |
Investor
Class (AREVX) |
Investor
Class (AABJX) |
| I
Class (ARCSX) |
I
Class (ARENX) |
I
Class (AABKX) |
| A
Class (ARCMX) |
A
Class (AREMX) |
A
Class (AABQX) |
| C
Class (ARWOX) |
C
Class (AREFX) |
R
Class (AABRX) |
| R
Class (ARCRX) |
R
Class (AREOX) |
R6
Class (AABVX) |
| R6
Class (ARCUX) |
R6
Class (AREUX) |
|
|
|
| |
|
One
Choice®
2035 Portfolio |
One
Choice®
2060 Portfolio |
One
Choice®
Blend+ 2030 Portfolio |
| Investor
Class (ARYIX) |
Investor
Class (ARGVX) |
Investor
Class (AABWX) |
| I
Class (ARLIX) |
I
Class (ARGNX) |
I
Class (AAEWX) |
| A
Class (ARYAX) |
A
Class (ARGMX) |
A
Class (AABZX) |
| C
Class (ARLCX) |
C
Class (ARGHX) |
R
Class (AACHX) |
| R
Class (ARYRX) |
R
Class (ARGRX) |
R6
Class (AACJX) |
| R6
Class (ARLDX) |
R6
Class (ARGDX) |
|
|
|
| |
|
One
Choice®
2040 Portfolio |
One
Choice®
2065 Portfolio |
One
Choice®
Blend+ 2035 Portfolio |
| Investor
Class (ARDVX) |
Investor
Class (ARHVX) |
Investor
Class (AACKX) |
| I
Class (ARDSX) |
I
Class (ARHUX) |
I
Class (AACLX) |
| A
Class (ARDMX) |
A
Class (ARHMX) |
A
Class (AACMX) |
| C
Class (ARNOX) |
C
Class (ARHEX) |
R
Class (AACPX) |
| R
Class (ARDRX) |
R
Class (ARHFX) |
R6
Class (AACQX) |
| R6
Class (ARDUX) |
R6
Class (ARHSX) |
|
|
|
| |
|
|
|
|
|
| |
|
One
Choice®
Blend+ 2040 Portfolio |
One
Choice®
Blend+ 2065 Portfolio |
| Investor
Class (AACSX) |
Investor
Class (AAEKX) |
| I
Class (AACUX) |
I
Class (AAELX) |
| A
Class (AACVX) |
A
Class (AAEOX) |
| R
Class (AACWX) |
R
Class (AAEUX) |
| R6
Class (AACZX) |
R6
Class (AAEVX) |
|
| |
|
One
Choice®
Blend+ 2045 Portfolio |
One
Choice®
Portfolio: Very Conservative |
| Investor
Class (AADHX) |
Investor
Class (AONIX) |
| I
Class (AADJX) |
R
Class (AORHX) |
| A
Class (AADKX) |
|
| R
Class (AADLX) |
One
Choice®
Portfolio: Conservative |
| R6
Class (AADMX) |
Investor
Class (AOCIX) |
|
| R
Class (AORSX) |
|
One
Choice®
Blend+ 2050 Portfolio |
|
| Investor
Class (AADNX) |
One
Choice®
Portfolio: Moderate |
| I
Class (AADOX) |
Investor
Class (AOMIX) |
| A
Class (AADPX) |
R
Class (AORMX) |
| R
Class (AADQX) |
|
| R6
Class (AADUX) |
One
Choice®
Portfolio: Aggressive |
|
| Investor
Class (AOGIX) |
|
One
Choice®
Blend+ 2055 Portfolio |
R
Class (AORYX) |
| Investor
Class (AADVX) |
|
| I
Class (AADWX) |
One
Choice®
Portfolio: Very Aggressive |
| A
Class (AADZX) |
Investor
Class (AOVIX) |
| R
Class (AAEDX) |
R
Class (AORVX) |
| R6
Class (AAEEX) |
|
|
| |
|
One
Choice®
Blend+ 2060 Portfolio |
|
| Investor
Class (AAEFX) |
|
| I
Class (AAEGX) |
|
| A
Class (AAEHX) |
|
| R
Class (AAEIX) |
|
| R6
Class (AAEJX) |
|
|
|
|
|
|
| |
|
This
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. |
|
|
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.
|
©2024
American Century Proprietary Holdings, Inc. All rights reserved.
American
Century Asset Allocation Portfolios, Inc. is a registered open-end management
investment company that was organized as a Maryland corporation on June 4, 2004.
Throughout this statement of additional information, we refer to American
Century Asset Allocation Portfolios, Inc. as the corporation.
Throughout
this statement of additional information, One Choice In Retirement Portfolio,
One Choice 2025 Portfolio, One Choice 2030 Portfolio, One Choice 2035 Portfolio,
One Choice 2040 Portfolio, One Choice 2045 Portfolio, One Choice 2050 Portfolio,
One Choice 2055 Portfolio, One Choice 2060 Portfolio, and One Choice 2065
Portfolio are collectively referred to as the “One Choice Target Date
Portfolios.” The One Choice Blend+ 2015 Portfolio, One Choice Blend+ 2020
Portfolio, One Choice Blend+ 2025 Portfolio, One Choice Blend+ 2030 Portfolio,
One Choice Blend+ 2035 Portfolio, One Choice Blend+ 2040 Portfolio, One Choice
Blend+ 2045 Portfolio, One Choice Blend+ 2050 Portfolio, One Choice Blend+ 2055
Portfolio, One Choice Blend+ 2060 Portfolio, and One Choice Blend+ 2065
Portfolio are collectively referred to as the “One Choice Blend+ Portfolios.”
Additionally, One Choice Portfolio: Very Conservative, One Choice Portfolio:
Conservative, One Choice Portfolio: Moderate, One Choice Portfolio: Aggressive
and One Choice Portfolio: Very Aggressive are collectively referred to as “One
Choice Target Risk Portfolios.”
Each
of the funds 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.
Prior to May 31, 2013, One Choice In Retirement Portfolio was known as
LIVESTRONG Income Portfolio and the remaining target-dated One Choice Portfolios
were known as the LIVESTRONG Portfolios, and prior to May 15, 2006, these funds
were known as the My Retirement Portfolios.
|
|
|
|
|
|
|
|
| |
| Fund/Class |
Ticker
Symbol |
Inception
Date |
| One
Choice In Retirement Portfolio |
| |
| Investor
Class |
ARTOX |
08/31/2004 |
| I
Class |
ATTIX |
08/31/2004 |
| A
Class |
ARTAX |
08/31/2004 |
| C
Class |
ATTCX |
03/01/2010 |
| R
Class |
ARSRX |
08/31/2004 |
| R6
Class |
ARDTX |
10/23/2017 |
| One
Choice 2025 Portfolio |
| |
| Investor
Class |
ARWIX |
08/31/2004 |
| I
Class |
ARWFX |
08/31/2004 |
| A
Class |
ARWAX |
08/31/2004 |
| C
Class |
ARWCX |
03/01/2010 |
| R
Class |
ARWRX |
08/31/2004 |
| R6
Class |
ARWDX |
10/23/2017 |
| One
Choice 2030 Portfolio |
| |
| Investor
Class |
ARCVX |
05/30/2008 |
| I
Class |
ARCSX |
05/30/2008 |
| A
Class |
ARCMX |
05/30/2008 |
| C
Class |
ARWOX |
03/01/2010 |
| R
Class |
ARCRX |
05/30/2008 |
| R6
Class |
ARCUX |
10/23/2017 |
| One
Choice 2035 Portfolio |
| |
| Investor
Class |
ARYIX |
08/31/2004 |
| I
Class |
ARLIX |
08/31/2004 |
| A
Class |
ARYAX |
08/31/2004 |
| C
Class |
ARLCX |
03/01/2010 |
| R
Class |
ARYRX |
08/31/2004 |
| R6
Class |
ARLDX |
10/23/2017 |
|
|
|
|
|
|
|
|
| |
| Fund/Class |
Ticker
Symbol |
Inception
Date |
| One
Choice 2040 Portfolio |
|
|
| Investor
Class |
ARDVX |
05/30/2008 |
| I
Class |
ARDSX |
05/30/2008 |
| A
Class |
ARDMX |
05/30/2008 |
| C
Class |
ARNOX |
03/01/2010 |
| R
Class |
ARDRX |
05/30/2008 |
| R6
Class |
ARDUX |
10/23/2017 |
| One
Choice 2045 Portfolio |
|
|
| Investor
Class |
AROIX |
08/31/2004 |
| I
Class |
AOOIX |
08/31/2004 |
| A
Class |
AROAX |
08/31/2004 |
| C
Class |
AROCX |
03/01/2010 |
| R
Class |
ARORX |
08/31/2004 |
| R6
Class |
ARDOX |
10/23/2017 |
| One
Choice 2050 Portfolio |
|
|
| Investor
Class |
ARFVX |
05/30/2008 |
| I
Class |
ARFSX |
05/30/2008 |
| A
Class |
ARFMX |
05/30/2008 |
| C
Class |
ARFDX |
03/01/2010 |
| R
Class |
ARFWX |
05/30/2008 |
| R6
Class |
ARFEX |
10/23/2017 |
| One
Choice 2055 Portfolio |
|
|
| Investor
Class |
AREVX |
03/31/2011 |
| I
Class |
ARENX |
03/31/2011 |
| A
Class |
AREMX |
03/31/2011 |
| C
Class |
AREFX |
03/31/2011 |
| R
Class |
AREOX |
03/31/2011 |
| R6
Class |
AREUX |
10/23/2017 |
| One
Choice 2060 Portfolio |
| |
| Investor
Class |
ARGVX |
09/30/2015 |
| I
Class |
ARGNX |
09/30/2015 |
| A
Class |
ARGMX |
09/30/2015 |
| C
Class |
ARGHX |
09/30/2015 |
| R
Class |
ARGRX |
09/30/2015 |
| R6
Class |
ARGDX |
10/23/2017 |
| One
Choice 2065 Portfolio |
| |
| Investor
Class |
ARHVX |
09/23/2020 |
| I
Class |
ARHUX |
09/23/2020 |
| A
Class |
ARHMX |
09/23/2020 |
| C
Class |
ARHEX |
09/23/2020 |
| R
Class |
ARHFX |
09/23/2020 |
| R6
Class |
ARHSX |
09/23/2020 |
|
|
|
|
|
|
|
|
| |
| Fund/Class |
Ticker
Symbol |
Inception
Date |
| One
Choice Blend+ 2015 Portfolio |
| |
| Investor
Class |
AAAFX |
03/10/2021 |
| I
Class |
AAAHX |
03/10/2021 |
| A
Class |
AAAJX |
03/10/2021 |
| R
Class |
AAAKX |
03/10/2021 |
| R6
Class |
AAALX |
03/10/2021 |
| One
Choice Blend+ 2020 Portfolio |
| |
| Investor
Class |
AAAMX |
03/10/2021 |
| I
Class |
AAAOX |
03/10/2021 |
| A
Class |
AABEX |
03/10/2021 |
| R
Class |
AABGX |
03/10/2021 |
| R6
Class |
AABHX |
03/10/2021 |
| One
Choice Blend+ 2025 Portfolio |
| |
| Investor
Class |
AABJX |
03/10/2021 |
| I
Class |
AABKX |
03/10/2021 |
| A
Class |
AABQX |
03/10/2021 |
| R
Class |
AABRX |
03/10/2021 |
| R6
Class |
AABVX |
03/10/2021 |
| One
Choice Blend+ 2030 Portfolio |
| |
| Investor
Class |
AABWX |
03/10/2021 |
| I
Class |
AAEWX |
03/10/2021 |
| A
Class |
AABZX |
03/10/2021 |
| R
Class |
AACHX |
03/10/2021 |
| R6
Class |
AACJX |
03/10/2021 |
| One
Choice Blend+ 2035 Portfolio |
| |
| Investor
Class |
AACKX |
03/10/2021 |
| I
Class |
AACLX |
03/10/2021 |
| A
Class |
AACMX |
03/10/2021 |
| R
Class |
AACPX |
03/10/2021 |
| R6
Class |
AACQX |
03/10/2021 |
| One
Choice Blend+ 2040 Portfolio |
| |
| Investor
Class |
AACSX |
03/10/2021 |
| I
Class |
AACUX |
03/10/2021 |
| A
Class |
AACVX |
03/10/2021 |
| R
Class |
AACWX |
03/10/2021 |
| R6
Class |
AACZX |
03/10/2021 |
| One
Choice Blend+ 2045 Portfolio |
| |
| Investor
Class |
AADHX |
03/10/2021 |
| I
Class |
AADJX |
03/10/2021 |
| A
Class |
AADKX |
03/10/2021 |
| R
Class |
AADLX |
03/10/2021 |
| R6
Class |
AADMX |
03/10/2021 |
|
|
|
|
|
|
|
|
| |
| Fund/Class |
Ticker
Symbol |
Inception
Date |
| One
Choice Blend+ 2050 Portfolio |
| |
| Investor
Class |
AADNX |
03/10/2021 |
| I
Class |
AADOX |
03/10/2021 |
| A
Class |
AADPX |
03/10/2021 |
| R
Class |
AADQX |
03/10/2021 |
| R6
Class |
AADUX |
03/10/2021 |
| One
Choice Blend+ 2055 Portfolio |
| |
| Investor
Class |
AADVX |
03/10/2021 |
| I
Class |
AADWX |
03/10/2021 |
| A
Class |
AADZX |
03/10/2021 |
| R
Class |
AAEDX |
03/10/2021 |
| R6
Class |
AAEEX |
03/10/2021 |
| One
Choice Blend+ 2060 Portfolio |
| |
| Investor
Class |
AAEFX |
03/10/2021 |
| I
Class |
AAEGX |
03/10/2021 |
| A
Class |
AAEHX |
03/10/2021 |
| R
Class |
AAEIX |
03/10/2021 |
| R6
Class |
AAEJX |
03/10/2021 |
| One
Choice Blend+ 2065 Portfolio |
| |
| Investor
Class |
AAEKX |
03/10/2021 |
| I
Class |
AAELX |
03/10/2021 |
| A
Class |
AAEOX |
03/10/2021 |
| R
Class |
AAEUX |
03/10/2021 |
| R6
Class |
AAEVX |
03/10/2021 |
| One
Choice Portfolio: Very Conservative |
|
|
| Investor
Class |
AONIX |
09/30/2004 |
| R
Class |
AORHX |
03/20/2015 |
| One
Choice Portfolio: Conservative |
|
|
| Investor
Class |
AOCIX |
09/30/2004 |
| R
Class |
AORSX |
03/20/2015 |
| One
Choice Portfolio: Moderate |
|
|
| Investor
Class |
AOMIX |
09/30/2004 |
| R
Class |
AORMX |
03/20/2015 |
| One
Choice Portfolio: Aggressive |
|
|
| Investor
Class |
AOGIX |
09/30/2004 |
| R
Class |
AORYX |
03/20/2015 |
| One
Choice Portfolio: Very Aggressive |
|
|
| Investor
Class |
AOVIX |
09/30/2004 |
| R
Class |
AORVX |
03/20/2015 |
The
funds’ advisor, American Century Investment Management, Inc., intends to operate
the funds as “funds of funds,” meaning that substantially all of the funds’
assets will be invested in other American Century Investments mutual funds (the
underlying funds), as described in the funds’ prospectuses. More details about
each of the underlying funds are available in its prospectus and statement of
additional information, which are available on our website. This section
explains the extent to which the underlying funds’ advisor can use various
investment vehicles and strategies in managing the underlying funds’ assets.
Descriptions of the investment techniques and risks associated with each appear
in the section, Investment
Strategies and Risks,
which begins on page 8. In the case of the funds’ principal investment
strategies, these descriptions elaborate upon the discussion contained in the
prospectus.
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). Additionally, the underlying funds
are generally diversified and so indirectly provide broad exposure to a large
number of securities.
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.
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. 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.
As
described in the funds’ prospectuses, each fund’s assets are allocated among
underlying funds that represent major asset classes, including equity securities
(stock funds), fixed-income securities (bond funds) and short-term investments
(short-term funds). Through the underlying funds, each fund’s assets are further
diversified among various investment categories and disciplines within the major
asset classes.
The
equity portion of a fund’s portfolio may be indirectly invested in any type of
domestic or foreign equity or equity-equivalent security, primarily common
stocks, 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 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 10 under the
heading Derivative
Instruments.
The
underlying 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 discipline generally seeks
long-term capital appreciation by investing in companies whose earnings and
revenue trends meet the advisor’s investment criteria. This includes companies
whose earnings and revenues are not only growing, but growing at an accelerating
pace. It also includes companies whose growth rates, although still negative,
are less negative than prior periods. The value investment discipline seeks
capital growth by investing in equity securities of 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, the more conservative funds (including
portfolios with earlier target years) will generally have a higher proportion of
their equity investments in
value
stocks than the more aggressive funds (including funds with more distant target
years). Likewise, the more aggressive funds will generally have a greater
proportion of growth stocks than the more conservative funds.
In
addition, the equity portion of each fund’s portfolio will be further
diversified among underlying funds that invest in 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 directly in multiple
funds.
Quantitative
management disciplines also may be represented in a portion of each fund’s
portfolio. These disciplines combine elements of both growth and value investing
and are intended to reduce overall volatility relative to the market. American
Century Investments’ quantitative management disciplines utilize 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. To measure value, the managers may use
ratios of stock price-to-book value and stock price-to-cash flow, among others.
To measure growth, the managers may use the rate of growth of a company’s
earnings and changes in its earnings estimates, as well as other
factors.
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 fund 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.
A
portion of each fund’s portfolio also may be invested in underlying funds that
use short selling as a principal investment strategy. A short position arises
when a fund sells a security it does not own but has borrowed in anticipation
that the market price of the security will decline. The proceeds from the
security sold short are used to buy additional securities (a long position). A
fund’s use of short selling creates leverage in an attempt to increase
returns.
The
fixed-income portion of a fund’s portfolio indirectly 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 nonconvertible debt obligations issued by U.S. or foreign corporations. Some
of the underlying funds also may invest in mortgage-related and other
asset-backed securities, which are described in greater detail on page 19 under
the heading Mortgage-Related
and Other Asset-Backed Securities.
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
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 may include investment-grade and 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, sometimes referred to as junk bonds, are higher risk, nonconvertible
debt obligations that are rated below investment-grade securities, or are
unrated, but with similar credit quality. Each One Choice Target Date Portfolio
and One Choice Blend+ Portfolio may invest a minority portion of its assets in
the High Income Fund or other underlying funds that invest primarily in below
investment-grade (high-yield) securities. One Choice Portfolio: Very
Conservative, One Choice Portfolio: Conservative and One Choice Portfolio:
Moderate may invest up to 5% of their assets, and One Choice Portfolio:
Aggressive and One Choice Portfolio: Very Aggressive may invest up to 10% of
their assets in the High Income Fund or other similar underlying funds.
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 indirectly 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 an underlying fund 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.
Short-term
investments include underlying funds that invest in fixed-income or debt
instruments and have a shorter-term weighted average duration, typically three
years or less. Duration is an indication of the relative sensitivity of a
security’s market value to changes in interest rates.
The
funds also may invest in underlying funds that invest primarily in foreign
securities.
The
funds are primarily “strategic” rather than “tactical” allocation funds, which
means the managers generally do not try to time the market to identify when a
major reallocation should be made. Instead, the managers use a longer-term
approach in pursuing the funds’ investment objectives and thus select a blend of
underlying funds in the various asset classes. However, in order to better
balance risks
in
changing market environments, the portfolio managers may make modest deviations
from the neutral mix in light of prevailing market conditions.
Other
than One Choice In Retirement Portfolio, each One Choice Target Date Portfolio’s
neutral mix is adjusted according to a predetermined glide path until the fund
reaches its target date. By the time a fund reaches its target date, its neutral
mix will become fixed and will match that of One Choice In Retirement Portfolio.
The One Choice Blend+ Portfolios' neutral mixes will be similarly adjusted
according to a predetermined glide path (decreasing exposure to stocks and
increasing exposure to bonds and short-term investments) until five years after
the target date. The managers also will review each fund’s allocations quarterly
to determine whether rebalancing is appropriate. For the One Choice Target Risk
Portfolios, the managers regularly review each fund’s investments and
allocations and may make changes in the underlying fund holdings within each
asset class or to a fund’s asset mix (generally within the operating ranges
stated in the prospectus) to emphasize investments that they believe will
provide the most favorable outlook for achieving the fund’s objective.
Recommended reallocations may be implemented promptly or may be implemented
gradually. In order to minimize the impact of reallocations on a fund’s
performance, the managers will generally attempt to reallocate assets
gradually.
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 funds are managed to a
specific target year or a general risk profile and may not provide an
appropriately balanced investment plan for all investors.
The
underlying funds’ portfolio managers also may use the investment vehicles and
techniques described in this section in managing the underlying funds’ assets.
This section also details the risks associated with each, because each
investment vehicle and technique contributes to the One Choice Target Date
Portfolios’, One Choice Blend+ Portfolios, and the One Choice Target Risk
Portfolios’ overall risk profiles. In the Investment
Strategies and Risks
section, references to funds mean the underlying funds, unless otherwise
noted.
Bank
Loans
Some
of the funds 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.
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 or Additional Tier 1
instruments) 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. 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 their investment objectives and policies, 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. A fund may not invest in a
derivative instrument if its credit, interest rate, liquidity, counterparty or
other associated risks are outside acceptable limits set forth in its
prospectus. 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 Directors/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 a 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.
(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, a 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 manager 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. 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.
Certain
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 fund 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
Futures
and options are commonly used for traditional hedging purposes to attempt to
protect a fund from exposure to changing interest rates, securities prices or
currency exchange rates. They also are used for cash management purposes as a
low-cost method of gaining exposure to a particular securities market without
investing directly in those securities.
Futures
A
fund may enter into futures contracts, options or options on futures contracts.
Futures contracts provide for the sale by one party and purchase by another
party of a specific security at a specified future time and price. Generally,
futures transactions will be used to
•protect
against a decline in market value of the fund’s 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.
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 based on
securities indices that are consistent with the funds’ investment objectives,
such as the S&P 500 Index. The managers also may engage in futures and
options transactions based on specific securities. Futures contracts are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC), a
U.S. government agency.
Index
futures contracts differ from traditional futures contracts in that when
delivery takes place, no stocks or bonds change hands. Instead, these contracts
settle in cash at the spot market value of the index. Although other types of
futures contracts by their terms call for actual delivery or acceptance of the
underlying securities, in most cases the contracts are closed out before the
settlement date. A futures position may be closed by taking an opposite position
in an identical contract (i.e., buying a contract that has previously been sold
or selling a contract that has previously been bought).
Unlike
when the fund purchases or sells a security, no price is paid or received by the
fund upon the purchase or sale of the future. Initially, the fund will be
required to deposit an amount of cash or securities equal to a varying specified
percentage of the contract amount. This amount is known as initial margin. The
margin deposit is intended to ensure completion of the contract (delivery or
acceptance of the underlying security) if it is not terminated prior to the
specified delivery date. A margin deposit does not constitute a margin
transaction for purposes of the fund’s investment restrictions. Minimum initial
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish margin deposit requirements that are higher
than the exchange minimums. Cash held in the margin accounts generally is not
income-producing. However, coupon bearing securities, such
as
Treasury bills and bonds, held in margin accounts generally will earn income.
Subsequent payments to and from the broker, called variation margin, will be
made on a daily basis as the price of the underlying 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 the fund as
unrealized gains or losses. At any time prior to expiration of the future, the
fund may elect to close the position by taking an opposite position. A final
determination of variation margin is then made; additional cash is required to
be paid by or released to the fund and the fund realizes a loss or
gain.
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.
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.
Some
of 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
Some
funds may enter into futures contracts, options, options on futures contracts,
or swap agreements as permitted under the Commodity Futures Trading Commission
(CFTC) rules. The advisor to each fund has claimed exclusion from the definition
of the term “commodity pool operator” under the Commodity Exchange Act and,
therefore, are not subject to registration or regulation as 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
A
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
cashflows 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
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.
Foreign
Securities
The
funds may invest in the securities (including debt securities) of foreign
issuers, including foreign governments, when these securities meet their
standards of selection. Securities of foreign issuers may trade in the U.S. or
foreign securities markets.
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 their investment objective and policies, the funds 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
– 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.
United
Kingdom Investment Risk
- Commonly known as “Brexit,” the United Kingdom's exit from the EU occurred in
January of 2021. The UK and the EU continue to work to establish regulatory
frameworks for cooperation on financial services. Continuing uncertainty in the
UK, EU, and other financial markets may result in volatility, fluctuations in
asset values and exchange rates, decreased liquidity and unwillingness or
inability of financial and other counterparties to enter into transactions.
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.
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.
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
The
funds may invest in securities of issuers in emerging market (developing)
countries. The funds generally 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. Certain funds may
consider additional countries to be emerging markets, as described in those
funds’ prospectuses or statements of additional information. In determining
where a company is located, the portfolio managers will 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. The weight given to each of these factors
will vary depending on the circumstances in a given case.
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, limited reliable access to capital, and
differing foreign investment structures. 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
Some
funds may invest a portion of their 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 registered
investment companies, or other 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 or other financial assets 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 funds hold or a change in the
cost of temporary borrowing for the funds. 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 funds.
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.
LPNs
are generally subject to liquidity risk. Even though an LPN may be traded
on an exchange there can be no assurance that a liquid market will develop for
the LPNs, that holders of the LPNs will be able to sell their LPNs, or that such
holders will be able to sell their LPNs for a price that reflects their value.
Depending
on the creditworthiness of the underlying borrower, LPNs may be subject to the
risk of investing in high-yield securities. Additionally, LPNs are
generally utilized by foreign borrowers and therefore may be subject to the risk
of investing in foreign securities and emerging market risk. Such foreign
risk could include interest payments being subject to withholding
tax.
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:
•the
type and amount of collateral that must be received by the fund;
•the
circumstances under which additions to that collateral must be made by
borrowers;
•the
return to be received by the fund on the loaned securities;
•the
limitations on the percentage of fund assets on loan; and
•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.
Mortgage-Related
and Other Asset-Backed Securities
The
funds may purchase mortgage-related and other asset-backed securities. Mortgage
pass-through securities are securities representing interests in “pools” of
mortgages in which payments of both interest and principal on the securities are
generally made monthly, in effect “passing through” monthly payments made by the
individual borrowers on the residential mortgage loans that underlie the
securities (net of fees paid to the issuer or guarantor of the
securities).
Early
repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing or
foreclosure, net of fees and costs that may be incurred) may expose the funds to
a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment were purchased at a premium, in the event of prepayment,
the value of the premium would be lost. As with other fixed-income securities,
when interest rates rise, the value of a mortgage-related security generally
will decline; however, when interest rates decline, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed-income securities.
Payment
of principal and interest on some mortgage pass-through securities (but not the
market value of the securities themselves) may be guaranteed by the full faith
and credit of the U.S. government, as in the case of securities guaranteed by
the Government National Mortgage Association (GNMA), or guaranteed by agencies
or instrumentalities of the U.S. government, as in the case of securities
guaranteed by the Federal National Mortgage Association (Fannie Mae) or the
Federal Home Loan Mortgage Corporation (Freddie Mac), which are supported only
by the discretionary authority of the U.S. government to purchase the agency’s
obligations. 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 and regulatory 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.
Mortgage
pass-through securities created by nongovernmental issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers) may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance and letters of credit, which may be issued by governmental
entities, private insurers or the mortgage poolers.
The
funds also may invest in collateralized mortgage obligations (CMOs). CMOs are
mortgage-backed securities issued by government agencies; single-purpose,
stand-alone financial subsidiaries; trusts established by financial
institutions; or similar institutions. The funds may buy CMOs
that:
•are
collateralized by pools of mortgages in which payment of principal and interest
of each mortgage is guaranteed by an agency or instrumentality of the U.S.
government;
•are
collateralized by pools of mortgages in which payment of principal and interest
are guaranteed by the issuer, and the guarantee is collateralized by U.S.
government securities; and
•are
securities in which the proceeds of the issue are invested in mortgage
securities and payments of principal and interest are supported by the credit of
an agency or instrumentality of the U.S. government.
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.
A fund may gain exposure to mortgage-backed securities through TBA transactions.
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.
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.
Obligations
with Term Puts Attached
The
funds may invest in fixed-rate bonds subject to third-party puts and
participation interests in such bonds that are held by a bank in trust or
otherwise, which have tender options or demand features attached. These tender
options or demand features permit the funds to tender (or put) their bonds to an
institution at periodic intervals and to receive the principal amount thereof.
The managers expect the funds will pay more for securities with puts attached
than for securities without these liquidity features.
Because
it is difficult to evaluate the likelihood of exercise or the potential benefit
of a put, puts normally will be determined to have a value of zero, regardless
of whether any direct or indirect consideration is paid. Accordingly, puts as
separate securities are not expected to affect the funds’ weighted average
maturities. When a fund has paid for a put, the cost will be reflected as
unrealized depreciation on the underlying security for the period the put is
held. Any gain on the sale of the underlying security will be reduced by the
cost of the put.
There
is a risk that the seller of an obligation with a put attached will not be able
to repurchase the underlying obligation when (or if) a fund attempts to exercise
the put. To minimize such risks, the funds will purchase obligations with puts
attached only from sellers deemed creditworthy by the portfolio managers under
the direction of the Board of Directors.
Other
Investment Companies
Each
of the One Choice Target Date Portfolios, One Choice Blend+ Portfolios, and One
Choice Target Risk Portfolios may invest up to 100% of its total assets in other
American Century Investments funds in reliance on Section 12(d)(1)(G) of the
Investment Company Act of 1940.
Each
of the underlying 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 underlying fund’s investment in such securities,
subject to certain exceptions, currently is limited to:
(a)3%
of the total voting stock of any one investment company,
(b)5%
of the fund’s total assets with respect to any one investment company;
and
(c)10%
of the fund’s total assets in the aggregate.
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
purchase 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 the fund’s money is invested in the
security.
Because
the security purchased constitutes collateral for the repurchase obligation, a
repurchase agreement can be considered a loan collateralized by the security
purchased. The fund’s risk is the seller’s ability to pay the agreed-upon
repurchase price on the repurchase date. If the seller defaults, the fund may
incur costs in disposing of the collateral, which would reduce the amount
realized thereon. If the seller seeks relief under the bankruptcy laws, the
disposition of the collateral may be delayed or limited. To the extent the value
of the security decreases, the fund could experience a loss.
The
funds will limit repurchase agreement transactions to securities issued by the
U.S. government and its agencies and instrumentalities, and will enter into such
transactions with those banks and securities dealers who are deemed creditworthy
by the funds’ advisor.
Repurchase
agreements maturing in more than seven days would count toward a fund’s 15%
limit on illiquid securities.
Restricted
and Illiquid Securities
The
funds may, from time to time, purchase restricted or illiquid securities,
including Rule 144A securities, when they present attractive investment
opportunities that otherwise meet the funds’ criteria for selection. 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 Directors 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 fund may invest no more that 15% (5% for money market funds) 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
The
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
include asset-backed securities (ABS), commercial and residential
mortgage-backed securities (MBS and CMBS), and collateralized mortgage
obligations (CMO), which are described more fully below. Structured investments
also include securities backed by other types of collateral. Structured
investments involve the transfer of specified financial assets to a special
purpose entity, generally a corporation or trust, or the deposit of financial
assets with a custodian; and the issuance of securities or 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.
Structured investments are subject to such risks as the inability or
unwillingness of the issuers of the underlying securities to repay principal and
interest (credit risk), and requests by the issuers of the underlying securities
to reschedule or restructure outstanding debt and to extend additional loan
amounts (prepayment or extension risk).
U.S.
Government Securities
U.S.
Treasury bills, notes, zero-coupon bonds and other bonds are direct obligations
of the U.S. Treasury, which has never failed to pay interest and repay principal
when due. Treasury bills have initial maturities of one year or less, Treasury
notes from two to 10 years, and Treasury bonds more than 10 years. Although U.S.
Treasury securities carry little principal risk if held to maturity, the prices
of these securities (like all debt securities) change between issuance and
maturity in response to fluctuating market interest rates.
A
number of U.S. government agencies and instrumentalities issue debt securities.
These agencies generally are created by Congress to fulfill a specific need,
such as providing credit to home buyers or farmers. Among these agencies are the
Federal Home Loan Banks, the Federal Farm Credit Banks, and the Resolution
Funding Corporation.
Some
U.S. government securities are supported by the direct full faith and credit
pledge of the U.S. government; others are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as securities issued by the
Federal National Mortgage Association (FNMA), are supported by the discretionary
authority of the U.S. government to purchase the agencies’ obligations; and
others are supported only by the credit of the issuing or guaranteeing
instrumentality. There is no assurance that the U.S. government will provide
financial support to an instrumentality it sponsors when it is not obligated by
law to do so. 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.
Variable-
and Floating-Rate Securities
Interest
rates on securities may be fixed for the term of the investment (fixed-rate
securities) or tied to prevailing interest rates. Floating-rate instruments have
interest rates that change whenever there is a change in a designated base rate;
variable-rate instruments provide for specified periodic interest rate
adjustments; auction-rate instruments have interest rates that are redetermined
pursuant to an auction on specified dates.
Floating-rate
securities frequently have caps limiting the extent to which coupon rates can be
raised. The price of a floating-rate security may decline if its capped coupon
rate is lower than prevailing market interest rates. Fixed- and floating-rate
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 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.
Variable
- and floating - rate 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 variable-rate
demand notes (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 basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date.
For
example, a fund may sell a security and at the same time make a commitment to
purchase the same or a comparable security at a future date and specified price.
Conversely, a fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as dollar-rolls, buy/sell back transactions, cash and carry, or
financing transactions. For example, a broker-dealer may seek to purchase a
particular security that a fund owns. The fund will sell that security to the
broker-dealer and simultaneously enter into a forward commitment agreement to
buy it back at a future date. This type of transaction generates income for the
fund if the dealer is willing to execute the transaction at a favorable price in
order to acquire a specific security.
When
purchasing securities on a when-issued or forward commitment basis, a fund
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. Market rates of interest on debt securities at the time of
delivery may be higher or lower than those contracted for on the when-issued
security. Accordingly, the value of that security may decline prior to delivery,
which could result in a loss to the fund. While the fund will make commitments
to purchase or sell securities with the intention of actually receiving or
delivering them, it may sell the securities before the settlement date if doing
so is deemed advisable as a matter of investment strategy.
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.
Fundamental
Investment Policies
The
funds’ fundamental investment policies are set forth below. These investment
policies, a fund’s status as diversified, and, except for One Choice 2060
Portfolio, One Choice 2065 Portfolio, and the One Choice Blend+ Portfolios, a
fund’s investment objective set forth in its prospectus 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.
|
|
|
|
|
| |
| 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, except that
the funds will invest substantially all of their assets in investment
companies that are members of the American Century Investments family of
funds). |
| Underwriting |
A
fund may not act as an underwriter of securities issued by others, except
to the extent that the fund may be considered an underwriter within the
meaning of the Securities Act of 1933 in the disposition of restricted
securities. |
| Commodities |
A
fund may not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments, provided that this
limitation shall not prohibit the fund from purchasing or selling options
and futures contracts or from investing in securities or other instruments
backed by physical commodities. |
| Control |
A
fund may not invest for purposes of exercising control over
management. |
For
purposes of the investment 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 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 investments in mutual funds,
(b)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),
(c)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,
(d)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
(e)personal
credit and business credit businesses will be considered separate
industries.
The
funds consider the industries of the holdings of the other American Century
funds (affiliated funds) in which they invest to assess industry
concentration.
Nonfundamental
Investment Policies
In
addition, the funds are subject to the following investment policies that are
not fundamental. These policies, along with the investment objective of the One
Choice 2060 Portfolio, One Choice 2065 Portfolio, and the One Choice Blend+
Portfolios, as set forth in their prospectus, may be changed by the Board of
Directors.
|
|
|
|
|
| |
| 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. |
| 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
Histories |
A
fund may invest up to 5% of its assets in the equity securities of issuers
with limited operating histories. An issuer is considered to have a
limited operating history if that issuer has a record of less than three
years of continuous operation. Periods of capital formation, incubation,
consolidations, and research and development may be considered in
determining whether a particular issuer has a record of three years of
continuous operation. For purposes of this limitation, “issuers” refers to
operating companies that issue securities for the purpose of issuing debt
or raising capital as a means of financing their ongoing
operations. |
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.
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 managers’ investment
outlook.
The
funds will, under most circumstances, be essentially fully invested in other
American Century Investments mutual funds within the allocation framework set
forth in the prospectuses. The portfolio managers may sell shares of the
underlying funds without regard
to
the length of time they have been held. A high level of turnover is not
anticipated beyond that necessary to accommodate purchases and sales of each
fund’s shares and to implement periodic asset rebalancings and reallocations.
Details about the underlying funds’ portfolio turnover rates appear in those
funds’ prospectuses and statements of additional information.
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
The
funds invest substantially all of their assets in other American Century
Investments mutual funds. These holdings, as described in the funds’
prospectuses, are available at any time with no lag period. In addition, full
portfolio holdings for each fund are disclosed in the 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
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.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
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 Officer 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
consider a variety of matters that are scheduled to come before the board 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 independent directors. The committee also
oversees the activities of the accounting firm, receives regular reports
regarding fund accounting, oversees securities valuation (approving the funds’
valuation policy and receiving reports regarding instances of fair valuation
thereunder) and receives regular reports from the advisor’s internal audit
department. The committee currently consists of Chris H. Cheesman (chair), Barry
Fink, Lynn 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, and may recommend the creation of new
committees. 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 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 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 |
$48,661 |
$331,500 |
| Thomas
W. Bunn |
$51,352 |
$479,738 |
| Chris
H. Cheesman |
$51,352 |
$349,500 |
| Barry
Fink |
$51,352 |
$349,500 |
| Rajesh
K. Gupta |
$51,352 |
$349,500 |
| Lynn
Jenkins |
$48,661 |
$331,500 |
| Jan
M. Lewis |
$59,874 |
$406,500 |
| Gary
C. Meltzer |
$48,661 |
$331,500 |
|
Stephen
E. Yates3 |
$20,553 |
$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
Bunn |
Chris
Cheesman |
Barry
Fink |
| Dollar
Range of Equity Securities in the Funds: |
|
| |
|
|
| One
Choice In Retirement Portfolio |
E |
A |
A |
E |
A |
| One
Choice 2025 Portfolio |
E |
A |
D |
A |
A |
| One
Choice 2030 Portfolio |
E |
A |
A |
A |
A |
| One
Choice 2035 Portfolio |
D |
A |
A |
A |
A |
| One
Choice 2040 Portfolio |
E |
A |
A |
A |
A |
| One
Choice 2045 Portfolio |
D |
A |
A |
A |
A |
| One
Choice 2050 Portfolio |
A |
A |
A |
A |
A |
| One
Choice 2055 Portfolio |
A |
A |
A |
A |
A |
| One
Choice 2060 Portfolio |
A |
A |
A |
A |
A |
| One
Choice 2065 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2015 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2020 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2025 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2030 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2035 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2040 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2045 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2050 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2055 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2060 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2065 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Portfolio: Very Conservative |
A |
A |
A |
A |
A |
| One
Choice Portfolio: Conservative |
A |
A |
A |
A |
A |
| One
Choice Portfolio: Moderate |
A |
A |
A |
A |
A |
| One
Choice Portfolio: Aggressive |
A |
A |
A |
A |
A |
| One
Choice Portfolio: Very Aggressive |
A |
A |
A |
A |
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
Jenkins |
Jan
M.
Lewis |
Gary
C. Meltzer |
| Dollar
Range of Equity Securities in the Funds: |
|
|
| |
| One
Choice In Retirement Portfolio |
A |
A |
E |
A |
| One
Choice 2025 Portfolio |
A |
A |
A |
A |
| One
Choice 2030 Portfolio |
E |
A |
A |
A |
| One
Choice 2035 Portfolio |
A |
A |
A |
A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
Name
of Director |
| |
Rajesh
Gupta |
Lynn
Jenkins |
Jan
M.
Lewis |
Gary
C. Meltzer |
| One
Choice 2040 Portfolio |
A |
A |
A |
A |
| One
Choice 2045 Portfolio |
A |
A |
A |
A |
| One
Choice 2050 Portfolio |
A |
A |
A |
A |
| One
Choice 2055 Portfolio |
A |
A |
A |
A |
| One
Choice 2060 Portfolio |
A |
A |
A |
A |
| One
Choice 2065 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2015 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2020 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2025 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2030 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2035 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2040 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2045 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2050 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2055 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2060 Portfolio |
A |
A |
A |
A |
| One
Choice Blend+ 2065 Portfolio |
A |
A |
A |
A |
| One
Choice Portfolio: Very Conservative |
A |
A |
A |
A |
| One
Choice Portfolio: Conservative |
A |
A |
A |
A |
| One
Choice Portfolio: Moderate |
A |
A |
A |
A |
| One
Choice Portfolio: Aggressive |
A |
A |
A |
A |
| One
Choice Portfolio: Very 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 |
| 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 and principal underwriter have adopted codes of
ethics under Rule 17j-1 of the Investment Company Act. They permit personnel
subject to the codes to invest in securities, including securities that may be
purchased or held by the underlying 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
D.
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 appears 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.
The
advisor does not receive a unified management fee for services
provided to the following funds: One Choice Portfolio: Very Conservative, One
Choice Portfolio: Conservative, One Choice Portfolio: Moderate, One Choice
Portfolio: Aggressive and One Choice Portfolio: Very Aggressive.
Each
class of each fund and underlying 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.
The
management fee rates for the funds as of the date of this statement of
additional information appear below.
|
|
|
|
|
|
|
|
| |
| Fund |
Class |
Management
Fee1 |
| One
Choice In Retirement Portfolio |
Investor,
A, C and R |
0.78% |
| |
I |
0.60% |
|
| R6 |
0.49% |
| One
Choice 2025 Portfolio |
Investor,
A, C and R |
0.78% |
| |
I |
0.60% |
|
| R6 |
0.49% |
| One
Choice 2030 Portfolio |
Investor,
A, C and R |
0.80% |
| |
I |
0.62% |
|
| R6 |
0.50% |
| One
Choice 2035 Portfolio |
Investor,
A, C and R |
0.83% |
| |
I |
0.64% |
|
| R6 |
0.52% |
| One
Choice 2040 Portfolio |
Investor,
A, C and R |
0.86% |
| |
I |
0.66% |
|
| R6 |
0.55% |
| One
Choice 2045 Portfolio |
Investor,
A, C and R |
0.88% |
| |
I |
0.69% |
|
| R6 |
0.56% |
| One
Choice 2050 Portfolio |
Investor,
A, C and R |
0.90% |
| |
I |
0.71% |
|
| R6 |
0.58% |
|
|
|
|
|
|
|
|
| |
| Fund |
Class |
Management
Fee1 |
| One
Choice 2055 Portfolio |
Investor,
A, C and R |
0.92% |
| |
I |
0.72% |
|
| R6 |
0.59% |
| One
Choice 2060 Portfolio |
Investor,
A, C and R |
0.93% |
| |
I |
0.73% |
|
| R6 |
0.60% |
| One
Choice 2065 Portfolio |
Investor,
A, C and R |
0.94% |
|
| I |
0.74% |
|
| R6 |
0.60% |
1 Each
year, the Board of Directors will approve a new management fee rate. The fee
rate will be based on the most conservative (i.e., least expensive) neutral mix
of the underlying funds estimated by the portfolio managers for the upcoming
year, and adjusted for each class to reflect such class’s separate arrangements
for shareholder services. Because the fee rates are based on the neutral mix, it
is possible for them to increase from one year to the next.
|
|
|
|
|
|
|
|
| |
| Fund |
Class |
Management
Fee |
| One
Choice Blend+ 2015 Portfolio |
Investor,
A, and R |
0.58% |
|
| I |
0.38% |
|
| R6 |
0.23% |
| One
Choice Blend+ 2020 Portfolio |
Investor,
A, and R |
0.58% |
|
| I |
0.38% |
| |
R6 |
0.23% |
| One
Choice Blend+ 2025 Portfolio |
Investor,
A, and R |
0.58% |
| |
I |
0.38% |
|
| R6 |
0.23% |
| One
Choice Blend+ 2030 Portfolio |
Investor,
A, and R |
0.58% |
| |
I |
0.38% |
|
| R6 |
0.23% |
| One
Choice Blend+ 2035 Portfolio |
Investor,
A, and R |
0.58% |
| |
I |
0.38% |
|
| R6 |
0.23% |
| One
Choice Blend+ 2040 Portfolio |
Investor,
A, and R |
0.58% |
| |
I |
0.38% |
|
| R6 |
0.23% |
| One
Choice Blend+ 2045 Portfolio |
Investor,
A, and R |
0.58% |
| |
I |
0.38% |
|
| R6 |
0.23% |
| One
Choice Blend+ 2050 Portfolio |
Investor,
A, and R |
0.58% |
| |
I |
0.38% |
|
| R6 |
0.23% |
| One
Choice Blend+ 2055 Portfolio |
Investor,
A, and R |
0.58% |
| |
I |
0.38% |
|
| R6 |
0.23% |
|
|
|
|
|
|
|
|
| |
| Fund |
Class |
Management
Fee |
| One
Choice Blend+ 2060 Portfolio |
Investor,
A, and R |
0.58% |
| |
I |
0.38% |
|
| R6 |
0.23% |
| One
Choice Blend+ 2065 Portfolio |
Investor,
A, and R |
0.58% |
|
| I |
0.38% |
|
| R6 |
0.23% |
On
each calendar day, each class of each fund accrues a management fee that is
equal to the class’s management fee rate times the net assets of the class
divided by 365 (366 in leap years). On the first business day of each month, the
funds pay a management fee to the advisor for the previous month. The fee for
the previous month is the sum of the calculated daily fees for each class of a
fund during the previous month.
The
management agreement between the 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 agreement states 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 agreement states that the advisor shall not be liable to the funds or
their shareholders for anything other than willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
The
management agreement also provides that the advisor and its officers, 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.
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 |
| One
Choice In Retirement Portfolio |
$11,277,0731 |
$11,815,12916 |
$14,678,11231 |
| One
Choice 2025 Portfolio |
$10,675,0392 |
$11,504,63017 |
$14,393,38432 |
| One
Choice 2030 Portfolio |
$10,685,4833 |
$10,677,14818 |
$12,653,72633 |
| One
Choice 2035 Portfolio |
$13,077,9214 |
$13,164,29919 |
$15,556,63334 |
| One
Choice 2040 Portfolio |
$9,855,7285 |
$9,498,02220 |
$11,160,72535 |
| One
Choice 2045 Portfolio |
$11,019,3286 |
$10,560,37921 |
$12,459,61136 |
| One
Choice 2050 Portfolio |
$8,550,4277 |
$7,785,33722 |
$8,782,02337 |
| One
Choice 2055 Portfolio |
$6,051,2528 |
$5,305,14223 |
$5,837,81338 |
| One
Choice 2060 Portfolio |
$3,187,0839 |
$2,462,38324 |
$2,333,28239 |
| One
Choice 2065 Portfolio |
$515,74010 |
$269,62225 |
$125,60840 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unified
Management Fees
|
|
| |
|
Fund
|
2024 |
2023 |
2022 |
| One
Choice Blend+ 2015 Portfolio |
$12,56011 |
$10,67826 |
$5,12441 |
| One
Choice Blend+ 2020 Portfolio |
$38,17512 |
$28,05127 |
$13,52442 |
| One
Choice Blend+ 2025 Portfolio |
$91,23413 |
$67,01028 |
$31,42643 |
| One
Choice Blend+ 2030 Portfolio |
$122,20614 |
$76,17829 |
$36,96244 |
| One
Choice Blend+ 2035 Portfolio |
$114,10415 |
$71,66530 |
$36,03745 |
| One
Choice Blend+ 2040 Portfolio |
$105,363 |
$64,664 |
$25,379 |
| One
Choice Blend+ 2045 Portfolio |
$119,282 |
$70,466 |
$26,577 |
| One
Choice Blend+ 2050 Portfolio |
$93,555 |
$51,507 |
$20,203 |
| One
Choice Blend+ 2055 Portfolio |
$58,732 |
$30,199 |
$13,038 |
| One
Choice Blend+ 2060 Portfolio |
$40,772 |
$19,901 |
$6,293 |
| One
Choice Blend+ 2065 Portfolio |
$25,593 |
$11,778 |
$6,387 |
1Amount
shown reflects waiver by advisor of $1,055,703 in management fees.
2Amount
shown reflects waiver by advisor of 766,838 in management fees.
3Amount
shown reflects waiver by advisor of $818,311 in management fees.
4Amount
shown reflects waiver by advisor of $828,123 in management fees.
5Amount
shown reflects waiver by advisor of $734,227 in management fees.
6Amount
shown reflects waiver by advisor of $604,640 in management fees.
7Amount
shown reflects waiver by advisor of $461,156 in management fees.
8Amount
shown reflects waiver by advisor of $449,264 in management fees.
9Amount
shown reflects waiver by advisor of $276,492 in management fees.
10Amount
shown reflects waiver by advisor of $49,451 in management fees.
11Amount
shown reflects waiver by advisor of $647 in management fees.
12Amount
shown reflects waiver by advisor of $2,173 in management fees.
13Amount
shown reflects waiver by advisor of $3,790 in management fees.
14Amount
shown reflects waiver by advisor of $3,743 in management fees.
15Amount
shown reflects waiver by advisor of $1,647 in management fees.
16Amount
shown reflects waiver by advisor of $1,017,202 in management fees.
17Amount
shown reflects waiver by advisor of $834,093 in management fees.
18Amount
shown reflects waiver by advisor of $848,327 in management fees.
19Amount
shown reflects waiver by advisor of $882,181 in management fees.
20Amount
shown reflects waiver by advisor of $694,216 in management fees.
21Amount
shown reflects waiver by advisor of $612,846 in management fees.
22Amount
shown reflects waiver by advisor of $404,230 in management fees.
23Amount
shown reflects waiver by advisor of $363,926 in management fees.
24Amount
shown reflects waiver by advisor of $196,721 in management fees.
25Amount
shown reflects waiver by advisor of $24,476 in management fees.
26Amount
shown reflects waiver by advisor of $557 in management fees.
27Amount
shown reflects waiver by advisor of $1,334 in management fees.
28Amount
shown reflects waiver by advisor of $2,462 in management fees.
29Amount
shown reflects waiver by advisor of $1,972 in management fees.
30Amount
shown reflects waiver by advisor of $780 in management fees.
31Amount
shown reflects waiver by advisor of $1,105,395 in management fees.
32Amount
shown reflects waiver by advisor of $941,064 in management fees.
33Amount
shown reflects waiver by advisor of $1,030,653 in management fees.
34Amount
shown reflects waiver by advisor of $1,114,192 in management fees.
35Amount
shown reflects waiver by advisor of $861,293 in management fees.
36Amount
shown reflects waiver by advisor of $772,700 in management fees.
37Amount
shown reflects waiver by advisor of $494,586 in management fees.
38Amount
shown reflects waiver by advisor of $406,970 in management fees.
39Amount
shown reflects waiver by advisor of $192,585 in management fees.
40Amount
shown reflects waiver by advisor of $11,220 in management fees.
41Amount
shown reflects waiver by advisor of $252 in management fees.
42Amount
shown reflects waiver by advisor of $567 in management fees.
43Amount
shown reflects waiver by advisor of $1,000 in management fees.
44Amount
shown reflects waiver by advisor of $771 in management fees.
45Amount
shown reflects waiver by advisor of $273 in management fees.
Accounts
Managed
The
portfolio managers 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
$1.7 billion in One Choice In Retirement Portfolio; $1.6 billion in One Choice
2025 Portfolio; $1.7 billion in One Choice 2030 Portfolio; $1.9 billion in One
Choice 2035 Portfolio; $1.5 billion in One Choice 2040 Portfolio; $1.6 billion
in One Choice 2045 Portfolio; $1.2 billion in One Choice 2050 Portfolio; $880.5
million in One Choice 2055 Portfolio; $484.1 million in One Choice 2060
Portfolio; $95.4 million in One Choice 2065 Portfolio; $3.6 million in One
Choice Blend+ 2015 Portfolio; $16.0 million in One Choice Blend+ 2020 Portfolio;
$31.7 million in One Choice Blend+ 2025 Portfolio; $51.6 million in One Choice
Blend+ 2030 Portfolio; $46.8 million in One Choice Blend+ 2035 Portfolio; $42.5
million in One Choice Blend+ 2040 Portfolio; $49.3 million in One Choice Blend+
2045 Portfolio; $41.9 million in One Choice Blend+ 2050 Portfolio; $26.8 million
in One Choice Blend+ 2055 Portfolio; $17.8 million in One Choice Blend+ 2060
Portfolio; $8.6 million in One Choice Blend+ 2065 Portfolio; $390.0 million in
One Choice Portfolio: Very Conservative; $1.1 billion in One Choice Portfolio:
Conservative; $1.8 billion in One Choice Portfolio: Moderate; $902.4 million in
One Choice Portfolio: Aggressive; and $353.3 million in One Choice Portfolio:
Very 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, and 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. 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, as indicated below. Each fund constructs its custom peer group using all
the funds in the category indicated below as a starting point. Funds are then
eliminated from the peer group based on a standardized methodology designed to
result in a final peer group that is both more stable (i.e., has less peer
turnover) over the long term and that more closely represents the fund’s true
peers based on internal investment mandates.
The
performance comparison periods may be adjusted based on a fund’s inception date
or a portfolio manager’s tenure on the fund.
|
|
|
|
|
|
|
|
| |
| Funds |
Benchmark |
Peer
Group
|
| One
Choice In Retirement Portfolio |
S&P
Target Date Retirement Income Index |
Morningstar
Target-Date Retirement, Target-Date 2020 |
| One
Choice 2025 Portfolio |
S&P
Target Date To 2025 Index |
Morningstar
Target-Date 2025 |
| One
Choice 2030 Portfolio |
S&P
Target Date To 2030 Index |
Morningstar
Target-Date 2030 |
| One
Choice 2035 Portfolio |
S&P
Target Date To 2035 Index |
Morningstar
Target-Date 2035 |
| One
Choice 2040 Portfolio |
S&P
Target Date To 2040 Index |
Morningstar
Target-Date 2040 |
| One
Choice 2045 Portfolio |
S&P
Target Date To 2045 Index |
Morningstar
Target-Date 2045 |
| One
Choice 2050 Portfolio |
S&P
Target Date To 2050 Index |
Morningstar
Target-Date 2050 |
| One
Choice 2055 Portfolio |
S&P
Target Date To 2055 Index |
Morningstar
Target-Date 2055 |
| One
Choice 2060 Portfolio |
S&P
Target Date To 2060 Index1 |
Morningstar
Target-Date 2060 |
| One
Choice 2065 Portfolio |
S&P
Target Date To 2065+ Index2 |
Morningstar
Target-Date 2065+ |
| One
Choice Blend+ 2015 Portfolio |
S&P
Target Date 2015 Index |
Morningstar
Target-Date 2015 |
| One
Choice Blend+ 2020 Portfolio |
S&P
Target Date To 2020 Index |
Morningstar
Target-Date 2020 |
| One
Choice Blend+ 2025 Portfolio |
S&P
Target Date To 2025 Index |
Morningstar
Target-Date 2025 |
| One
Choice Blend+ 2030 Portfolio |
S&P
Target Date To 2030 Index |
Morningstar
Target-Date 2030 |
| One
Choice Blend+ 2035 Portfolio |
S&P
Target Date To 2035 Index |
Morningstar
Target-Date 2035 |
| One
Choice Blend+ 2040 Portfolio |
S&P
Target Date To 2040 Index |
Morningstar
Target-Date 2040 |
| One
Choice Blend+ 2045 Portfolio |
S&P
Target Date To 2045 Index |
Morningstar
Target-Date 2045 |
| One
Choice Blend+ 2050 Portfolio |
S&P
Target Date To 2050 Index |
Morningstar
Target-Date 2050 |
| One
Choice Blend+ 2055 Portfolio |
S&P
Target Date To 2055 Index |
Morningstar
Target-Date 2055 |
| One
Choice Blend+ 2060 Portfolio |
S&P
Target Date To 2060 Index |
Morningstar
Target-Date 2060 |
| One
Choice Blend+ 2065 Portfolio |
S&P
Target Date To 2065+ Index2 |
Morningstar
Target-Date 2065+ |
| One
Choice Portfolio: Very Conservative |
Custom3 |
Morningstar
Allocation - 15% to 30% Equity |
| One
Choice Portfolio: Conservative |
Custom3 |
Morningstar
Allocation - 30% to 50% Equity |
| One
Choice Portfolio: Moderate |
Custom3 |
Morningstar
Allocation - 50% to 70% Equity |
| One
Choice Portfolio: Aggressive |
Custom3 |
Morningstar
Allocation - 70% to 85% Equity |
| One
Choice Portfolio: Very Aggressive |
Custom3 |
Morningstar
Allocation - 85%+ Equity |
1 Effective
January 1, 2018, the fund’s benchmark was changed from S&P Target Date To
2055+.
2
Effective
October 1, 2021, the fund’s benchmark was changed from S&P Target Date To
2060+.
3 The
fund’s benchmark is a custom benchmark comprised of the various benchmarks of
the underlying funds (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).
A
second factor in the bonus calculation relates to the performance of a number of
American Century Investments mutual funds managed according to one of the
following investment disciplines: global growth equity, global value equity,
disciplined equity, global fixed-income, and multi-asset strategies. 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
fund’s 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 |
|
|
|
| |
|
|
Radu
Gabudean |
Brian
L. Garbe |
Vidya
Rajappa |
Richard
Weiss |
Scott
Wilson |
| One
Choice In Retirement Portfolio |
A |
A |
A |
G |
A |
| One
Choice 2025 Portfolio |
A |
A |
A |
A |
A |
| One
Choice 2030 Portfolio |
A1 |
A1 |
A1 |
A |
A |
| One
Choice 2035 Portfolio |
A |
A |
A |
A |
A |
| One
Choice 2040 Portfolio |
A |
A |
A |
A |
A |
| One
Choice 2045 Portfolio |
A |
A |
A |
A |
A |
| One
Choice 2050 Portfolio |
A |
A |
A |
A |
A |
| One
Choice 2055 Portfolio |
A |
A |
A |
A |
A |
| One
Choice 2060 Portfolio |
A2 |
A |
A |
A |
A |
| One
Choice 2065 Portfolio |
A3 |
A |
A |
A |
A |
| One
Choice Blend+ 2015 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2020 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2025 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2030 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2035 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2040 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2045 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2050 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2055 Portfolio |
A |
A |
A |
A |
A |
| One
Choice Blend+ 2060 Portfolio |
