Washington, D.C. 20549
ITEM 1. REPORTS TO STOCKHOLDERS.
Notes to Financial Statements |
SEPTEMBER 30, 2011 (UNAUDITED)
1. Organization
American Century Investment Trust (the trust) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Massachusetts business trust. Diversified Bond Fund (the fund) is one fund in a series issued by the trust. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek a high level of income by investing in non-money market debt securities.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open.
Debt securities maturing in greater than 60 days at the time of purchase are valued at the evaluated mean as provided by independent pricing services or at the mean of the most recent bid and asked prices as provided by investment dealers. Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Swap agreements are valued at an evaluated price as provided by independent pricing services or investment dealers. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Trustees or its designee, in accordance with procedures adopted by the Board of Trustees. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Interest income less foreign taxes withheld, if any, is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
When-Issued and Forward Commitments — The fund may engage in securities transactions on a when-issued or forward commitment basis. In these transactions, the securities’ prices and yields are fixed on the date of the commitment. In a when-issued transaction, the payment and delivery are scheduled for a future date and during this period, securities are subject to market fluctuations. In a forward commitment transaction, the fund may sell a security and at the same time make a commitment to purchase the same security at a future date at a specified price. Conversely, the fund may purchase a security and at the same time make a commitment to sell the same security at a future date at a specified price. These types of transactions are executed simultaneously in what are known as “roll” transactions. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price. The fund accounts for “roll” transactions as purchases and sales.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Trustees. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Management Fees — The trust has entered into a management agreement with ACIM (the investment advisor), under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent trustees (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the fund and certain other accounts managed by the investment advisor that are in the same broad investment category as the fund and (2) a Complex Fee based on the assets of all the funds in the American Century Investments family of funds. The rates for the Investment Category Fee range from 0.2925% to 0.4100%. The rates for the Complex Fee range from 0.2500% to 0.3100% for the Investor Class, A Class, B Class, C Class and R Class. The Institutional Class is 0.2000% less at each point within the Complex Fee range. The effective annual management fee for each class for the six months ended September 30, 2011 was 0.60% for the Investor Class, A Class, B Class, C Class and R Class and 0.40% for the Institutional Class.
Distribution and Service Fees — The Board of Trustees has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and trustees of the trust are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the trust’s investment advisor, ACIM, the distributor of the trust, ACIS, and the trust’s transfer agent, American Century Services, LLC. Various funds in a series issued by American Century Asset Allocation Portfolios, Inc. (ACAAP) own, in aggregate, 8% of the shares of the fund. ACAAP does not invest in the fund for the purpose of exercising management or control.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases of investment securities, excluding short-term investments, for the six months ended September 30, 2011 totaled $2,317,216,322, of which $1,653,558,590 represented U.S. Treasury and Government Agency obligations.
Sales of investment securities, excluding short-term investments, for the six months ended September 30, 2011 totaled $2,366,416,300, of which $1,728,950,460 represented U.S. Treasury and Government Agency obligations.
5. Capital Share Transactions
Transactions in shares of the fund were as follows (unlimited number of shares authorized):
| | | | | | | |
| | | Six months ended September 30, 2011 | | | Year ended March 31, 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Investor Class | | | | | | | | | | | | |
| Sold | | | 45,228,583 | | | | $495,286,361 | | | | 109,709,535 | | | | $1,191,111,629 | |
| Issued in reinvestment of distributions | | | 3,687,411 | | | | 40,424,480 | | | | 8,176,900 | | | | 88,619,905 | |
| Redeemed | | | (72,741,238 | ) | | | (803,904,225 | ) | | | (57,264,986 | ) | | | (621,141,556 | ) |
| | | | (23,825,244 | ) | | | (268,193,384 | ) | | | 60,621,449 | | | | 658,589,978 | |
| Institutional Class | | | | | | | | | | | | | | | | |
| Sold | | | 27,253,991 | | | | 297,616,572 | | | | 64,322,005 | | | | 701,051,033 | |
| Issued in reinvestment of distributions | | | 2,417,487 | | | | 26,505,863 | | | | 4,918,880 | | | | 53,312,887 | |
| Redeemed | | | (13,625,819 | ) | | | (149,738,057 | ) | | | (22,018,098 | ) | | | (239,326,114 | ) |
| | | | 16,045,659 | | | | 174,384,378 | | | | 47,222,787 | | | | 515,037,806 | |
| A Class | | | | | | | | | | | | | | | | |
| Sold | | | 9,562,663 | | | | 105,021,740 | | | | 24,470,860 | | | | 265,763,516 | |
| Issued in reinvestment of distributions | | | 739,837 | | | | 8,111,703 | | | | 2,381,761 | | | | 25,829,800 | |
| Redeemed | | | (13,332,529 | ) | | | (145,505,187 | ) | | | (33,832,491 | ) | | | (366,531,539 | ) |
| | | | (3,030,029 | ) | | | (32,371,744 | ) | | | (6,979,870 | ) | | | (74,938,223 | ) |
| B Class | | | | | | | | | | | | | | | | |
| Sold | | | 19,229 | | | | 212,971 | | | | 33,995 | | | | 369,629 | |
| Issued in reinvestment of distributions | | | 10,370 | | | | 113,614 | | | | 35,460 | | | | 384,000 | |
| Redeemed | | | (151,256 | ) | | | (1,650,593 | ) | | | (335,533 | ) | | | (3,633,064 | ) |
| | | | (121,657 | ) | | | (1,324,008 | ) | | | (266,078 | ) | | | (2,879,435 | ) |
| C Class | | | | | | | | | | | | | | | | |
| Sold | | | 1,585,757 | | | | 17,450,466 | | | | 3,786,221 | | | | 41,146,924 | |
| Issued in reinvestment of distributions | | | 96,240 | | | | 1,055,177 | | | | 330,269 | | | | 3,577,441 | |
| Redeemed | | | (2,505,333 | ) | | | (27,340,560 | ) | | | (6,394,272 | ) | | | (69,206,954 | ) |
| | | | (823,336 | ) | | | (8,834,917 | ) | | | (2,277,782 | ) | | | (24,482,589 | ) |
| R Class | | | | | | | | | | | | | | | | |
| Sold | | | 566,148 | | | | 6,192,775 | | | | 1,862,348 | | | | 20,179,450 | |
| Issued in reinvestment of distributions | | | 35,505 | | | | 386,925 | | | | 81,039 | | | | 878,391 | |
| Redeemed | | | (460,294 | ) | | | (5,061,970 | ) | | | (805,593 | ) | | | (8,714,847 | ) |
| | | | 141,359 | | | | 1,517,730 | | | | 1,137,794 | | | | 12,342,994 | |
| Net increase (decrease) | | | (11,613,248 | ) | | | $(134,821,945 | ) | | | 99,458,300 | | | | $1,083,670,531 | |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
| ● | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
| | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
| Investment Securities | |
| U.S. Government Agency Mortgage-Backed Securities | | | — | | | | $1,478,991,947 | | | | — | |
| Corporate Bonds | | | — | | | | 1,455,404,750 | | | | — | |
| U.S. Treasury Securities | | | — | | | | 839,601,786 | | | | — | |
| Commercial Mortgage-Backed Securities | | | — | | | | 315,593,738 | | | | — | |
| Sovereign Governments and Agencies | | | — | | | | 241,901,649 | | | | — | |
| Collateralized Mortgage Obligations | | | — | | | | 211,189,975 | | | | — | |
| U.S. Government Agency Securities | | | — | | | | 157,340,355 | | | | — | |
| Municipal Securities | | | — | | | | 104,322,754 | | | | — | |
| Asset-Backed Securities | | | — | | | | 19,349,772 | | | | — | |
| Temporary Cash Investments | | | $47,570,245 | | | | 71,424,201 | | | | — | |
| Total Value of Investment Securities | | | $47,570,245 | | | | $4,895,120,927 | | | | — | |
| | | | | | | | | | | | | |
| Other Financial Instruments | | | | | | | | | | | | |
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | | | — | | | | $13,272,440 | | | | — | |
7. Derivative Instruments
Credit Risk — The fund is subject to credit risk in the normal course of pursuing its investment objectives. The value of a bond generally declines as the credit quality of its issuer declines. Credit default swap agreements enable a fund to buy/sell protection against a credit event of a specific issuer or index. A fund may attempt to enhance returns by selling protection or attempt to mitigate credit risk by buying protection. The buyer/seller of credit protection against a security or basket of securities may pay/receive an up-front or periodic payment to compensate for/against potential default events. A fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Changes in value, including the periodic amounts of interest to be paid or received on swap agreements, are recorded as unrealized appreciation (depreciation) on swap agreements. Realized gain or loss is recorded upon receipt or payment of a periodic settlement or termination of swap agreements. Net realized and unrealized gains or losses occurring during the
holding period of swap agreements are a component of net realized gain (loss) on swap agreement transactions and change in net unrealized appreciation (depreciation) on swap agreements, respectively. The risks of entering into swap agreements include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments or instruments. The fund participated in one credit risk derivative instrument to buy protection throughout part of the period and liquidated the position in August 2011.
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign 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 declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The foreign currency risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
Interest Rate Risk — The fund is subject to interest rate risk in the normal course of pursuing its investment objectives. The value of bonds generally declines as interest rates rise. A fund may enter into futures contracts based on a bond index or a specific underlying security. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Subsequent payments (variation margin) are made or received daily, in cash, by a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the futures contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period, the fund regularly held interest rate risk derivative instruments though none were held at period end.
| Value of Derivative Instruments as of September 30, 2011 | |
| | | | | | |
| | Asset Derivatives | | | Liability Derivatives | |
| Type of Risk Exposure | Location on Statement of Assets and Liabilities | | Value | | Location on Statement of Assets and Liabilities | | Value |
| Foreign Currency Risk | Unrealized gain on forward foreign currency exchange contracts | | | $13,272,440 | | | Unrealized loss on forward foreign currency exchange contracts | | | — | |
| | | | | | | | | | | | |
| Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended September 30, 2011 | |
| | | | | | | | | | | | |
| | Net Realized Gain (Loss) | | | Change in Net Unrealized Appreciation (Depreciation) | |
Type of Risk Exposure | Location on Statement of Operations | | Value | | Location on Statement of Operations | | Value |
| Credit Risk | Net realized gain (loss) on swap agreement transactions | | | $59,517 | | | Change in net unrealized appreciation (depreciation) on swap agreements | | | $24,088 | |
| Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | | | (8,479,606 | ) | | Change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | | | 17,669,539 | |
| Interest Rate Risk | Net realized gain (loss) on futures contract transactions | | | 8,424,004 | | | Change in net unrealized appreciation (depreciation) on futures contracts | | | 68,530 | |
| | | | | $3,915 | | | | | | $17,762,157 | |
8. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of September 30, 2011, the components of investments for federal income tax purposes were as follows:
| | | | | |
| Federal tax cost of investments | | | $4,733,968,101 | |
| Gross tax appreciation of investments | | | $230,449,257 | |
| Gross tax depreciation of investments | | | (21,726,186 | ) |
| Net tax appreciation (depreciation) of investments | | | $208,723,071 | |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period.
Notes to Financial Statements |
SEPTEMBER 30, 2011 (UNAUDITED)
1. Organization
American Century Investment Trust (the trust) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Massachusetts business trust. Core Plus Fund (the fund) is one fund in a series issued by the trust. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek to maximize total return. As a secondary objective, the fund seeks a high level of income. The fund pursues its objectives by investing at least 65% of its assets in investment-grade, non-money market debt securities and up to 35% of its assets in high-yield and/or emerging markets debt securities.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. On October 21, 2011, all outstanding B Class shares were converted to A Class shares and the fund discontinued issuance of the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open.
Debt securities maturing in greater than 60 days at the time of purchase are valued at the evaluated mean as provided by independent pricing services or at the mean of the most recent bid and asked prices as provided by investment dealers. Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Swap agreements are valued at an evaluated price as provided by independent pricing services or investment dealers. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Trustees or its designee, in accordance with procedures adopted by the Board of Trustees. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited
to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Interest income less foreign taxes withheld, if any, is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums.
When-Issued and Forward Commitments — The fund may engage in securities transactions on a when-issued or forward commitment basis. In these transactions, the securities’ prices and yields are fixed on the date of the commitment. In a when-issued transaction, the payment and delivery are scheduled for a future date and during this period, securities are subject to market fluctuations. In a forward commitment transaction, the fund may sell a security and at the same time make a commitment to purchase the same security at a future date at a specified price. Conversely, the fund may purchase a security and at the same time make a commitment to sell the same security at a future date at a specified price. These types of transactions are executed simultaneously in what are known as “roll” transactions. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price. The fund accounts for “roll” transactions as purchases and sales.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Trustees. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Management Fees — The trust has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent trustees (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the fund and certain other accounts managed by the investment advisor that are in the same broad investment category as the fund and (2) a Complex Fee based on the assets of all the funds in the American Century Investments family of funds. The rates for the Investment Category Fee range from 0.3425% to 0.4600%. The rates for the Complex Fee range from 0.2500% to 0.3100% for the Investor Class, A Class, B Class, C Class and R Class. The Institutional Class is 0.2000% less at each point within the Complex Fee range. The effective annual management fee for each class for the six months ended September 30, 2011 was 0.65% for the Investor Class, A Class, B Class, C Class and R Class and 0.45% for the Institutional Class.
Distribution and Service Fees — The Board of Trustees has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and trustees of the trust are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the trust’s investment advisor, ACIM, the distributor of the trust, ACIS, and the trust’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases of investment securities, excluding short-term investments, for the six months ended September 30, 2011 totaled $79,758,159, of which $56,771,011 represented U.S. Treasury and Government Agency obligations.
Sales of investment securities, excluding short-term investments, for the six months ended September 30, 2011 totaled $54,475,079, of which $38,282,191 represented U.S. Treasury and Government Agency obligations.
5. Capital Share Transactions
Transactions in shares of the fund were as follows (unlimited number of shares authorized):
| | | | | | | |
| | | Six months ended September 30, 2011 | | | Year ended March 31, 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Investor Class | |
| Sold | | | 3,049,662 | | | | $33,269,503 | | | | 7,576,868 | | | | $82,130,764 | |
| Issued in reinvestment of distributions | | | 114,408 | | | | 1,247,719 | | | | 241,061 | | | | 2,600,347 | |
| Redeemed | | | (1,645,103 | ) | | | (17,869,442 | ) | | | (4,485,826 | ) | | | (48,263,672 | ) |
| | | | 1,518,967 | | | | 16,647,780 | | | | 3,332,103 | | | | 36,467,439 | |
| Institutional Class | |
| Sold | | | 433,810 | | | | 4,669,637 | | | | 218,228 | | | | 2,381,854 | |
| Issued in reinvestment of distributions | | | 10,522 | | | | 113,427 | | | | 10,560 | | | | 113,850 | |
| Redeemed | | | (48,478 | ) | | | (531,158 | ) | | | (139,024 | ) | | | (1,500,814 | ) |
| | | | 395,854 | | | | 4,251,906 | | | | 89,764 | | | | 994,890 | |
| A Class | |
| Sold | | | 2,117,151 | | | | 23,107,416 | | | | 3,213,951 | | | | 34,773,831 | |
| Issued in reinvestment of distributions | | | 66,889 | | | | 729,603 | | | | 173,510 | | | | 1,870,890 | |
| Redeemed | | | (1,163,875 | ) | | | (12,641,369 | ) | | | (2,640,837 | ) | | | (28,492,430 | ) |
| | | | 1,020,165 | | | | 11,195,650 | | | | 746,624 | | | | 8,152,291 | |
| B Class | |
| Sold | | | 3,366 | | | | 37,013 | | | | 12,717 | | | | 137,768 | |
| Issued in reinvestment of distributions | | | 1,359 | | | | 14,788 | | | | 3,871 | | | | 41,679 | |
| Redeemed | | | (78,757 | ) | | | (869,756 | ) | | | (13,408 | ) | | | (145,583 | ) |
| | | | (74,032 | ) | | | (817,955 | ) | | | 3,180 | | | | 33,864 | |
| C Class | |
| Sold | | | 265,687 | | | | 2,902,413 | | | | 963,043 | | | | 10,412,130 | |
| Issued in reinvestment of distributions | | | 11,380 | | | | 124,006 | | | | 28,397 | | | | 305,745 | |
| Redeemed | | | (280,222 | ) | | | (3,045,113 | ) | | | (568,503 | ) | | | (6,133,279 | ) |
| | | | (3,155 | ) | | | (18,694 | ) | | | 422,937 | | | | 4,584,596 | |
| R Class | |
| Sold | | | 35,322 | | | | 381,044 | | | | 119,219 | | | | 1,291,902 | |
| Issued in reinvestment of distributions | | | 2,306 | | | | 24,884 | | | | 3,909 | | | | 42,150 | |
| Redeemed | | | (8,730 | ) | | | (95,220 | ) | | | (48,937 | ) | | | (531,681 | ) |
| | | | 28,898 | | | | 310,708 | | | | 74,191 | | | | 802,371 | |
| Net increase (decrease) | | | 2,886,697 | | | | $31,569,395 | | | | 4,668,799 | | | | $51,035,451 | |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
| ● | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| ● | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| ● | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
| | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
| Investment Securities | |
| Corporate Bonds | | | — | | | | $58,002,894 | | | | — | |
| U.S. Government Agency Mortgage-Backed Securities | | | — | | | | 46,742,164 | | | | — | |
| U.S. Treasury Securities | | | — | | | | 26,208,088 | | | | — | |
| Commercial Mortgage-Backed Securities | | | — | | | | 12,438,085 | | | | — | |
| Collateralized Mortgage Obligations | | | — | | | | 8,281,295 | | | | — | |
| Sovereign Governments and Agencies | | | — | | | | 6,974,265 | | | | — | |
| U.S. Government Agency Securities | | | — | | | | 3,906,996 | | | | — | |
| Municipal Securities | | | — | | | | 3,342,391 | | | | — | |
| Asset-Backed Securities | | | — | | | | 359,546 | | | | — | |
| Temporary Cash Investments | | | $5,371,830 | | | | 7,278,348 | | | | — | |
| Total Value of Investment Securities | | | $5,371,830 | | | | $173,534,072 | | | | — | |
| | | | | | | | | | | | | |
| Other Financial Instruments | |
| Forward Foreign Currency Exchange Contracts | | | — | | | | $383,444 | | | | — | |
| Swap Agreements | | | — | | | | 47,545 | | | | — | |
| Total Unrealized Gain (Loss) on Other Financial Instruments | | | — | | | | $430,989 | | | | | |
7. Derivative Instruments
Credit Risk — The fund is subject to credit risk in the normal course of pursuing its investment objectives. The value of a bond generally declines as the credit quality of its issuer declines. Credit default swap agreements enable a fund to buy/sell protection against a credit event of a specific issuer or index. A fund may attempt to enhance returns by selling protection or attempt to mitigate credit risk by buying protection. The buyer/seller of credit protection against a security or basket of securities may pay/receive an up-front or periodic payment to compensate for/against potential default events. A fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Changes in value, including the periodic amounts of interest to be paid or received on swap agreements, are recorded as unrealized appreciation (depreciation) on swap agreements. Realized gain or loss is recorded upon receipt or payment of a periodic settlement or termination of swap agreements. Net realized and unrealized gains or losses occurring during the holding period of swap agreements are a component of net realized gain (loss) on swap agreement transactions and change in net unrealized appreciation (depreciation) on swap agreements, respectively. The risks of entering into swap agreements include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments or instruments. During the six months ended September 30, 2011, the fund participated in credit default swap agreements to buy and sell protection. The credit risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign 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 declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The foreign currency risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
Interest Rate Risk — The fund is subject to interest rate risk in the normal course of pursuing its investment objectives. The value of bonds generally declines as interest rates rise. A fund may enter into futures contracts based on a bond index or a specific underlying security. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Subsequent payments (variation margin) are made or received daily, in cash, by a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the futures contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period, the fund regularly held interest rate risk derivative instruments though none were held at period end.
Value of Derivative Instruments as of September 30, 2011
| | |
| | Asset Derivatives | | | Liability Derivatives | |
Type of Risk Exposure | Location on Statement of Assets and Liabilities | Value | | Location on Statement of Assets and Liabilities | | Value |
| Credit Risk | Swap agreements | | $2,695 | | | Swap agreements | | | $7,252 | |
| Foreign Currency Risk | Unrealized gain on forward foreign currency exchange contracts | | 383,444 | | | Unrealized loss on forward foreign currency exchange contracts | | | — | |
| | | | $386,139 | | | | | | $7,252 | |
Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended September 30, 2011
| | | | | | |
| | Net Realized Gain (Loss) | | | Change in Net Unrealized Appreciation (Depreciation) | |
Type of Risk Exposure | Location on Statement of Operations | | Value | | Location on Statement of Operations | | Value |
| Credit Risk | Net realized gain (loss) on swap agreement transactions | | $33,207 | | | Change in net unrealized appreciation (depreciation) on swap agreements | | | $(58,772 | ) |
| Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | | (252,058 | ) | | Change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | | | 517,945 | |
| Interest Rate Risk | Net realized gain (loss) on futures contract transactions | | 230,922 | | | Change in net unrealized appreciation (depreciation) on futures contracts | | | 2,727 | |
| | | | $12,071 | | | | | | $461,900 | |
8. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of September 30, 2011, the components of investments for federal income tax purposes were as follows:
| | | | | |
| Federal tax cost of investments | | | $173,205,783 | |
| Gross tax appreciation of investments | | | $6,676,504 | |
| Gross tax depreciation of investments | | | (976,385 | ) |
| Net tax appreciation (depreciation) of investments | | | $5,700,119 | |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period.
SEMIANNUAL REPORT SEPTEMBER 30, 2011
| President’s Letter | 2 |
| Performance | 3 |
| Fund Characteristics | 4 |
| Shareholder Fee Example | 5 |
| Schedule of Investments | 7 |
| Statement of Assets and Liabilities | 18 |
| Statement of Operations | 19 |
| Statement of Changes in Net Assets | 20 |
| Notes to Financial Statements | 21 |
| Financial Highlights | 28 |
| Approval of Management Agreement | 32 |
| Additional Information | 37 |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
Dear Investor:
Thank you for reviewing our semiannual report for the six months ended September 30, 2011. This report offers a macroeconomic and financial market overview of the period, followed by fund performance, a schedule of fund investments, and other financial information.
For additional, updated information on fund performance, portfolio strategy, and the investment markets, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site. Also, the fund’s annual report, dated March 31, 2012, will provide additional market perspective and portfolio commentary from our portfolio management team.
Macroeconomic and Financial Market Overview
This reporting period differed dramatically from the six months that preceded it. As the period covered by this report opened in April 2011, U.S. stocks were approaching the crest of an eight-month rally, originating back in late August 2010, which pushed the broad market approximately 30% higher. At the same time, the 10-year U.S. Treasury yield climbed above 3.50%, responding to global growth and inflation pressures.
All of that changed during the late spring and summer of 2011. High fuel prices, declining U.S. home values, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide globally and in the U.S.
Investors’ risk tolerance reversed as recession fears re-emerged. A full-blown flight to safety ensued by mid-summer, sending U.S. Treasury yields to record lows, boosting the U.S. dollar, and undermining stock prices, both domestically and abroad. By September 30, the financial markets had priced in recessionary expectations.
Fundamental signs of economic resilience remained, however, particularly in corporate earnings, with potentially more monetary and fiscal stimuli on the way. The Federal Reserve resurrected “Operation Twist,” an attempt to further lower long-term interest rates, and the Obama administration worked to implement job-creation legislation.
We don’t think there will be a double-dip recession, but we do believe we face another period of slow, sub-par economic growth. We appreciate your continued trust in us during these uncertain times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
| Total Returns as of September 30, 2011 |
| | | | | Average Annual Returns | |
| | Ticker Symbol | 6 months(1) | 1 year | 5 years | 10 years | Since Inception | Inception Date |
| Investor Class | ABHIX | -6.40% | -0.46%(2) | 5.32%(2) | 6.95%(2) | 4.08%(2) | 9/30/97 |
Barclays Capital U.S. High-Yield 2% Issuer Capped Bond Index | — | -5.12% | 1.75% | 7.26% | 8.89% | 6.27% | — |
| Institutional Class | ACYIX | -6.30% | -0.26%(2) | 5.53%(2) | — | 5.80%(2) | 8/2/04 |
A Class(3) No sales charge* With sales charge* | AHYVX | -6.51% -10.69% | -0.71%(2) -5.25%(2) | 5.06%(2) 4.10%(2) | — — | 6.31%(2) 5.81%(2) | 3/8/02 |
B Class No sales charge* With sales charge* | ACYBX | -6.87% -11.87% | -1.45%(2) -5.45%(2) | 4.29%(2) 4.12%(2) | — — | 5.85%(2) 5.85%(2) | 1/31/03 |
C Class No sales charge* With sales charge* | AHDCX | -6.87% -7.77% | -1.45%(2) -1.45%(2) | 4.28%(2) 4.28%(2) | — — | 5.47%(2) 5.47%(2) | 12/10/01 |
| R Class | AHYRX | -6.47% | -0.78%(2) | 4.84%(2) | — | 4.68%(2) | 7/29/05 |
| * | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 4.50% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
| (1) | Total returns for periods less than one year are not annualized. |
| (2) | Returns would have been lower if a portion of the management fee had not been waived. |
| (3) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
| Total Annual Fund Operating Expenses |
| Investor Class | Institutional Class | A Class | B Class | C Class | R Class |
| 0.87% | 0.67% | 1.12% | 1.87% | 1.87% | 1.37% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. In addition, the lower-rated securities in which the fund invests are subject to greater credit risk, default risk and liquidity risk.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
| SEPTEMBER 30, 2011 |
| Portfolio at a Glance | |
| Average Duration (effective) | 4.7 years |
| Weighted Average Life | 6.5 years |
| | |
| 30-Day SEC Yields | |
| Investor Class | 7.63% |
| Institutional Class | 7.84% |
| A Class | 7.04% |
| B Class | 6.57% |
| C Class | 6.59% |
| R Class | 7.09% |
| | |
| Types of Investments in Portfolio | % of net assets |
| Corporate Bonds | 93.0% |
| Exchange-Traded Funds | 0.7% |
| Commercial Mortgage-Backed Securities | 0.3% |
| Common Stocks | 0.3% |
| Preferred Stocks | —* |
| Temporary Cash Investments | 3.6% |
| Other Assets and Liabilities | 2.1% |
*Category is less than 0.05% of total net assets.
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2011 to September 30, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | | | | |
| | Beginning Account Value 4/1/11 | Ending Account Value 9/30/11 | Expenses Paid During Period(1) 4/1/11 - 9/30/11 | Annualized Expense Ratio(1) |
| Actual | | | | |
| Investor Class (after waiver) | $1,000 | $936.00 | $3.97 | 0.82% |
| Investor Class (before waiver) | $1,000 | $936.00(2) | $4.16 | 0.86% |
Institutional Class (after waiver) | $1,000 | $937.00 | $3.00 | 0.62% |
Institutional Class (before waiver) | $1,000 | $937.00(2) | $3.20 | 0.66% |
| A Class (after waiver) | $1,000 | $934.90 | $5.18 | 1.07% |
| A Class (before waiver) | $1,000 | $934.90(2) | $5.37 | 1.11% |
| B Class (after waiver) | $1,000 | $931.30 | $8.79 | 1.82% |
| B Class (before waiver) | $1,000 | $931.30(2) | $8.98 | 1.86% |
| C Class (after waiver) | $1,000 | $931.30 | $8.79 | 1.82% |
| C Class (before waiver) | $1,000 | $931.30(2) | $8.98 | 1.86% |
| R Class (after waiver) | $1,000 | $935.30 | $6.39 | 1.32% |
| R Class (before waiver) | $1,000 | $935.30(2) | $6.58 | 1.36% |
| Hypothetical | | | | |
| Investor Class (after waiver) | $1,000 | $1,020.90 | $4.14 | 0.82% |
| Investor Class (before waiver) | $1,000 | $1,020.70 | $4.34 | 0.86% |
Institutional Class (after waiver) | $1,000 | $1,021.90 | $3.13 | 0.62% |
Institutional Class (before waiver) | $1,000 | $1,021.70 | $3.34 | 0.66% |
| A Class (after waiver) | $1,000 | $1,019.65 | $5.40 | 1.07% |
| A Class (before waiver) | $1,000 | $1,019.45 | $5.60 | 1.11% |
| B Class (after waiver) | $1,000 | $1,015.90 | $9.17 | 1.82% |
| B Class (before waiver) | $1,000 | $1,015.70 | $9.37 | 1.86% |
| C Class (after waiver) | $1,000 | $1,015.90 | $9.17 | 1.82% |
| C Class (before waiver) | $1,000 | $1,015.70 | $9.37 | 1.86% |
| R Class (after waiver) | $1,000 | $1,018.40 | $6.66 | 1.32% |
| R Class (before waiver) | $1,000 | $1,018.20 | $6.86 | 1.36% |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
| (2) | Ending account value assumes the return earned after waiver and would have been lower if a portion of the management fee had not been waived. |
SEPTEMBER 30, 2011 (UNAUDITED)
| | Principal Amount | Value |
| Corporate Bonds — 93.0% |
| AEROSPACE AND DEFENSE — 0.4% |
L-3 Communications Corp., 6.375%, 10/15/15(1) | $250,000 | $255,938 |
Triumph Group, Inc., 8.00%, 11/15/17(1) | 1,200,000 | 1,257,000 |
| | | 1,512,938 |
| AIRLINES — 0.3% |
American Airlines Pass-Through Trust, 7.00%, 1/31/18(2) | 993,399 | 814,587 |
UAL 2007-1 Pass Through Trust, Series 071A, 6.636%, 1/2/24(1) | 396,361 | 385,461 |
| | | 1,200,048 |
| AUTO COMPONENTS — 2.4% |
Allison Transmission, Inc., 7.125%, 5/15/19(1)(2) | 700,000 | 637,000 |
American Axle & Manufacturing Holdings, Inc., 9.25%, 1/15/17(1)(2) | 450,000 | 470,250 |
American Axle & Manufacturing, Inc., 7.875%, 3/1/17(1) | 1,700,000 | 1,606,500 |
Dana Holding Corp., 6.75%, 2/15/21(1) | 750,000 | 716,250 |
Delphi Corp., 5.875%, 5/15/19(1)(2) | 1,475,000 | 1,379,125 |
Goodyear Tire & Rubber Co. (The), 10.50%, 5/15/16(1) | 324,000 | 352,350 |
Goodyear Tire & Rubber Co. (The), 8.25%, 8/15/20(1) | 500,000 | 511,250 |
Tenneco, Inc., 8.125%, 11/15/15(1) | 500,000 | 512,500 |
Tomkins LLC / Tomkins, Inc., 9.00%, 10/1/18(1)(2) | 900,000 | 927,000 |
TRW Automotive, Inc., 8.875%, 12/1/17(1)(2) | 500,000 | 535,000 |
UCI International, Inc., 8.625%, 2/15/19(1) | 250,000 | 232,812 |
Visteon Corp., 6.75%, 4/15/19(1)(2) | 1,000,000 | 905,000 |
| | | 8,785,037 |
| AUTOMOBILES — 2.4% |
Chrysler Group LLC/CG Co-Issuer, Inc., 8.00%, 6/15/19(1)(2) | 1,700,000 | 1,334,500 |
Ford Motor Co., 7.45%, 7/16/31(1) | 1,150,000 | 1,306,499 |
Ford Motor Credit Co. LLC, 8.70%, 10/1/14(1) | 1,000,000 | 1,083,183 |
Ford Motor Credit Co. LLC, 5.00%, 5/15/18(1) | 2,200,000 | 2,132,752 |
Ford Motor Credit Co. LLC, 8.125%, 1/15/20(1) | 1,000,000 | 1,139,527 |
| Ford Motor Credit Co. LLC, 5.75%, 2/1/21 | 1,000,000 | 993,340 |
| Ford Motor Credit Co. LLC, 5.875%, 8/2/21 | 670,000 | 668,606 |
Jaguar Land Rover plc, 8.125%, 5/15/21(2) | 250,000 | 221,250 |
| | | 8,879,657 |
| BUILDING PRODUCTS — 0.6% |
Boise Cascade LLC, 7.125%, 10/15/14(1) | 899,000 | 874,278 |
| Masco Corp., 6.125%, 10/3/16 | 1,000,000 | 976,833 |
Masonite International Corp., 8.25%, 4/15/21(1)(2) | 250,000 | 226,875 |
| | | 2,077,986 |
| CAPITAL MARKETS — 0.2% |
Dresdner Funding Trust I, 8.151%, 6/30/31(1)(2) | 1,250,000 | 775,000 |
| CHEMICALS — 1.6% |
Hexion US Finance Corp./Hexion Nova Scotia Finance ULC, 8.875%, 2/1/18(1) | 1,000,000 | 830,000 |
Hexion US Finance Corp./Hexion Nova Scotia Finance ULC, 9.00%, 11/15/20(1) | 1,000,000 | 737,500 |
Lyondell Chemical Co., 8.00%, 11/1/17(2) | 931,000 | 1,007,808 |
Lyondell Chemical Co., 11.00%, 5/1/18(1) | 1,000,000 | 1,085,000 |
Momentive Performance Materials, Inc., 9.00%, 1/15/21(1) | 1,000,000 | 690,000 |
Nalco Co., 8.25%, 5/15/17(1) | 250,000 | 273,750 |
Solutia, Inc., 8.75%, 11/1/17(1) | 1,000,000 | 1,070,000 |
| | | 5,694,058 |
| COMMERCIAL BANKS — 1.3% |
LBG Capital No.1 PLC, 7.875%, 11/1/20(2) | 1,000,000 | 735,000 |
Lloyds Banking Group plc, VRN, 6.657%, 5/21/37(2)(4)(5) | 2,000,000 | 890,000 |
Regions Bank, 6.45%, 6/26/37(1) | 2,500,000 | 2,125,000 |
Regions Financial Corp., 5.75%, 6/15/15(1) | 750,000 | 727,500 |
Regions Financing Trust II, VRN, 6.625%, 5/15/27(1) | 500,000 | 410,000 |
| | | 4,887,500 |
| COMMERCIAL SERVICES AND SUPPLIES — 0.6% |
ACCO Brands Corp., 10.625%, 3/15/15(1) | $500,000 | $540,000 |
Brickman Group Holdings, Inc., 9.125%, 11/1/18(1)(2) | 850,000 | 743,750 |
CDRT Merger Sub, Inc., 8.125%, 6/1/19(1)(2) | 500,000 | 465,000 |
Iron Mountain, Inc., 8.375%, 8/15/21(1) | 500,000 | 512,500 |
| | | 2,261,250 |
| COMMUNICATIONS EQUIPMENT — 1.2% |
Alcatel-Lucent USA, Inc., 6.45%, 3/15/29(1) | 751,000 | 627,085 |
Avaya, Inc., 7.00%, 4/1/19(1)(2) | 1,450,000 | 1,239,750 |
CommScope, Inc., 8.25%, 1/15/19(2) | 1,000,000 | 980,000 |
Crown Castle International Corp., 9.00%, 1/15/15(1) | 1,000,000 | 1,065,000 |
Viasat, Inc., 8.875%, 9/15/16(1) | 450,000 | 459,000 |
| | | 4,370,835 |
| COMPUTERS AND PERIPHERALS — 0.2% |
Seagate Technology HDD Holdings, 6.80%, 10/1/16(1) | 650,000 | 650,000 |
| CONSTRUCTION AND ENGINEERING — 0.2% |
Tutor Perini Corp., 7.625%, 11/1/18(1) | 1,000,000 | 860,000 |
| CONSTRUCTION MATERIALS — 1.4% |
Associated Materials LLC, 9.125%, 11/1/17(1) | 500,000 | 407,500 |
Building Materials Corp. of America, 6.75%, 5/1/21(1)(2) | 1,060,000 | 1,009,650 |
Covanta Holding Corp., 7.25%, 12/1/20(1) | 800,000 | 803,466 |
Euramax International, Inc., 9.50%, 4/1/16(1)(2) | 1,000,000 | 802,500 |
Headwaters, Inc., 7.625%, 4/1/19(1) | 500,000 | 385,000 |
Nortek, Inc., 8.50%, 4/15/21(1)(2) | 500,000 | 405,000 |
USG Corp., 8.375%, 10/15/18(1)(2) | 1,500,000 | 1,260,000 |
| | | 5,073,116 |
| CONSUMER FINANCE — 2.4% |
| CIT Group, Inc., 7.00%, 5/1/14 | 88,544 | 90,426 |
| CIT Group, Inc., 7.00%, 5/1/15 | 775 | 770 |
CIT Group, Inc., 7.00%, 5/4/15(2) | 908,000 | 902,325 |
| CIT Group, Inc., 7.00%, 5/1/16 | 626 | 608 |
CIT Group, Inc., 7.00%, 5/2/16(2) | 3,264,000 | 3,174,240 |
| CIT Group, Inc., 7.00%, 5/1/17 | 476 | 462 |
CIT Group, Inc., 7.00%, 5/2/17(2) | 2,120,000 | 2,059,050 |
| Interactive Data Corp., 10.25%, 8/1/18 | 250,000 | 270,000 |
| National Money Mart Co., 10.375%, 12/15/16 | 500,000 | 515,000 |
Residential Capital LLC, 9.625%, 5/15/15(1) | 1,000,000 | 780,000 |
Springleaf Finance Corp., 4.875%, 7/15/12(1) | 500,000 | 468,750 |
Springleaf Finance Corp., 5.40%, 12/1/15(1) | 500,000 | 367,500 |
| | | 8,629,131 |
| CONTAINERS AND PACKAGING — 1.5% |
AEP Industries, Inc., 8.25%, 4/15/19(1) | 1,975,000 | 1,871,313 |
Ardagh Packaging Finance plc, 7.375%, 10/15/17(1)(2) | 800,000 | 768,000 |
Ball Corp., 6.625%, 3/15/18(1) | 250,000 | 252,500 |
| BWAY Holding Co., 10.00%, 6/15/18 | 1,000,000 | 1,055,000 |
Graham Packaging Co. LP/GPC Capital Corp. I, 8.25%, 1/1/17(1) | 500,000 | 505,625 |
Packaging Dynamics Corp., 8.75%, 2/1/16(1)(2) | 1,100,000 | 1,083,500 |
| | | 5,535,938 |
| DISTRIBUTORS — 0.1% |
| McJunkin Red Man Corp., 9.50%, 12/15/16 | 500,000 | 460,000 |
| DIVERSIFIED FINANCIAL SERVICES — 3.5% |
Ally Financial, Inc., 8.30%, 2/12/15(1) | 2,750,000 | 2,725,937 |
Ally Financial, Inc., 6.25%, 12/1/17(1) | 2,000,000 | 1,751,002 |
Ally Financial, Inc., 8.00%, 3/15/20(1) | 1,000,000 | 928,120 |
| Ally Financial, Inc., 8.00%, 11/1/31 | 500,000 | 441,250 |
BAC Capital Trust XI, 6.625%, 5/23/36(1) | 750,000 | 570,823 |
BankAmerica Capital II, 8.00%, 12/15/26(1) | 900,000 | 841,500 |
Citigroup Capital XXI, VRN, 8.30%, 12/21/37(1) | 500,000 | 491,250 |
Fleet Capital Trust II, 7.92%, 12/11/26(1) | $750,000 | $680,625 |
Icahn Enterprises LP/Icahn Enterprises Finance Corp., 7.75%, 1/15/16(1) | 750,000 | 752,813 |
Pinnacle Foods Finance LLC/Pinnacle Foods Finance Corp., 8.25%, 9/1/17(1) | 1,000,000 | 980,000 |
Royal Bank of Scotland Group plc, VRN, 7.64%, 9/29/17(4)(5) | 2,000,000 | 970,000 |
Royal Bank of Scotland Group plc, VRN, 7.648%, 9/30/31(1) | 500,000 | 327,500 |
UPCB Finance III Ltd., 6.625%, 7/1/20(1)(2) | 1,500,000 | 1,417,500 |
| | | 12,878,320 |
| DIVERSIFIED TELECOMMUNICATION SERVICES — 4.7% |
Cincinnati Bell, Inc., 8.75%, 3/15/18(1) | 1,550,000 | 1,383,375 |
Frontier Communications Corp., 6.25%, 1/15/13(1) | 461,000 | 464,458 |
Frontier Communications Corp., 8.25%, 4/15/17(1) | 1,000,000 | 975,000 |
Frontier Communications Corp., 7.125%, 3/15/19(1) | 600,000 | 574,500 |
Frontier Communications Corp., 8.50%, 4/15/20(1) | 1,500,000 | 1,462,500 |
Intelsat Jackson Holdings SA, 11.25%, 6/15/16(1) | 750,000 | 766,875 |
Intelsat Jackson Holdings SA, 7.25%, 4/1/19(1)(2) | 2,000,000 | 1,860,000 |
Intelsat Luxembourg SA, 11.25%, 2/4/17(1) | 1,500,000 | 1,305,000 |
Level 3 Financing, Inc., 9.25%, 11/1/14(1) | 1,161,000 | 1,152,292 |
Level 3 Financing, Inc., 10.00%, 2/1/18(1) | 1,000,000 | 965,000 |
Sprint Capital Corp., 6.90%, 5/1/19(1) | 2,150,000 | 1,859,750 |
Sprint Capital Corp., 8.75%, 3/15/32(1) | 1,000,000 | 873,750 |
Virgin Media Finance plc, 8.375%, 10/15/19(1) | 1,150,000 | 1,227,625 |
Windstream Corp., 7.875%, 11/1/17(1) | 1,500,000 | 1,526,250 |
Windstream Corp., 7.75%, 10/15/20(1) | 1,000,000 | 980,000 |
| | | 17,376,375 |
| ELECTRIC UTILITIES — 1.0% |
AES Corp. (The), 9.75%, 4/15/16(1) | 500,000 | 540,000 |
AES Corp. (The), 8.00%, 10/15/17(1) | 2,250,000 | 2,272,500 |
Edison Mission Energy, 7.00%, 5/15/17(1) | 1,300,000 | 780,000 |
| | | 3,592,500 |
| ELECTRICAL EQUIPMENT — 0.3% |
Belden, Inc., 9.25%, 6/15/19(1) | 1,000,000 | 1,085,000 |
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.9% |
Jabil Circuit, Inc., 5.625%, 12/15/20(1) | 750,000 | 735,000 |
NXP BV / NXP Funding LLC, 9.50%, 10/15/15(1) | 250,000 | 259,688 |
NXP BV / NXP Funding LLC, 9.75%, 8/1/18(1)(2) | 500,000 | 525,000 |
Sanmina-SCI Corp., 7.00%, 5/15/19(1)(2) | 2,000,000 | 1,770,000 |
| | | 3,289,688 |
| ENERGY EQUIPMENT AND SERVICES — 0.7% |
Basic Energy Services, Inc., 7.75%, 2/15/19(1)(2) | 1,200,000 | 1,146,000 |
Parker Drilling Co., 9.125%, 4/1/18(1) | 500,000 | 507,500 |
Pioneer Drilling Co., 9.875%, 3/15/18(1) | 775,000 | 813,750 |
| | | 2,467,250 |
| FOOD AND STAPLES RETAILING — 1.5% |
BI-LO LLC / BI-LO Finance Corp., 9.25%, 2/15/19(1)(2) | 1,000,000 | 975,000 |
Ingles Markets, Inc., 8.875%, 5/15/17(1) | 1,000,000 | 1,052,500 |
Rite Aid Corp., 7.50%, 3/1/17(1) | 750,000 | 720,000 |
SUPERVALU, Inc., 8.00%, 5/1/16(1) | 1,640,000 | 1,558,000 |
| Susser Holdings LLC/Susser Finance Corp., 8.50%, 5/15/16 | 1,000,000 | 1,046,250 |
| | | 5,351,750 |
| FOOD PRODUCTS — 1.0% |
Del Monte Foods Co., 7.625%, 2/15/19(1)(2) | 1,100,000 | 935,000 |
| Michael Foods, Inc., 9.75%, 7/15/18 | 1,603,000 | 1,663,113 |
Smithfield Foods, Inc., 7.75%, 7/1/17(1) | 1,100,000 | 1,135,750 |
| | | 3,733,863 |
| GAS UTILITIES — 0.6% |
El Paso Corp., 7.25%, 6/1/18(1) | $500,000 | $562,241 |
Energy Transfer Equity LP, 7.50%, 10/15/20(1) | 1,000,000 | 1,032,500 |
MarkWest Energy Partners LP/MarkWest Energy Finance Corp., 6.75%, 11/1/20(1) | 750,000 | 765,000 |
| | | 2,359,741 |
| HEALTH CARE EQUIPMENT AND SUPPLIES — 1.0% |
Alere, Inc., 9.00%, 5/15/16(1) | 1,000,000 | 960,000 |
Biomet, Inc., 10.00%, 10/15/17(1) | 600,000 | 621,000 |
Biomet, Inc., 11.625%, 10/15/17(1) | 1,975,000 | 2,058,938 |
| | | 3,639,938 |
| HEALTH CARE PROVIDERS AND SERVICES — 4.7% |
Capella Healthcare, Inc., 9.25%, 7/1/17(1)(2) | 1,100,000 | 1,050,500 |
CHS/Community Health Systems, Inc., 8.875%, 7/15/15(1) | 1,450,000 | 1,428,250 |
DaVita, Inc., 6.625%, 11/1/20(1) | 250,000 | 241,250 |
Gentiva Health Services, Inc., 11.50%, 9/1/18(1) | 1,000,000 | 800,000 |
HCA Holdings, Inc., 7.75%, 5/15/21(1)(2) | 1,500,000 | 1,413,750 |
HCA, Inc., 6.50%, 2/15/16(1) | 1,350,000 | 1,296,000 |
HCA, Inc., 8.50%, 4/15/19(1) | 1,500,000 | 1,597,500 |
HCA, Inc., 7.875%, 2/15/20(1) | 110,000 | 114,400 |
HCA, Inc., 7.50%, 2/15/22(1) | 1,500,000 | 1,387,500 |
HCA, Inc., 7.69%, 6/15/25(1) | 2,000,000 | 1,810,000 |
Healthsouth Corp., 8.125%, 2/15/20(1) | 500,000 | 471,250 |
IASIS Healthcare LLC / IASIS Capital Corp., 8.375%, 5/15/19(1)(2) | 500,000 | 407,500 |
Radiation Therapy Services, Inc., 9.875%, 4/15/17(1) | 1,305,000 | 1,119,037 |
| Tenet Healthcare Corp., 8.875%, 7/1/19 | 1,000,000 | 1,062,500 |
Tenet Healthcare Corp., 8.00%, 8/1/20(1) | 1,600,000 | 1,460,000 |
Universal Health Services, Inc., 7.00%, 10/1/18(1) | 500,000 | 490,625 |
Vanguard Health Holding Co. II LLC/Vanguard Holding Co. II, Inc., 7.75%, 2/1/19(1) | 1,050,000 | 941,063 |
| | | 17,091,125 |
| HOTELS, RESTAURANTS AND LEISURE — 5.4% |
American Casino & Entertainment Properties LLC, 11.00%, 6/15/14(1) | 1,216,000 | 1,182,560 |
Ameristar Casinos, Inc., 7.50%, 4/15/21(1)(2) | 2,000,000 | 1,945,000 |
Boyd Gaming Corp., 9.125%, 12/1/18(1)(2) | 250,000 | 206,875 |
Caesars Entertainment Operating Co., Inc., 11.25%, 6/1/17(1) | 2,750,000 | 2,787,812 |
Caesars Entertainment Operating Co., Inc., 10.00%, 12/15/18(1) | 2,000,000 | 1,200,000 |
CityCenter Holdings LLC/CityCenter Finance Corp., 7.625%, 1/15/16(1)(2) | 1,450,000 | 1,370,250 |
| Dave & Buster’s, Inc., 11.00%, 6/1/18 | 700,000 | 698,250 |
DineEquity, Inc., 9.50%, 10/30/18(1) | 1,000,000 | 997,500 |
Fiesta Restaurant Group, 8.875%, 8/15/16(2) | 250,000 | 244,375 |
Marina District Finance Co., Inc., 9.50%, 10/15/15(1) | 850,000 | 771,375 |
Marina District Finance Co., Inc., 9.875%, 8/15/18(1) | 100,000 | 84,000 |
MGM Resorts International, 6.75%, 9/1/12(1) | 300,000 | 295,500 |
MGM Resorts International, 10.375%, 5/15/14(1) | 250,000 | 274,063 |
MGM Resorts International, 7.625%, 1/15/17(1) | 2,500,000 | 2,156,250 |
MGM Resorts International, 9.00%, 3/15/20(1) | 1,350,000 | 1,409,062 |
Pinnacle Entertainment, Inc., 7.50%, 6/15/15(1) | 250,000 | 241,875 |
Pinnacle Entertainment, Inc., 8.625%, 8/1/17(1) | 1,000,000 | 1,012,500 |
Royal Caribbean Cruises Ltd., 7.25%, 6/15/16(1) | 750,000 | 763,125 |
Starwood Hotels & Resorts Worldwide, Inc., 6.75%, 5/15/18(1) | 600,000 | 646,500 |
Wyndham Worldwide Corp., 5.625%, 3/1/21(1) | 500,000 | 503,273 |
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., 7.75%, 8/15/20(1) | 1,000,000 | 1,055,000 |
| | | 19,845,145 |
| HOUSEHOLD DURABLES — 2.3% |
Beazer Homes USA, Inc., 6.875%, 7/15/15(1) | $750,000 | $510,000 |
K Hovnanian Enterprises, Inc., 10.625%, 10/15/16(1) | 750,000 | 566,250 |
KB Home, 6.25%, 6/15/15(1) | 1,000,000 | 805,000 |
Lennar Corp., 5.60%, 5/31/15(1) | 1,250,000 | 1,143,750 |
Lennar Corp., 6.50%, 4/15/16(1) | 500,000 | 462,500 |
Lennar Corp., 6.95%, 6/1/18(1) | 800,000 | 716,000 |
Meritage Homes Corp., 6.25%, 3/15/15(1) | 750,000 | 723,750 |
Sealy Mattress Co., 10.875%, 4/15/16(1)(2) | 958,000 | 1,015,480 |
Standard Pacific Corp., 8.375%, 5/15/18(1) | 2,250,000 | 1,923,750 |
Toll Brothers Finance Corp., 6.75%, 11/1/19(1) | 680,000 | 697,619 |
| | | 8,564,099 |
| HOUSEHOLD PRODUCTS — 2.2% |
American Achievement Corp., 10.875%, 4/15/16(1)(2) | 1,000,000 | 765,000 |
| Central Garden and Pet Co., 8.25%, 3/1/18 | 2,120,000 | 2,035,200 |
| Jarden Corp., 8.00%, 5/1/16 | 1,250,000 | 1,326,562 |
Reynolds Group Issuer, Inc./ Reynolds Group Issuer LLC/ Reynolds Group Issuer Lu, 9.00%, 5/15/18(1)(2) | 1,000,000 | 850,000 |
Reynolds Group Issuer, Inc./ Reynolds Group Issuer LLC/ Reynolds Group Issuer Lu, 7.125%, 4/15/19(1)(2) | 2,000,000 | 1,870,000 |
Reynolds Group Issuer, Inc./ Reynolds Group Issuer LLC/ Reynolds Group Issuer Lu, 7.875%, 8/15/19(1)(2) | 750,000 | 727,500 |
Reynolds Group Issuer, Inc./ Reynolds Group Issuer LLC / Reynolds Group Issuer Lu, 9.875%, 8/15/19(1)(2) | 250,000 | 221,250 |
YCC Holdings LLC/ Yankee Finance, Inc., PIK, 10.25%, 2/15/16(1) | 500,000 | 427,500 |
| | | 8,223,012 |
| INDUSTRIAL CONGLOMERATES — 0.8% |
Bombardier, Inc., 7.50%, 3/15/18(1)(2) | 900,000 | 954,000 |
Harland Clarke Holdings Corp., 9.50%, 5/15/15(1) | 1,405,000 | 1,046,725 |
Harland Clarke Holdings Corp., VRN, 6.00%, 11/21/11(1) | 250,000 | 166,250 |
SPX Corp., 7.625%, 12/15/14(1) | 650,000 | 698,750 |
| | | 2,865,725 |
| INSURANCE — 2.6% |
American General Institutional Capital, Inc., 7.57%, 12/1/45(1)(2) | 500,000 | 455,000 |
American International Group, Inc., 6.25%, 3/15/37(1) | 1,250,000 | 871,875 |
American International Group, Inc., VRN, 8.175%, 5/15/38(1) | 1,000,000 | 886,250 |
Genworth Financial, Inc., VRN, 6.15%, 11/15/16(1) | 1,000,000 | 505,000 |
International Lease Finance Corp., 5.75%, 5/15/16(1) | 2,000,000 | 1,780,410 |
International Lease Finance Corp., 8.75%, 3/15/17(1) | 1,450,000 | 1,460,875 |
International Lease Finance Corp., 8.25%, 12/15/20(1) | 1,000,000 | 982,500 |
Liberty Mutual Group, Inc., VRN, 7.00%, 3/15/17(1)(2) | 1,000,000 | 855,000 |
QBE Capital Funding III Ltd., VRN, 7.25%, 5/24/21(1)(2) | 1,000,000 | 906,563 |
Swiss Re Capital I LP, VRN, 6.854%, 5/25/16(1)(2) | 1,000,000 | 915,004 |
| | | 9,618,477 |
| INTERNET SOFTWARE AND SERVICES — 0.1% |
Equinix, Inc., 7.00%, 7/15/21(1) | 500,000 | 499,375 |
| IT SERVICES — 1.9% |
| Fidelity National Information Services, Inc., 7.625%, 7/15/17 | 1,000,000 | 1,045,000 |
First Data Corp., 9.875%, 9/24/15(1) | 552,000 | 465,060 |
First Data Corp., 11.25%, 3/31/16(1) | 500,000 | 340,000 |
First Data Corp., 7.375%, 6/15/19(1)(2) | 1,500,000 | 1,338,750 |
First Data Corp., 8.875%, 8/15/20(1)(2) | 1,000,000 | 945,000 |
First Data Corp., 8.25%, 1/15/21(1)(2) | 1,349,000 | 1,072,455 |
First Data Corp., 12.625%, 1/15/21(1)(2) | 1,349,000 | 1,005,005 |
SunGard Data Systems, Inc., 10.25%, 8/15/15(1) | 600,000 | 609,000 |
| | | 6,820,270 |
| MACHINERY — 0.9% |
Case New Holand, Inc., 7.875%, 12/1/17(1) | $1,250,000 | $1,337,500 |
Huntington Ingalls Industries, Inc., 7.125%, 3/15/21(1)(2) | 750,000 | 699,375 |
Navistar International Corp., 8.25%, 11/1/21(1) | 427,000 | 440,344 |
Oshkosh Corp., 8.25%, 3/1/17(1) | 850,000 | 828,750 |
Oshkosh Corp., 8.50%, 3/1/20(1) | 100,000 | 97,500 |
| | | 3,403,469 |
| MARINE — 0.2% |
Navios Maritime Holdings, Inc./Navios Maritime Finance US, Inc., 8.875%, 11/1/17(1) | 500,000 | 490,000 |
Navios Maritime Holdings, Inc./Navios Maritime Finance US, Inc., 8.125%, 2/15/19(2) | 500,000 | 420,000 |
| | | 910,000 |
| MEDIA — 11.7% |
| AMC Entertainment, Inc., 9.75%, 12/1/20 | 1,800,000 | 1,638,000 |
AMC Networks, Inc., 7.75%, 7/15/21(2) | 200,000 | 206,000 |
Cablevision Systems Corp., 8.625%, 9/15/17(1) | 1,500,000 | 1,569,375 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 7.25%, 10/30/17 | 500,000 | 502,500 |
CCO Holdings LLC/CCO Holdings Capital Corp., 7.875%, 4/30/18(1) | 2,000,000 | 2,045,000 |
CCO Holdings LLC/CCO Holdings Capital Corp., 7.00%, 1/15/19(1) | 2,250,000 | 2,193,750 |
Cengage Learning Acquisitions, Inc., 10.50%, 1/15/15(1)(2) | 1,129,000 | 728,205 |
Cenveo Corp., 7.875%, 12/1/13(1) | 1,250,000 | 881,250 |
Cenveo Corp., 8.375%, 6/15/14(1) | 350,000 | 272,125 |
Cinemark USA, Inc., 8.625%, 6/15/19(1) | 700,000 | 724,500 |
Clear Channel Communications, Inc., 10.75%, 8/1/16(1) | 1,750,000 | 914,375 |
| Clear Channel Communications, Inc., 9.00%, 3/1/21 | 500,000 | 373,750 |
Clear Channel Worldwide Holdings, Inc., 9.25%, 12/15/17(1) | 100,000 | 102,000 |
Clear Channel Worldwide Holdings, Inc., 9.25%, 12/15/17(1) | 1,400,000 | 1,438,500 |
Clearwire Communications LLC/Clearwire Finance, Inc., 12.00%, 12/1/15(1)(2) | 1,000,000 | 847,500 |
Clearwire Communications LLC/Clearwire Finance, Inc., 12.00%, 12/1/15(1)(2) | 500,000 | 426,250 |
CSC Holdings LLC, 8.50%, 4/15/14(1) | 1,000,000 | 1,083,750 |
Cumulus Media, Inc., 7.75%, 5/1/19(1)(2) | 1,100,000 | 932,250 |
DISH DBS Corp., 7.00%, 10/1/13(1) | 1,000,000 | 1,042,500 |
DISH DBS Corp., 7.125%, 2/1/16(1) | 1,000,000 | 1,017,500 |
DISH DBS Corp., 6.75%, 6/1/21(1)(2) | 1,600,000 | 1,536,000 |
Global Crossing Ltd., 12.00%, 9/15/15(1) | 250,000 | 284,687 |
Gray Television, Inc., 10.50%, 6/29/15(1) | 1,000,000 | 910,000 |
Interpublic Group of Cos., Inc. (The), 10.00%, 7/15/17(1) | 250,000 | 285,625 |
Lamar Media Corp., 7.875%, 4/15/18(1) | 300,000 | 301,500 |
McClatchy Co. (The), 11.50%, 2/15/17(1) | 500,000 | 436,250 |
Mediacom Broadband LLC/Mediacom Broadband Corp., 8.50%, 10/15/15(1) | 750,000 | 750,000 |
Mediacom LLC/Mediacom Capital Corp., 9.125%, 8/15/19(1) | 750,000 | 750,000 |
Nexstar Broadcasting, Inc./Mission Broadcasting, Inc., 8.875%, 4/15/17(1) | 1,200,000 | 1,191,000 |
Nielsen Finance LLC/Nielsen Finance Co., 11.50%, 5/1/16(1) | 487,000 | 555,180 |
PAETEC Holding Corp., 8.875%, 6/30/17(1) | 750,000 | 791,250 |
RR Donnelley & Sons Co., 7.25%, 5/15/18(1) | 1,250,000 | 1,130,000 |
Salem Communications Corp., 9.625%, 12/15/16(1) | 279,000 | 280,395 |
SBA Telecommunications, Inc., 8.25%, 8/15/19(1) | 1,000,000 | 1,055,000 |
Sinclair Television Group, Inc., 9.25%, 11/1/17(1)(2) | 950,000 | 1,002,250 |
Sinclair Television Group, Inc., 8.375%, 10/15/18(1) | $1,000,000 | $990,000 |
Sirius XM Radio, Inc., 8.75%, 4/1/15(1)(2) | 1,900,000 | 2,066,250 |
Sirius XM Radio, Inc., 9.75%, 9/1/15(1)(2) | 500,000 | 543,750 |
Univision Communications, Inc., 6.875%, 5/15/19(1)(2) | 750,000 | 671,250 |
Univision Communications, Inc., 8.50%, 5/15/21(1)(2) | 1,600,000 | 1,256,000 |
Valassis Communications, Inc., 6.625%, 2/1/21(1) | 1,000,000 | 940,000 |
Videotron Ltee, 9.125%, 4/15/18(1) | 1,000,000 | 1,095,000 |
Visant Corp., 10.00%, 10/1/17(1) | 1,250,000 | 1,162,500 |
Wind Acquisition Finance SA, 11.75%, 7/15/17(2) | 2,000,000 | 1,710,000 |
Wind Acquisition Finance SA, 7.25%, 2/15/18(2) | 1,000,000 | 856,250 |
| WMG Acquisition Corp., 9.50%, 6/15/16 | 1,250,000 | 1,271,875 |
| | | 42,761,092 |
| METALS AND MINING — 1.7% |
AK Steel Corp., 7.625%, 5/15/20(1) | 1,000,000 | 881,250 |
Aleris International, Inc., 7.625%, 2/15/18(1)(2) | 700,000 | 631,750 |
Dynacast International LLC/Dynacast Finance, Inc., 9.25%, 7/15/19(2) | 500,000 | 455,000 |
FMG Resources Pty Ltd., 7.00%, 11/1/15(1)(2) | 1,500,000 | 1,402,500 |
FMG Resources Pty Ltd., 6.875%, 2/1/18(1)(2) | 1,000,000 | 885,000 |
Novelis, Inc., 8.375%, 12/15/17(1) | 1,000,000 | 995,000 |
Steel Dynamics, Inc., 7.625%, 3/15/20(1) | 400,000 | 401,500 |
United States Steel Corp., 7.375%, 4/1/20(1) | 500,000 | 452,500 |
| | | 6,104,500 |
| MULTI-UTILITIES — 3.7% |
Calpine Construction Finance Co. LP/CCFC Finance Corp., 8.00%, 6/1/16(1)(2) | 600,000 | 618,000 |
Calpine Corp., 7.25%, 10/15/17(1)(2) | 1,500,000 | 1,455,000 |
Calpine Corp., 7.875%, 7/31/20(1)(2) | 500,000 | 485,000 |
Dynegy Holdings, Inc., 7.75%, 6/1/19(1) | 1,000,000 | 610,000 |
Energy Future Holdings Corp., 10.875%, 11/1/17(1) | 393,000 | 318,330 |
Energy Future Holdings Corp., 10.00%, 1/15/20(1) | 1,000,000 | 975,000 |
| Energy Future Intermediate Holding Co. LLC/EFIH Finance, Inc., 10.00%, 12/1/20 | 1,976,000 | 1,936,480 |
GenOn Energy, Inc., 9.50%, 10/15/18(1) | 2,000,000 | 1,890,000 |
NRG Energy, Inc., 7.625%, 1/15/18(1)(2) | 2,395,000 | 2,239,325 |
NRG Energy, Inc., 7.625%, 5/15/19(1)(2) | 2,000,000 | 1,830,000 |
Texas Competitive Electric Holdings Co. LLC/TCEH Finance, Inc., 10.25%, 11/1/15(1) | 1,000,000 | 380,000 |
Texas Competitive Electric Holdings Co. LLC/TCEH Finance, Inc., 11.50%, 10/1/20(1)(2) | 1,000,000 | 805,000 |
| | | 13,542,135 |
| MULTILINE RETAIL — 0.2% |
JC Penney Corp., Inc., 5.75%, 2/15/18(1) | 500,000 | 490,000 |
Macy’s Retail Holdings, Inc., 6.375%, 3/15/37(1) | 250,000 | 275,847 |
| | | 765,847 |
| OIL, GAS AND CONSUMABLE FUELS — 8.5% |
Alpha Natural Resources, Inc., 6.00%, 6/1/19(1) | 1,000,000 | 937,500 |
| AmeriGas Partners LP/AmeriGas Finance Corp., 6.25%, 8/20/19 | 750,000 | 721,875 |
Antero Resources Finance Corp., 7.25%, 8/1/19(1)(2) | 1,000,000 | 955,000 |
Arch Coal, Inc., 8.75%, 8/1/16(1) | 500,000 | 532,500 |
Arch Coal, Inc., 7.00%, 6/15/19(1)(2) | 500,000 | 477,500 |
Arch Coal, Inc., 7.25%, 10/1/20(1) | 1,600,000 | 1,544,000 |
Bill Barrett Corp., 9.875%, 7/15/16(1) | 2,000,000 | 2,190,000 |
Calumet Specialty Products Partners LP/Calumet Finance Corp., 9.375%, 5/1/19(1)(2) | 100,000 | 93,500 |
Chesapeake Energy Corp., 7.625%, 7/15/13(1) | 250,000 | 263,125 |
Chesapeake Energy Corp., 6.625%, 8/15/20(1) | 1,500,000 | 1,552,500 |
Chesapeake Energy Corp., 6.125%, 2/15/21(1) | 1,000,000 | 1,012,500 |
Cimarex Energy Co., 7.125%, 5/1/17(1) | $750,000 | $761,250 |
Consol Energy, Inc., 8.00%, 4/1/17(1) | 1,700,000 | 1,785,000 |
Denbury Resources, Inc., 8.25%, 2/15/20(1) | 896,000 | 945,280 |
Denbury Resources, Inc., 6.375%, 8/15/21(1) | 100,000 | 97,500 |
Encore Acquisition Co., 9.50%, 5/1/16(1) | 750,000 | 813,750 |
| Energy XXI Gulf Coast, Inc., 9.25%, 12/15/17 | 500,000 | 490,000 |
| Energy XXI Gulf Coast, Inc., 7.75%, 6/15/19 | 750,000 | 682,500 |
Forest Oil Corp., 8.50%, 2/15/14(1) | 900,000 | 956,250 |
Inergy LP/Inergy Finance Corp., 7.00%, 10/1/18(1) | 1,000,000 | 945,000 |
Linn Energy LLC/Linn Energy Finance Corp., 6.50%, 5/15/19(1)(2) | 1,250,000 | 1,156,250 |
Linn Energy LLC/Linn Energy Finance Corp., 8.625%, 4/15/20(1) | 1,500,000 | 1,552,500 |
MEG Energy Corp., 6.50%, 3/15/21(2) | 500,000 | 481,250 |
Peabody Energy Corp., 7.375%, 11/1/16(1) | 500,000 | 551,875 |
Peabody Energy Corp., 6.50%, 9/15/20(1) | 100,000 | 105,625 |
Pioneer Natural Resources Co., 6.65%, 3/15/17(1) | 500,000 | 538,112 |
Plains Exploration & Production Co., 8.625%, 10/15/19(1) | 1,000,000 | 1,080,000 |
Plains Exploration & Production Co., 6.625%, 5/1/21(1) | 1,000,000 | 986,250 |
Range Resources Corp., 5.75%, 6/1/21(1) | 1,000,000 | 1,042,500 |
Sabine Pass LNG LP, 7.25%, 11/30/13(1) | 1,550,000 | 1,507,375 |
Sabine Pass LNG LP, 7.50%, 11/30/16(1) | 750,000 | 697,500 |
SandRidge Energy, Inc., 8.75%, 1/15/20(1) | 1,250,000 | 1,231,250 |
Stone Energy Corp., 8.625%, 2/1/17(1) | 750,000 | 708,750 |
Suburban Propane Partners LP/Suburban Energy Finance Corp., 7.375%, 3/15/20(1) | 350,000 | 351,750 |
Venoco, Inc., 8.875%, 2/15/19(1) | 1,450,000 | 1,254,250 |
| | | 31,001,767 |
| PAPER AND FOREST PRODUCTS — 1.3% |
AbitibiBowater, Inc., 10.25%, 10/15/18(1)(2) | 394,000 | 413,700 |
Domtar Corp., 9.50%, 8/1/16(1) | 1,000,000 | 1,190,000 |
Georgia-Pacific LLC, 8.25%, 5/1/16(1)(2) | 500,000 | 552,998 |
Georgia-Pacific LLC, 7.125%, 1/15/17(1)(2) | 150,000 | 157,464 |
NewPage Corp., 11.375%, 12/31/14(4) | 500,000 | 373,750 |
Sappi Papier Holding GmbH, 6.625%, 4/15/21(1)(2) | 1,500,000 | 1,282,500 |
Verso Paper Holdings LLC/Verso Paper, Inc., 8.75%, 2/1/19(1) | 1,250,000 | 868,750 |
| | | 4,839,162 |
| PERSONAL PRODUCTS — 0.4% |
Elizabeth Arden, Inc., 7.375%, 3/15/21(1) | 1,500,000 | 1,507,500 |
| PHARMACEUTICALS — 1.1% |
Endo Pharmaceuticals Holdings, Inc., 7.00%, 7/15/19(2) | 950,000 | 958,312 |
Valeant Pharmaceuticals International, 6.50%, 7/15/16(1)(2) | 1,000,000 | 935,000 |
Valeant Pharmaceuticals International, 6.875%, 12/1/18(1)(2) | 1,000,000 | 910,000 |
Valeant Pharmaceuticals International, 6.75%, 8/15/21(2) | 250,000 | 217,813 |
| Warner Chilcott Co. LLC/Warner Chilcott Finance LLC, 7.75%, 9/15/18 | 1,000,000 | 960,000 |
| | | 3,981,125 |
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.8% |
Felcor Lodging LP, 6.75%, 6/1/19(1)(2) | 750,000 | 675,000 |
Host Hotels & Resorts LP, 6.75%, 6/1/16(1) | 1,000,000 | 1,005,000 |
Host Hotels & Resorts LP, 5.875%, 6/15/19(1)(2) | 600,000 | 576,000 |
iStar Financial, Inc., 5.95%, 10/15/13(1) | 750,000 | 658,125 |
MPT Operating Partnership LP/MPT Finance Corp., 6.875%, 5/1/21(1)(2) | 1,500,000 | 1,432,500 |
Reckson Operating Partnership LP, 7.75%, 3/15/20(1) | $750,000 | $850,057 |
Sabra Health Care LP/Sabra Capital Corp., 8.125%, 11/1/18(1) | 1,500,000 | 1,402,500 |
| | | 6,599,182 |
| REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.7% |
CB Richard Ellis Services, Inc., 11.625%, 6/15/17(1) | 800,000 | 906,000 |
CB Richard Ellis Services, Inc., 6.625%, 10/15/20(1) | 800,000 | 772,000 |
Realogy Corp., 10.50%, 4/15/14(1) | 1,000,000 | 865,000 |
| | | 2,543,000 |
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 1.3% |
Advanced Micro Devices, Inc., 8.125%, 12/15/17(1) | 1,200,000 | 1,206,000 |
Freescale Semiconductor, Inc., 8.875%, 12/15/14(1) | 94,000 | 95,880 |
Freescale Semiconductor, Inc., 10.125%, 3/15/18(1)(2) | 663,000 | 692,835 |
Freescale Semiconductor, Inc., 9.25%, 4/15/18(1)(2) | 750,000 | 774,375 |
MagnaChip Semiconductor SA/MagnaChip Semiconductor Finance Co., 10.50%, 4/15/18(1) | 1,000,000 | 1,060,000 |
| MEMC Electronic Materials, Inc., 7.75%, 4/1/19 | 1,000,000 | 860,000 |
| | | 4,689,090 |
| SPECIALTY RETAIL — 3.4% |
Asbury Automotive Group, Inc., 7.625%, 3/15/17(1) | 250,000 | 240,000 |
Asbury Automotive Group, Inc., 8.375%, 11/15/20(1) | 250,000 | 242,500 |
Ashtead Capital, Inc., 9.00%, 8/15/16(1)(2) | 1,650,000 | 1,641,750 |
Avis Budget Car Rental LLC/Avis Budget Finance, Inc., 9.625%, 3/15/18(1) | 800,000 | 796,000 |
Avis Budget Car Rental LLC/Avis Budget Finance, Inc., 8.25%, 1/15/19(1) | 1,000,000 | 920,000 |
Hertz Corp. (The), 7.375%, 1/15/21(1) | 1,350,000 | 1,240,312 |
| Michaels Stores, Inc., 7.75%, 11/1/18 | 500,000 | 470,000 |
Petco Animal Supplies, Inc., 9.25%, 12/1/18(1)(2) | 1,000,000 | 1,005,000 |
Rent-A-Center, Inc., 6.625%, 11/15/20(1) | 700,000 | 675,500 |
RSC Equipment Rental, Inc./RSC Holdings III LLC, 9.50%, 12/1/14(1) | 609,000 | 609,000 |
RSC Equipment Rental, Inc./RSC Holdings III LLC, 10.00%, 7/15/17(1)(2) | 250,000 | 263,750 |
Sonic Automotive, Inc., 9.00%, 3/15/18(1) | 250,000 | 251,875 |
Stewart Enterprises, Inc., 6.50%, 4/15/19(1) | 600,000 | 583,500 |
Toys “R” Us Delaware, Inc., 7.375%, 9/1/16(1)(2) | 200,000 | 192,000 |
| Toys “R” Us Property Co. I LLC, 10.75%, 7/15/17 | 1,000,000 | 1,062,500 |
Toys “R” Us Property Co. II LLC, 8.50%, 12/1/17(1) | 900,000 | 882,000 |
United Rentals (North America), Inc., 8.375%, 9/15/20(1) | 1,500,000 | 1,383,750 |
| | | 12,459,437 |
| TEXTILES, APPAREL AND LUXURY GOODS — 2.1% |
Burlington Coat Factory Warehouse Corp., 10.00%, 2/15/19(1)(2) | 1,250,000 | 1,068,750 |
Gymboree Corp., 9.125%, 12/1/18(1) | 1,500,000 | 1,117,500 |
Hanesbrands, Inc., 8.00%, 12/15/16(1) | 500,000 | 531,250 |
Hanesbrands, Inc., 6.375%, 12/15/20(1) | 1,250,000 | 1,218,750 |
Ltd. Brands, Inc., 6.90%, 7/15/17(1) | 1,000,000 | 1,052,500 |
| Ltd. Brands, Inc., 7.00%, 5/1/20 | 500,000 | 527,500 |
Ltd. Brands, Inc., 6.625%, 4/1/21(1) | 750,000 | 759,375 |
Phillips-Van Heusen Corp., 7.375%, 5/15/20(1) | 200,000 | 209,500 |
Polymer Group, Inc., 7.75%, 2/1/19(1)(2) | 1,360,000 | 1,363,400 |
| | | 7,848,525 |
| WIRELESS TELECOMMUNICATION SERVICES — 2.0% |
Cricket Communications, Inc., 7.75%, 10/15/20(1) | 1,500,000 | 1,308,750 |
Cricket Communications, Inc., 7.75%, 10/15/20(1)(2) | 500,000 | 432,500 |
MetroPCS Wireless, Inc., 7.875%, 9/1/18(1) | 1,000,000 | 975,000 |
MetroPCS Wireless, Inc., 6.625%, 11/15/20(1) | 1,000,000 | 882,500 |
| | Principal Amount/ Shares | Value |
Nextel Communications, Inc., 7.375%, 8/1/15(1) | $2,500,000 | $2,381,250 |
NII Capital Corp., 7.625%, 4/1/21(1) | 500,000 | 498,750 |
Vimpel Communications Via VIP Finance Ireland Ltd. OJSC, 6.493%, 2/2/16(1)(2) | 250,000 | 230,625 |
Vimpel Communications Via VIP Finance Ireland Ltd. OJSC, 7.748%, 2/2/21(1)(2) | 700,000 | 588,840 |
| | | 7,298,215 |
TOTAL CORPORATE BONDS (Cost $359,781,922) | 341,208,193 |
| Exchange-Traded Funds — 0.7% |
| iShares iBoxx $ High Yield Corporate Bond Fund (Cost $2,815,767) | 32,100 | 2,655,633 |
Commercial Mortgage-Backed Securities(3) — 0.3% |
| Commercial Mortgage Pass-Through Certificates, Series 2006-C8, Class A2B SEQ, 5.248%, 12/10/46 | $280,828 | 282,037 |
LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class AJ SEQ, 4.843%, 7/15/40(1) | 900,000 | 766,127 |
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $1,132,851) | 1,048,164 |
| | Shares | Value |
| Common Stocks — 0.3% |
BUILDING PRODUCTS† |
Nortek, Inc.(5) | 650 | $14,381 |
| COMMERCIAL BANKS — 0.1% |
CIT Group, Inc.(5) | 9,111 | 276,701 |
| HEALTH CARE PROVIDERS AND SERVICES — 0.1% |
Express Scripts, Inc.(5) | 10,800 | 400,356 |
| MEDIA — 0.1% |
Charter Communications, Inc., Class A(5) | 6,913 | 323,805 |
TOTAL COMMON STOCKS (Cost $2,016,409) | 1,015,243 |
Preferred Stocks† |
DIVERSIFIED FINANCIAL SERVICES† |
Ally Financial, Inc., 7.00%(2) (Cost $164,281) | 175 | 115,635 |
| Temporary Cash Investments — 3.6% |
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.25%, 9/15/14, valued at $4,159,345), in a joint trading account at 0.01%, dated 9/30/11, due 10/3/11 (Delivery value $4,076,059) | 4,076,056 |
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.50%, 2/15/39, valued at $3,579,749), in a joint trading account at 0.01%, dated 9/30/11, due 10/3/11 (Delivery value $3,493,765) | 3,493,762 |
| SSgA U.S. Government Money Market Fund | 5,571,637 | 5,571,637 |
TOTAL TEMPORARY CASH INVESTMENTS (Cost $13,141,455) | 13,141,455 |
TOTAL INVESTMENT SECURITIES — 97.9% (Cost $379,052,685) | 359,184,323 |
| OTHER ASSETS AND LIABILITIES — 2.1% | 7,680,872 |
| TOTAL NET ASSETS — 100.0% | $366,865,195 |
| Credit Default Swap Agreements | |
Counterparty/ Reference Entity | Notional Amount | Buy/Sell Protection | Interest Rate | Termination Date | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | Value |
Bank of America N.A./CDX North America High Yield 14 Index | $6,000,000 | Sell* | 5.00% | 6/20/15 | $(143,679) | | $(128,310) | $(271,989) | |
Barclays Bank plc/CDX North America High Yield 11 Index | 1,740,000 | Sell* | 5.00% | 12/20/13 | (178,054) | | 157,333 | (20,721) | |
Barclays Bank plc/ Community Health Systems, Inc. | 1,400,000 | Sell* | 5.00% | 12/20/12 | 57,215 | | (42,120) | 15,095 | |
| | | | | | | | | $(277,615) | |
| * | The maximum potential amount the fund could be required to deliver as a seller of credit protection if a credit event occurs as defined under the terms of the agreement is the notional amount. The maximum potential amount may be partially offset by any recovery values of the referenced obligations and upfront payments received upon entering into the agreement. The quoted market prices and resulting market value for credit default swap agreements on credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability or profit at the period end. Increasing market values in absolute terms when compared to the notional amount of the credit default swap agreement represent a deterioration of the referenced entity’s credit soundness and an increased likelihood or risk of a credit event occurring as defined in the agreement. |
Notes to Schedule of Investments
CDX = Credit Derivatives Indexes
LB-UBS = Lehman Brothers, Inc. - UBS AG
OJSC = Open Joint Stock Company
PIK = Payment in Kind
SEQ = Sequential Payer
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is effective at the period end.
| † | Category is less than 0.05% of total net assets. |
| (1) | Security, or a portion thereof, has been segregated for swap agreements. At the period end, the aggregate value of securities pledged was $9,140,000. |
| (2) | Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of these securities at the period end was $99,266,069, which represented 27.1% of total net assets. None of these securities were considered illiquid. |
| (3) | Final maturity date indicated, unless otherwise noted. |
| (4) | Security is in default. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
| SEPTEMBER 30, 2011 (UNAUDITED) | |
| Assets | |
| Investment securities, at value (cost of $379,052,685) | | | $359,184,323 | |
| Deposits with broker for swap agreements | | | 280,000 | |
| Receivable for investments sold | | | 2,027,350 | |
| Receivable for capital shares sold | | | 313,248 | |
| Swap agreements, at value (including net premiums paid (received) of $57,215) | | | 15,095 | |
| Dividends and interest receivable | | | 8,692,180 | |
| | | | 370,512,196 | |
| | | | | |
| Liabilities | |
| Disbursements in excess of demand deposit cash | | | 19,407 | |
| Payable for investments purchased | | | 2,003,660 | |
| Payable for capital shares redeemed | | | 1,023,452 | |
| Swap agreements, at value (including net premiums paid (received) of $(321,733)) | | | 292,710 | |
| Accrued management fees | | | 239,128 | |
| Distribution and service fees payable | | | 23,428 | |
| Dividends payable | | | 45,216 | |
| | | | 3,647,001 | |
| | | | | |
| Net Assets | | | $366,865,195 | |
| | | | | |
| | | | | |
| Net Assets Consist of: | |
| Capital paid in | | | $375,470,320 | |
| Accumulated net investment loss | | | (239,979 | ) |
| Undistributed net realized gain | | | 11,516,313 | |
| Net unrealized depreciation | | | (19,881,459 | ) |
| | | | $366,865,195 | |
| | | | | | | | | | |
| | | Net assets | | Shares outstanding | | Net asset value per share |
| Investor Class | | | $162,363,451 | | | | 28,922,382 | | | | $5.61 | |
| Institutional Class | | | $148,696,986 | | | | 26,487,517 | | | | $5.61 | |
| A Class | | | $35,823,323 | | | | 6,381,487 | | | | $5.61 | * |
| B Class | | | $1,043,943 | | | | 185,957 | | | | $5.61 | |
| C Class | | | $16,551,125 | | | | 2,948,221 | | | | $5.61 | |
| R Class | | | $2,386,367 | | | | 424,970 | | | | $5.62 | |
*Maximum offering price $5.87 (net asset value divided by 0.955)
See Notes to Financial Statements.
| FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED) | |
| Investment Income (Loss) | |
| Income: | |
| Interest | | | $15,533,918 | |
| Dividends | | | 186,742 | |
| | | | 15,720,660 | |
| | | | | |
| Expenses: | | | | |
| Management fees | | | 1,571,953 | |
| Distribution and service fees: | | | | |
| A Class | | | 53,869 | |
| B Class | | | 6,173 | |
| C Class | | | 92,915 | |
| R Class | | | 5,551 | |
| Trustees’ fees and expenses | | | 13,341 | |
| | | | 1,743,802 | |
| Fees waived | | | (76,438 | ) |
| | | | 1,667,364 | |
| | | | | |
| Net investment income (loss) | | | 14,053,296 | |
| | | | | |
| Realized and Unrealized Gain (Loss) | |
| Net realized gain (loss) on: | | | | |
| Investment transactions | | | 5,489,511 | |
| Futures contract transactions | | | 298,709 | |
| Swap agreement transactions | | | 246,561 | |
| | | | 6,034,781 | |
| | | | | |
| Change in net unrealized appreciation (depreciation) on: | |
| Investments | | | (45,209,091 | ) |
| Futures contracts | | | 13,912 | |
| Swap agreements | | | (762,553 | ) |
| | | | (45,957,732 | ) |
| | | | | |
| Net realized and unrealized gain (loss) | | | (39,922,951 | ) |
| | | | | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | | | $(25,869,655 | ) |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
| SIX MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED) AND YEAR ENDED MARCH 31, 2011 | |
| Increase (Decrease) in Net Assets | | September 30, 2011 | | | March 31, 2011 | |
| Operations | |
| Net investment income (loss) | | | $14,053,296 | | | | $24,790,208 | |
| Net realized gain (loss) | | | 6,034,781 | | | | 12,845,421 | |
| Change in net unrealized appreciation (depreciation) | | | (45,957,732 | ) | | | 4,483,032 | |
| Net increase (decrease) in net assets resulting from operations | | | (25,869,655 | ) | | | 42,118,661 | |
| | | | | | | | | |
| Distributions to Shareholders | |
| From net investment income: | | | | | | | | |
| Investor Class | | | (6,566,188 | ) | | | (12,416,949 | ) |
| Institutional Class | | | (5,589,661 | ) | | | (8,767,272 | ) |
| A Class | | | (1,461,465 | ) | | | (2,769,362 | ) |
| B Class | | | (37,283 | ) | | | (93,849 | ) |
| C Class | | | (561,106 | ) | | | (1,095,469 | ) |
| R Class | | | (72,789 | ) | | | (118,876 | ) |
| Decrease in net assets from distributions | | | (14,288,492 | ) | | | (25,261,777 | ) |
| | | | | | | | | |
| Capital Share Transactions | |
| Net increase (decrease) in net assets from capital share transactions | | | 5,756,072 | | | | 116,692,330 | |
| | | | | | | | | |
| | | | | | | | | |
| Net increase (decrease) in net assets | | | (34,402,075 | ) | | | 133,549,214 | |
| | | | | | | | | |
| Net Assets | |
| Beginning of period | | | 401,267,270 | | | | 267,718,056 | |
| End of period | | | $366,865,195 | | | | $401,267,270 | |
| | | | | | | | | |
| Accumulated net investment loss | | | $(239,979 | ) | | | $(21,999 | ) |
See Notes to Financial Statements.
Notes to Financial Statements |
SEPTEMBER 30, 2011 (UNAUDITED)
1. Organization
American Century Investment Trust (the trust) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Massachusetts business trust. High-Yield Fund (the fund) is one fund in a series issued by the trust. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek high current income by investing in high-yield corporate bonds and other debt securities. As a secondary objective, the fund seeks capital appreciation, but only when consistent with its primary objective of maximizing current income. The fund pursues its objectives by investing primarily in lower-rated debt securities, which are subject to greater credit risk and consequently offer higher yields.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. On October 21, 2011, all outstanding B Class shares were converted to A Class shares and the fund discontinued issuance of the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open.
Debt securities maturing in greater than 60 days at the time of purchase are valued at the evaluated mean as provided by independent pricing services or at the mean of the most recent bid and asked prices as provided by investment dealers. Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are typically valued at the closing price on the exchange where primarily traded or as of the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Swap agreements are valued at an evaluated price as provided by independent pricing services or investment dealers.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Trustees or its designee, in accordance with procedures adopted by the Board of Trustees. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
When-Issued — The fund may engage in securities transactions on a when-issued basis. Under these arrangements, the securities’ prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Trustees. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Management Fees — The trust has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent trustees (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the fund and certain other accounts managed by the investment advisor that are in the same broad investment category as the fund and (2) a Complex Fee based on the assets of all the funds in the American Century Investments family of funds. The rates for the Investment Category Fee range from 0.5425% to 0.6600%. The rates for the Complex Fee range from 0.2500% to 0.3100% for the Investor Class, A Class, B Class, C Class and R Class. The Institutional Class is 0.2000% less at each point within the Complex Fee range. The investment advisor voluntarily agreed to waive 0.055% of its management fee from April 1, 2011 through July 31, 2011, at which time the waiver was terminated. The total amount of the waiver for each class for the six months ended September 30, 2011 was $35,569, $28,369, $8,346, $237, $3,526 and $391 for the Investor Class, Institutional Class, A Class, B Class, C Class and R Class, respectively. The effective annual management fee before waiver for each class for the six months ended September 30, 2011 was 0.85% for the Investor Class, A Class, B Class, C Class and R Class and 0.65% for the Institutional Class. The effective annual management fee after waiver for each class for the six months ended September 30, 2011 was 0.81% for the Investor Class, A Class, B Class, C Class and R Class and 0.61% for the Institutional Class.
Distribution and Service Fees — The Board of Trustees has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2011 are detailed in the Statement of Operations.
Acquired Fund Fees and Expenses — The fund may invest in mutual funds, exchange-traded funds, and business development companies (the acquired funds). The fund will indirectly realize its pro rata share of the fees and expenses of the acquired funds in which it invests. These indirect fees and expenses are not paid out of the fund’s assets but are reflected in the return realized by the fund on its investment in the acquired funds.
Related Parties — Certain officers and trustees of the trust are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the trust’s investment advisor, ACIM, the distributor of the trust, ACIS, and the trust’s transfer agent, American Century Services, LLC. Various funds in a series issued by American Century Asset Allocation Portfolios, Inc. (ACAAP) own, in aggregate, 45% of the shares of the fund. ACAAP does not invest in the fund for the purpose of exercising management or control.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the six months ended September 30, 2011 were $46,632,621 and $46,082,787, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows (unlimited number of shares authorized):
| | | | | | | |
| | | Six months ended September 30, 2011 | | | Year ended March 31, 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Investor Class | |
| Sold | | | 11,317,596 | | | | $69,268,050 | | | | 33,026,571 | | | | $198,409,318 | |
| Issued in reinvestment of distributions | | | 978,478 | | | | 5,909,901 | | | | 1,897,094 | | | | 11,470,227 | |
| Redeemed | | | (13,795,406 | ) | | | (83,519,960 | ) | | | (26,329,267 | ) | | | (158,703,980 | ) |
| | | | (1,499,332 | ) | | | (8,342,009 | ) | | | 8,594,398 | | | | 51,175,565 | |
| Institutional Class | |
| Sold | | | 3,142,227 | | | | 19,489,924 | | | | 8,602,118 | | | | 52,099,980 | |
| Issued in reinvestment of distributions | | | 938,214 | | | | 5,589,661 | | | | 1,450,014 | | | | 8,767,183 | |
| Redeemed | | | (877,194 | ) | | | (5,282,957 | ) | | | (1,736,003 | ) | | | (10,506,783 | ) |
| | | | 3,203,247 | | | | 19,796,628 | | | | 8,316,129 | | | | 50,360,380 | |
| A Class | |
| Sold | | | 1,458,418 | | | | 8,887,515 | | | | 3,519,858 | | | | 21,292,789 | |
| Issued in reinvestment of distributions | | | 203,726 | | | | 1,230,171 | | | | 397,756 | | | | 2,401,495 | |
| Redeemed | | | (2,573,100 | ) | | | (15,482,861 | ) | | | (2,328,235 | ) | | | (14,009,852 | ) |
| | | | (910,956 | ) | | | (5,365,175 | ) | | | 1,589,379 | | | | 9,684,432 | |
| B Class | |
| Sold | | | 16,363 | | | | 98,918 | | | | 37,040 | | | | 224,940 | |
| Issued in reinvestment of distributions | | | 4,168 | | | | 25,207 | | | | 11,226 | | | | 67,674 | |
| Redeemed | | | (61,314 | ) | | | (374,444 | ) | | | (71,291 | ) | | | (428,709 | ) |
| | | | (40,783 | ) | | | (250,319 | ) | | | (23,025 | ) | | | (136,095 | ) |
| C Class | |
| Sold | | | 347,897 | | | | 2,125,088 | | | | 1,503,157 | | | | 9,098,682 | |
| Issued in reinvestment of distributions | | | 51,727 | | | | 311,825 | | | | 100,291 | | | | 605,553 | |
| Redeemed | | | (526,295 | ) | | | (3,178,521 | ) | | | (823,446 | ) | | | (4,952,051 | ) |
| | | | (126,671 | ) | | | (741,608 | ) | | | 780,002 | | | | 4,752,184 | |
| R Class | | | | | | | | | | | | | | | | |
| Sold | | | 166,242 | | | | 1,014,922 | | | | 248,695 | | | | 1,496,440 | |
| Issued in reinvestment of distributions | | | 12,195 | | | | 72,789 | | | | 19,334 | | | | 116,983 | |
| Redeemed | | | (70,176 | ) | | | (429,156 | ) | | | (124,316 | ) | | | (757,559 | ) |
| | | | 108,261 | | | | 658,555 | | | | 143,713 | | | | 855,864 | |
| Net increase (decrease) | | | 733,766 | | | | $5,756,072 | | | | 19,400,596 | | | | $116,692,330 | |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
| ● | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| ● | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| ● | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
| | | | | | | | | | |
| | | Level 1 | | Level 2 | | Level 3 |
| Investment Securities | | | | | | | | | |
| Corporate Bonds | | | — | | | | $341,208,193 | | | | — | |
| Exchange-Traded Funds | | | $2,655,633 | | | | — | | | | — | |
| Commercial Mortgage-Backed Securities | | | — | | | | 1,048,164 | | | | — | |
| Common Stocks | | | 1,015,243 | | | | — | | | | — | |
| Preferred Stocks | | | — | | | | 115,635 | | | | — | |
| Temporary Cash Investments | | | 5,571,637 | | | | 7,569,818 | | | | — | |
| Total Value of Investment Securities | | | $9,242,513 | | | | $349,941,810 | | | | — | |
| | | | | | | | | | | | | |
| Other Financial Instruments | |
| Total Unrealized Gain (Loss) on Swap Agreements | | | — | | | | $(13,097 | ) | | | — | |
7. Derivative Instruments
Credit Risk — The fund is subject to credit risk in the normal course of pursuing its investment objectives. The value of a bond generally declines as the credit quality of its issuer declines. Credit default swap agreements enable a fund to buy/sell protection against a credit event of a specific issuer or index. A fund may attempt to enhance returns by selling protection or attempt to mitigate credit risk by buying protection. The buyer/seller of credit protection against a security or basket of securities may pay/receive an up-front or periodic payment to compensate for/against potential default events. A fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Changes in value, including the periodic amounts of interest to be paid or received on swap agreements, are recorded as unrealized appreciation (depreciation) on swap agreements. Realized gain or loss is recorded upon receipt or payment of a periodic settlement or termination of swap agreements. Net realized and unrealized gains or losses occurring during the holding period of swap agreements are a component of net realized gain (loss) on swap agreement transactions and change in net unrealized appreciation (depreciation) on swap agreements, respectively. The risks of entering into swap agreements include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments or instruments. The credit risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
Interest Rate Risk — The fund is subject to interest rate risk in the normal course of pursuing its investment objectives. The value of bonds generally declines as interest rates rise. A fund may enter into futures contracts based on a bond index or a specific underlying security. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Subsequent payments (variation margin) are made or received daily, in cash, by a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the futures contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period, the fund regularly held interest rate risk derivative instruments though none were held at period end.
Value of Derivative Instruments as of September 30, 2011 | |
| | Asset Derivatives | | | Liability Derivatives | |
Type of Risk Exposure | Location on Statement of Assets and Liabilities | Value | | Location on Statement of Assets and Liabilities | Value |
| Credit Risk | Swap agreements | $15,095 | | | Swap agreements | $292,710 | |
Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended September 30, 2011 |
| | Net Realized Gain (Loss) | | Change in Net Unrealized Appreciation (Depreciation) |
Type of Risk Exposure | Location on Statement of Operations | Value | | Location on Statement of Operations | Value |
| Credit Risk | Net realized gain (loss) on swap agreement transactions | $246,561 | | | Change in net unrealized appreciation (depreciation) on swap agreements | $(762,553) | |
| Interest Rate Risk | Net realized gain (loss) on futures contract transactions | 298,709 | | | Change in net unrealized appreciation (depreciation) on futures contracts | 13,912 | |
| | | $545,270 | | | | $(748,641) | |
8. Risk Factors
The fund invests primarily in lower-rated debt securities, which are subject to substantial risks including price volatility, liquidity risk, and default risk.
9. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of September 30, 2011, the components of investments for federal income tax purposes were as follows:
| | | | | |
| Federal tax cost of investments | | | $379,056,489 | |
| Gross tax appreciation of investments | | | $6,133,912 | |
| Gross tax depreciation of investments | | | (26,006,078 | ) |
| Net tax appreciation (depreciation) of investments | | | $(19,872,166 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period.
| For a Share Outstanding Throughout the Years Ended March 31 (except as noted) |
| Per-Share Data | Ratios and Supplemental Data |
| | | Income From Investment Operations: | Distributions From: | | | Ratio to Average Net Assets of: | | |
| | Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Asset Value, End of Period | Total Return(1) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) |
| Investor Class |
2011(2) | $6.21 | 0.21(3) | (0.60) | (0.39) | (0.21) | $5.61 | (6.40)% | 0.82%(4) | 0.86%(4) | 6.95%(4) | 6.91%(4) | 12% | $162,363 |
| 2011 | $5.92 | 0.45(3) | 0.30 | 0.75 | (0.46) | $6.21 | 13.23% | 0.79% | 0.86% | 7.49% | 7.42% | 39% | $188,918 |
| 2010 | $4.75 | 0.46(3) | 1.17 | 1.63 | (0.46) | $5.92 | 35.43% | 0.77% | 0.86% | 8.36% | 8.27% | 36% | $129,231 |
| 2009 | $5.97 | 0.40(3) | (1.17) | (0.77) | (0.45) | $4.75 | (13.36)% | 0.80% | 0.87% | 7.66% | 7.59% | 33% | $71,445 |
| 2008 | $6.48 | 0.42 | (0.51) | (0.09) | (0.42) | $5.97 | (1.41)% | 0.80% | 0.87% | 6.87% | 6.80% | 40% | $51,375 |
| 2007 | $6.38 | 0.42 | 0.10 | 0.52 | (0.42) | $6.48 | 8.54% | 0.79% | 0.87% | 6.69% | 6.61% | 45% | $51,717 |
| Institutional Class |
2011(2) | $6.21 | 0.22(3) | (0.60) | (0.38) | (0.22) | $5.61 | (6.30)% | 0.62%(4) | 0.66%(4) | 7.15%(4) | 7.11%(4) | 12% | $148,697 |
| 2011 | $5.92 | 0.46(3) | 0.30 | 0.76 | (0.47) | $6.21 | 13.46% | 0.59% | 0.66% | 7.69% | 7.62% | 39% | $144,594 |
| 2010 | $4.75 | 0.48(3) | 1.16 | 1.64 | (0.47) | $5.92 | 35.70% | 0.57% | 0.66% | 8.56% | 8.47% | 36% | $88,626 |
| 2009 | $5.97 | 0.41(3) | (1.17) | (0.76) | (0.46) | $4.75 | (13.19)% | 0.60% | 0.67% | 7.86% | 7.79% | 33% | $39,655 |
| 2008 | $6.48 | 0.44 | (0.51) | (0.07) | (0.44) | $5.97 | (1.21)% | 0.60% | 0.67% | 7.07% | 7.00% | 40% | $24,795 |
| 2007 | $6.38 | 0.44 | 0.10 | 0.54 | (0.44) | $6.48 | 8.76% | 0.59% | 0.67% | 6.89% | 6.81% | 45% | $18,177 |
| For a Share Outstanding Throughout the Years Ended March 31 (except as noted) |
| Per-Share Data | Ratios and Supplemental Data |
| | | Income From Investment Operations: | Distributions From: | | | Ratio to Average Net Assets of: | | |
| | Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Asset Value, End of Period | Total Return(1) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) |
A Class(5) |
2011(2) | $6.21 | 0.20(3) | (0.59) | (0.39) | (0.21) | $5.61 | (6.51)% | 1.07%(4) | 1.11%(4) | 6.70%(4) | 6.66%(4) | 12% | $35,823 |
| 2011 | $5.92 | 0.44(3) | 0.30 | 0.74 | (0.45) | $6.21 | 12.95% | 1.04% | 1.11% | 7.24% | 7.17% | 39% | $45,285 |
| 2010 | $4.75 | 0.45(3) | 1.17 | 1.62 | (0.45) | $5.92 | 35.10% | 1.02% | 1.11% | 8.11% | 8.02% | 36% | $33,769 |
| 2009 | $5.97 | 0.39(3) | (1.17) | (0.78) | (0.44) | $4.75 | (13.57)% | 1.05% | 1.12% | 7.41% | 7.34% | 33% | $15,289 |
| 2008 | $6.48 | 0.41 | (0.51) | (0.10) | (0.41) | $5.97 | (1.65)% | 1.05% | 1.12% | 6.62% | 6.55% | 40% | $8,275 |
| 2007 | $6.38 | 0.41 | 0.10 | 0.51 | (0.41) | $6.48 | 8.27% | 1.04% | 1.12% | 6.44% | 6.36% | 45% | $900 |
| B Class |
2011(2) | $6.21 | 0.18(3) | (0.60) | (0.42) | (0.18) | $5.61 | (6.87)% | 1.82%(4) | 1.86%(4) | 5.95%(4) | 5.91%(4) | 12% | $1,044 |
| 2011 | $5.92 | 0.39(3) | 0.30 | 0.69 | (0.40) | $6.21 | 12.12% | 1.79% | 1.86% | 6.49% | 6.42% | 39% | $1,408 |
| 2010 | $4.75 | 0.40(3) | 1.18 | 1.58 | (0.41) | $5.92 | 34.12% | 1.77% | 1.86% | 7.36% | 7.27% | 36% | $1,479 |
| 2009 | $5.97 | 0.36(3) | (1.18) | (0.82) | (0.40) | $4.75 | (14.22)% | 1.80% | 1.87% | 6.66% | 6.59% | 33% | $1,187 |
| 2008 | $6.48 | 0.36 | (0.51) | (0.15) | (0.36) | $5.97 | (2.39)% | 1.80% | 1.87% | 5.87% | 5.80% | 40% | $1,119 |
| 2007 | $6.38 | 0.36 | 0.10 | 0.46 | (0.36) | $6.48 | 7.47% | 1.79% | 1.87% | 5.69% | 5.61% | 45% | $1,358 |
| For a Share Outstanding Throughout the Years Ended March 31 (except as noted) |
| Per-Share Data | Ratios and Supplemental Data |
| | | Income From Investment Operations: | Distributions From: | | | Ratio to Average Net Assets of: | | |
| | Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Asset Value, End of Period | Total Return(1) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) |
| C Class |
2011(2) | $6.21 | 0.18(3) | (0.60) | (0.42) | (0.18) | $5.61 | (6.87)% | 1.82%(4) | 1.86%(4) | 5.95%(4) | 5.91%(4) | 12% | $16,551 |
| 2011 | $5.92 | 0.39(3) | 0.30 | 0.69 | (0.40) | $6.21 | 12.12% | 1.79% | 1.86% | 6.49% | 6.42% | 39% | $19,096 |
| 2010 | $4.75 | 0.41(3) | 1.17 | 1.58 | (0.41) | $5.92 | 34.11% | 1.77% | 1.86% | 7.36% | 7.27% | 36% | $13,589 |
| 2009 | $5.97 | 0.35(3) | (1.17) | (0.82) | (0.40) | $4.75 | (14.22)% | 1.80% | 1.87% | 6.66% | 6.59% | 33% | $3,120 |
| 2008 | $6.48 | 0.36 | (0.51) | (0.15) | (0.36) | $5.97 | (2.39)% | 1.80% | 1.87% | 5.87% | 5.80% | 40% | $1,678 |
| 2007 | $6.38 | 0.36 | 0.10 | 0.46 | (0.36) | $6.48 | 7.46% | 1.79% | 1.87% | 5.69% | 5.61% | 45% | $2,002 |
| R Class |
2011(2) | $6.21 | 0.20(3) | (0.59) | (0.39) | (0.20) | $5.62 | (6.47)% | 1.32%(4) | 1.36%(4) | 6.45%(4) | 6.41%(4) | 12% | $2,386 |
| 2011 | $5.92 | 0.42(3) | 0.30 | 0.72 | (0.43) | $6.21 | 12.67% | 1.29% | 1.36% | 6.99% | 6.92% | 39% | $1,967 |
| 2010 | $4.75 | 0.45(3) | 1.16 | 1.61 | (0.44) | $5.92 | 34.77% | 1.27% | 1.36% | 7.86% | 7.77% | 36% | $1,025 |
| 2009 | $5.97 | 0.37(3) | (1.16) | (0.79) | (0.43) | $4.75 | (13.79)% | 1.30% | 1.37% | 7.16% | 7.09% | 33% | $86 |
| 2008 | $6.48 | 0.39 | (0.51) | (0.12) | (0.39) | $5.97 | (1.90)% | 1.30% | 1.37% | 6.37% | 6.30% | 40% | $27 |
| 2007 | $6.38 | 0.39 | 0.10 | 0.49 | (0.39) | $6.48 | 8.00% | 1.29% | 1.37% | 6.19% | 6.11% | 45% | $28 |
Notes to Financial Highlights
| (1) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
| (2) | Six months ended September 30, 2011 (unaudited). |
| (3) | Computed using average shares outstanding throughout the period. |
| (5) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 28, 2011, the Fund’s Board of Directors/Trustees unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors/trustees (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| ● | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| the investment performance of the fund, including data comparing the Fund’s performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
| data comparing the cost of owning the Fund to the cost of owning similar funds; |
| the Advisor’s compliance policies, procedures, and regulatory experience; |
| financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| data comparing services provided and charges to other investment management clients of the Advisor; and |
| consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Board also had the benefit of the advice of its independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and the Board’s independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| constructing and designing the Fund |
| portfolio research and security selection |
| initial capitalization/funding |
| daily valuation of the Fund’s portfolio |
| shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
| regulatory and portfolio compliance |
| marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to seek the best execution of fund trades. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Portfolio Committee, regularly reviews investment performance information for the Fund, together with
comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance section of this report.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board also requested and received information from the Advisor concerning the nature of the services, fees, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent directors and assisted by the advice of independent legal counsel, taking into account all of the factors discussed above and the information provided by the Advisor and others, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
| Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
| Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Investment Trust
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-SAN-73684 1111
SEMIANNUAL REPORT SEPTEMBER 30, 2011
| | Inflation Protection Bond Fund |
| President’s Letter | 2 |
| Performance | 3 |
| Fund Characteristics | 5 |
| Shareholder Fee Example | 6 |
| Schedule of Investments | 8 |
| Statement of Assets and Liabilities | 15 |
| Statement of Operations | 16 |
| Statement of Changes in Net Assets | 17 |
| Notes to Financial Statements | 18 |
| Financial Highlights | 26 |
| Approval of Management Agreement | 29 |
| Additional Information | 34 |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
Dear Investor:
Thank you for reviewing our semiannual report for the six months ended September 30, 2011. This report offers a macroeconomic and financial market overview of the period, followed by fund performance, a schedule of fund investments, and other financial information.
For additional, updated information on fund performance, portfolio strategy, and the investment markets, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site. Also, the fund’s annual report, dated March 31, 2012, will provide additional market perspective and portfolio commentary from our portfolio management team.
Macroeconomic and Financial Market Overview
This reporting period differed dramatically from the six months that preceded it. As the period covered by this report opened in April 2011, U.S. stocks were approaching the crest of an eight-month rally, originating back in late August 2010, which pushed the broad market approximately 30% higher. At the same time, the 10-year U.S. Treasury yield climbed above 3.50%, responding to global growth and inflation pressures.
All of that changed during the late spring and summer of 2011. High fuel prices, declining U.S. home values, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide globally and in the U.S.
Investors’ risk tolerance reversed as recession fears re-emerged. A full-blown flight to safety ensued by mid-summer, sending U.S. Treasury yields to record lows, boosting the U.S. dollar, and undermining stock prices, both domestically and abroad. By September 30, the financial markets had priced in recessionary expectations.
Fundamental signs of economic resilience remained, however, particularly in corporate earnings, with potentially more monetary and fiscal stimuli on the way. The Federal Reserve resurrected “Operation Twist,” an attempt to further lower long-term interest rates, and the Obama administration worked to implement job-creation legislation.
We don’t think there will be a double-dip recession, but we do believe we face another period of slow, sub-par economic growth. We appreciate your continued trust in us during these uncertain times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
| Total Returns as of September 30, 2011 |
| | | | | Average Annual Returns | |
| | Ticker Symbol | 6 months(1) | 1 year | 5 years | Since Inception | Inception Date |
Investor Class(2) | APOIX | 5.79% | 6.70% | 6.44% | 5.30% | 5/31/05 |
Barclays Capital U.S. 1-5 Year Treasury Inflation Protected Securities (TIPS) Index(3) | — | 1.47% | 4.80% | 5.23% | 4.73% | — |
Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index | — | 8.33% | 9.87% | 7.10% | 5.95% | — |
Institutional Class(2) | APISX | 5.91% | 6.88% | 6.73% | 5.58% | 5/31/05 |
A Class(2)(4) No sales charge* With sales charge* | APOAX | 5.66% 3.24% | 6.38% 3.97% | 6.21% 5.72% | 5.06% 4.69% | 5/31/05 |
B Class(2) No sales charge* With sales charge* | APOBX | 5.21% 0.21% | 5.52% 1.52% | 5.39% 5.23% | 4.27% 4.27% | 5/31/05 |
C Class(2) No sales charge* With sales charge* | APOCX | 5.21% 4.21% | 5.61% 5.61% | 5.46% 5.46% | 4.31% 4.31% | 5/31/05 |
R Class(2) | APORX | 5.56% | 6.15% | 5.95% | 4.82% | 5/31/05 |
| * | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 2.25% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
| (1) | Total returns for periods less than one year are not annualized. |
| (2) | Returns would have been lower if a portion of the management fee had not been waived. |
| (3) | Effective August 2011, the fund’s benchmark changed from Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index to the shorter duration Barclays Capital U.S. 1-5 Year Treasury Inflation Protected Securities (TIPS) Index. The fund’s investment advisor believes this index better represents the fund’s current, shorter duration. |
| (4) | Prior to August 31, 2011, the A Class had a front-end sales charge of 4.50%. The front-end sales charge is now 2.25%. Performance prior to that date has been adjusted to reflect this change is the sales charge. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the indices does not.
| Total Annual Fund Operating Expenses |
| Investor Class | Institutional Class | A Class | B Class | C Class | R Class |
| 0.58% | 0.38% | 0.83% | 1.58% | 1.58% | 1.08% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the indices does not.
| SEPTEMBER 30, 2011 |
| Portfolio at a Glance | |
| Average Duration (effective) | 2.4 years |
| Weighted Average Life | 3.3 years |
| | |
| Types of Investments in Portfolio | % of net assets |
| U.S. Treasury Securities | 84.7% |
| Corporate Bonds | 8.1% |
| Collateralized Mortgage Obligations | 3.8% |
| Commercial Mortgage-Backed Securities | 3.0% |
| Temporary Cash Investments | 0.2% |
| Other Assets and Liabilities | 0.2% |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2011 to September 30, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | | | | | | | | | | | | |
| | | Beginning Account Value 4/1/11 | | Ending Account Value 9/30/11 | | Expenses Paid During Period(1) 4/1/11 - 9/30/11 | | Annualized Expense Ratio(1) |
| Actual | | | | | | | | | | | | |
| Investor Class (after waiver) | | | $1,000 | | | | $1,057.90 | | | | $2.52 | | | | 0.49 | % |
| Investor Class (before waiver) | | | $1,000 | | | | $1,057.90 | (2) | | | $2.98 | | | | 0.58 | % |
Institutional Class (after waiver) | | | $1,000 | | | | $1,059.10 | | | | $1.49 | | | | 0.29 | % |
Institutional Class (before waiver) | | | $1,000 | | | | $1,059.10 | (2) | | | $1.96 | | | | 0.38 | % |
| A Class (after waiver) | | | $1,000 | | | | $1,056.60 | | | | $3.80 | | | | 0.74 | % |
| A Class (before waiver) | | | $1,000 | | | | $1,056.60 | (2) | | | $4.27 | | | | 0.83 | % |
| B Class (after waiver) | | | $1,000 | | | | $1,052.10 | | | | $7.64 | | | | 1.49 | % |
| B Class (before waiver) | | | $1,000 | | | | $1,052.10 | (2) | | | $8.11 | | | | 1.58 | % |
| C Class (after waiver) | | | $1,000 | | | | $1,052.10 | | | | $7.64 | | | | 1.49 | % |
| C Class (before waiver) | | | $1,000 | | | | $1,052.10 | (2) | | | $8.11 | | | | 1.58 | % |
| R Class (after waiver) | | | $1,000 | | | | $1,055.60 | | | | $5.09 | | | | 0.99 | % |
| R Class (before waiver) | | | $1,000 | | | | $1,055.60 | (2) | | | $5.55 | | | | 1.08 | % |
| Hypothetical | | | | | | | | | | | | | | | | |
| Investor Class (after waiver) | | | $1,000 | | | | $1,022.55 | | | | $2.48 | | | | 0.49 | % |
| Investor Class (before waiver) | | | $1,000 | | | | $1,022.10 | | | | $2.93 | | | | 0.58 | % |
Institutional Class (after waiver) | | | $1,000 | | | | $1,023.55 | | | | $1.47 | | | | 0.29 | % |
Institutional Class (before waiver) | | | $1,000 | | | | $1,023.10 | | | | $1.92 | | | | 0.38 | % |
| A Class (after waiver) | | | $1,000 | | | | $1,021.30 | | | | $3.74 | | | | 0.74 | % |
| A Class (before waiver) | | | $1,000 | | | | $1,020.85 | | | | $4.19 | | | | 0.83 | % |
| B Class (after waiver) | | | $1,000 | | | | $1,017.55 | | | | $7.52 | | | | 1.49 | % |
| B Class (before waiver) | | | $1,000 | | | | $1,017.10 | | | | $7.97 | | | | 1.58 | % |
| C Class (after waiver) | | | $1,000 | | | | $1,017.55 | | | | $7.52 | | | | 1.49 | % |
| C Class (before waiver) | | | $1,000 | | | | $1,017.10 | | | | $7.97 | | | | 1.58 | % |
| R Class (after waiver) | | | $1,000 | | | | $1,020.05 | | | | $5.00 | | | | 0.99 | % |
| R Class (before waiver) | | | $1,000 | | | | $1,019.60 | | | | $5.45 | | | | 1.08 | % |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
| (2) | Ending account value assumes the return earned after waiver and would have been lower if a portion of the management fee had not been waived. |
SEPTEMBER 30, 2011 (UNAUDITED)
| | Principal Amount | Value |
| U.S. Treasury Securities — 84.7% |
U.S. Treasury Inflation Indexed Notes, 0.625%, 4/15/13(1) | $35,011,715 | $35,654,495 |
U.S. Treasury Inflation Indexed Notes, 1.875%, 7/15/13(1) | 55,763,348 | 58,394,708 |
U.S. Treasury Inflation Indexed Notes, 2.00%, 1/15/14(1) | 67,076,614 | 71,242,675 |
U.S. Treasury Inflation Indexed Notes, 1.25%, 4/15/14(1) | 48,561,586 | 50,883,461 |
U.S. Treasury Inflation Indexed Notes, 2.00%, 7/15/14(1) | 74,843,382 | 80,532,676 |
U.S. Treasury Inflation Indexed Notes, 1.625%, 1/15/15(1) | 54,554,279 | 58,709,788 |
U.S. Treasury Inflation Indexed Notes, 0.50%, 4/15/15(1) | 17,673,426 | 18,392,787 |
U.S. Treasury Inflation Indexed Notes, 1.875%, 7/15/15(1) | 37,929,505 | 41,651,338 |
U.S. Treasury Inflation Indexed Notes, 2.00%, 1/15/16(1) | 18,005,061 | 20,013,760 |
U.S. Treasury Inflation Indexed Notes, 0.125%, 4/15/16(1) | 44,070,285 | 45,526,676 |
U.S. Treasury Inflation Indexed Notes, 2.50%, 7/15/16(1) | 25,154,885 | 28,904,548 |
U.S. Treasury Inflation Indexed Notes, 2.375%, 1/15/17(1) | 17,277,956 | 19,875,057 |
TOTAL U.S. TREASURY SECURITIES (Cost $525,101,124) | 529,781,969 |
| Corporate Bonds — 8.1% |
| AEROSPACE AND DEFENSE — 0.1% |
L-3 Communications Corp., 6.375%, 10/15/15(1) | 350,000 | 358,312 |
L-3 Communications Corp., 5.20%, 10/15/19(1) | 200,000 | 211,635 |
| | | 569,947 |
| AUTOMOBILES — 0.3% |
American Honda Finance Corp., 1.85%, 9/19/14(2) | 500,000 | 501,332 |
Daimler Finance North America LLC, 1.543%, 9/13/13(2) | 500,000 | 500,350 |
| Ford Motor Credit Co. LLC, 7.50%, 8/1/12 | 330,000 | 336,828 |
Ford Motor Credit Co. LLC, 5.00%, 5/15/18(1) | 300,000 | 290,830 |
| | | 1,629,340 |
| CHEMICALS — 0.3% |
Ashland, Inc., 9.125%, 6/1/17(1) | 500,000 | 555,625 |
| CF Industries, Inc., 6.875%, 5/1/18 | 865,000 | 967,719 |
Hexion US Finance Corp./ Hexion Nova Scotia Finance ULC, 8.875%, 2/1/18(1) | 200,000 | 166,000 |
| | | 1,689,344 |
| COMMERCIAL BANKS — 0.2% |
| Capital One Financial Corp., 2.125%, 7/15/14 | 650,000 | 644,231 |
Fifth Third Bancorp, 6.25%, 5/1/13(1) | 300,000 | 317,791 |
PNC Funding Corp., 3.625%, 2/8/15(1) | 140,000 | 147,047 |
| | | 1,109,069 |
| COMMERCIAL SERVICES AND SUPPLIES — 0.1% |
Corrections Corp. of America, 7.75%, 6/1/17(1) | 400,000 | 424,500 |
| COMMUNICATIONS EQUIPMENT — 0.1% |
American Tower Corp., 4.625%, 4/1/15(1) | 600,000 | 637,016 |
| CONSUMER FINANCE — 0.2% |
Capital One Bank USA N.A., 8.80%, 7/15/19(1) | 330,000 | 389,772 |
Credit Suisse (New York), 5.50%, 5/1/14(1) | 390,000 | 412,692 |
SLM Corp., 5.00%, 10/1/13(1) | 430,000 | 421,160 |
| | | 1,223,624 |
| CONTAINERS AND PACKAGING — 0.1% |
Ball Corp., 6.75%, 9/15/20(1) | 340,000 | 353,600 |
| DIVERSIFIED FINANCIAL SERVICES — 0.6% |
Ally Financial, Inc., 8.30%, 2/12/15(1) | 950,000 | 941,687 |
Bank of America Corp., 6.50%, 8/1/16(1) | 500,000 | 497,334 |
Citigroup, Inc., 6.01%, 1/15/15(1) | 650,000 | 691,633 |
General Electric Capital Corp., 3.75%, 11/14/14(1) | 1,030,000 | 1,076,525 |
Icahn Enterprises LP/Icahn Enterprises Finance Corp., 7.75%, 1/15/16(1) | $200,000 | $200,750 |
Morgan Stanley, 4.20%, 11/20/14(1) | 400,000 | 391,653 |
| | | 3,799,582 |
| DIVERSIFIED TELECOMMUNICATION SERVICES — 0.8% |
AT&T, Inc., 6.70%, 11/15/13(1) | 180,000 | 200,081 |
British Telecommunications plc, 5.95%, 1/15/18(1) | 250,000 | 278,660 |
CenturyLink, Inc., Series L, 7.875%, 8/15/12(1) | 520,000 | 542,268 |
Cincinnati Bell, Inc., 8.25%, 10/15/17(1) | 920,000 | 897,000 |
Frontier Communications Corp., 6.25%, 1/15/13(1) | 550,000 | 554,125 |
Telecom Italia Capital SA, 6.175%, 6/18/14(1) | 550,000 | 547,889 |
Telefonica Emisiones SAU, 5.877%, 7/15/19(1) | 340,000 | 334,622 |
Virgin Media Finance plc, 9.50%, 8/15/16(1) | 200,000 | 217,000 |
Virgin Media Finance plc, 8.375%, 10/15/19(1) | 875,000 | 934,063 |
Windstream Corp., 7.875%, 11/1/17(1) | 430,000 | 437,525 |
| | | 4,943,233 |
| ELECTRIC UTILITIES — 0.1% |
AES Corp. (The), 9.75%, 4/15/16(1) | 450,000 | 486,000 |
AES Corp. (The), 8.00%, 10/15/17(1) | 400,000 | 404,000 |
| | | 890,000 |
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.2% |
Arrow Electronics, Inc., 3.375%, 11/1/15(1) | 665,000 | 659,168 |
Jabil Circuit, Inc., 7.75%, 7/15/16(1) | 470,000 | 520,525 |
| | | 1,179,693 |
ENERGY EQUIPMENT AND SERVICES† |
Weatherford International Ltd., 9.625%, 3/1/19(1) | 180,000 | 233,135 |
| FOOD PRODUCTS — 0.3% |
Del Monte Foods Co., 7.625%, 2/15/19(1)(2) | 850,000 | 722,500 |
| HJ Heinz Co., 2.00%, 9/12/16 | 370,000 | 371,768 |
TreeHouse Foods, Inc., 7.75%, 3/1/18(1) | 850,000 | 881,875 |
| | | 1,976,143 |
| GAS UTILITIES — 0.3% |
El Paso Corp., 7.25%, 6/1/18(1) | 200,000 | 224,896 |
Enterprise Products Operating LLC, 6.30%, 9/15/17(1) | 450,000 | 523,427 |
Magellan Midstream Partners LP, 6.55%, 7/15/19(1) | 270,000 | 319,893 |
MarkWest Energy Partners LP/MarkWest Energy Finance Corp., 6.75%, 11/1/20(1) | 800,000 | 816,000 |
Williams Partners LP, 4.125%, 11/15/20(1) | 250,000 | 248,883 |
| | | 2,133,099 |
| HEALTH CARE EQUIPMENT AND SUPPLIES — 0.1% |
Boston Scientific Corp., 4.50%, 1/15/15(1) | 330,000 | 345,246 |
| HEALTH CARE PROVIDERS AND SERVICES — 0.4% |
DaVita, Inc., 6.375%, 11/1/18(1) | 840,000 | 808,500 |
HCA, Inc., 7.875%, 2/15/20(1) | 600,000 | 624,000 |
HCA, Inc., 7.69%, 6/15/25(1) | 100,000 | 90,500 |
Medco Health Solutions, Inc., 6.125%, 3/15/13(1) | 712,000 | 755,988 |
Universal Health Services, Inc., 7.125%, 6/30/16(1) | 520,000 | 547,300 |
| | | 2,826,288 |
| HOTELS, RESTAURANTS AND LEISURE — 0.1% |
Wyndham Worldwide Corp., 6.00%, 12/1/16(1) | 470,000 | 492,439 |
| HOUSEHOLD PRODUCTS — 0.1% |
| Jarden Corp., 8.00%, 5/1/16 | 330,000 | 350,213 |
INDUSTRIAL CONGLOMERATES† |
General Electric Co., 5.25%, 12/6/17(1) | 200,000 | 222,686 |
| INSURANCE — 0.2% |
Lincoln National Corp., 6.25%, 2/15/20(1) | 120,000 | 126,500 |
MetLife, Inc., 6.75%, 6/1/16(1) | 500,000 | 575,996 |
Prudential Financial, Inc., 7.375%, 6/15/19(1) | 230,000 | 270,228 |
Prudential Financial, Inc., 5.375%, 6/21/20(1) | 170,000 | 178,932 |
| | | 1,151,656 |
| MEDIA — 0.8% |
| CCO Holdings LLC/CCO Holdings Capital Corp., 7.25%, 10/30/17 | 920,000 | 924,600 |
Comcast Corp., 5.90%, 3/15/16(1) | $250,000 | $286,470 |
CSC Holdings LLC, 8.50%, 4/15/14(1) | 533,000 | 577,639 |
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 3.55%, 3/15/15(1) | 400,000 | 417,706 |
Interpublic Group of Cos., Inc. (The), 10.00%, 7/15/17(1) | 730,000 | 834,025 |
Lamar Media Corp., 9.75%, 4/1/14(1) | 170,000 | 188,275 |
Lamar Media Corp., 7.875%, 4/15/18(1) | 180,000 | 180,900 |
NBCUniversal Media LLC, 5.15%, 4/30/20(1) | 150,000 | 164,994 |
SBA Telecommunications, Inc., 8.25%, 8/15/19(1) | 300,000 | 316,500 |
Time Warner Cable, Inc., 8.25%, 2/14/14(1) | 120,000 | 136,510 |
Viacom, Inc., 4.375%, 9/15/14(1) | 500,000 | 534,868 |
Virgin Media Secured Finance plc, 6.50%, 1/15/18(1) | 400,000 | 427,000 |
| | | 4,989,487 |
| METALS AND MINING — 0.3% |
Anglo American Capital plc, 9.375%, 4/8/19(1)(2) | 300,000 | 398,316 |
Anglo American Capital plc, 4.45%, 9/27/20(1)(2) | 100,000 | 100,485 |
ArcelorMittal, 9.85%, 6/1/19(1) | 530,000 | 601,980 |
| Barrick Gold Corp., 2.90%, 5/30/16 | 470,000 | 477,000 |
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 4/1/17(1) | 350,000 | 375,788 |
| | | 1,953,569 |
| MULTI-UTILITIES — 0.5% |
Calpine Corp., 7.25%, 10/15/17(1)(2) | 920,000 | 892,400 |
| CMS Energy Corp., 4.25%, 9/30/15 | 160,000 | 158,306 |
CMS Energy Corp., 8.75%, 6/15/19(1) | 615,000 | 720,668 |
FirstEnergy Solutions Corp., 6.05%, 8/15/21(1) | 420,000 | 466,620 |
Niagara Mohawk Power Corp., 4.881%, 8/15/19(2) | 160,000 | 179,337 |
NRG Energy, Inc., 7.625%, 1/15/18(1)(2) | 700,000 | 654,500 |
Pacific Gas & Electric Co., 6.25%, 12/1/13(1) | 180,000 | 198,782 |
PG&E Corp., 5.75%, 4/1/14(1) | 70,000 | 76,831 |
Sempra Energy, 6.50%, 6/1/16(1) | 130,000 | 152,352 |
| | | 3,499,796 |
| MULTILINE RETAIL — 0.1% |
Macy’s Retail Holdings, Inc., 5.90%, 12/1/16(1) | 370,000 | 406,811 |
| OIL, GAS AND CONSUMABLE FUELS — 0.8% |
Anadarko Petroleum Corp., 5.95%, 9/15/16(1) | 380,000 | 416,360 |
Arch Coal, Inc., 7.25%, 10/1/20(1) | 250,000 | 241,250 |
Arch Western Finance LLC, 6.75%, 7/1/13(1) | 255,000 | 255,637 |
Cenovus Energy, Inc., 4.50%, 9/15/14(1) | 650,000 | 701,523 |
Chesapeake Energy Corp., 7.625%, 7/15/13(1) | 310,000 | 326,275 |
Chesapeake Energy Corp., 6.125%, 2/15/21(1) | 400,000 | 405,000 |
Denbury Resources, Inc., 6.375%, 8/15/21(1) | 850,000 | 828,750 |
Newfield Exploration Co., 6.875%, 2/1/20(1) | 500,000 | 517,500 |
Peabody Energy Corp., 6.50%, 9/15/20(1) | 835,000 | 881,969 |
Petroleos Mexicanos, 6.00%, 3/5/20(1) | 250,000 | 276,000 |
SandRidge Energy, Inc., 8.75%, 1/15/20(1) | 250,000 | 246,250 |
| | | 5,096,514 |
| PAPER AND FOREST PRODUCTS — 0.1% |
Georgia-Pacific LLC, 5.40%, 11/1/20(1)(2) | 440,000 | 449,025 |
| PERSONAL PRODUCTS — 0.1% |
Elizabeth Arden, Inc., 7.375%, 3/15/21(1) | 790,000 | 793,950 |
| PHARMACEUTICALS — 0.3% |
Endo Pharmaceuticals Holdings, Inc., 7.00%, 12/15/20(1)(2) | 845,000 | 851,337 |
Valeant Pharmaceuticals International, 6.50%, 7/15/16(1)(2) | 895,000 | 836,825 |
Watson Pharmaceuticals, Inc., 5.00%, 8/15/14(1) | 500,000 | 541,833 |
| | | 2,229,995 |
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.1% |
Simon Property Group LP, 5.75%, 12/1/15(1) | $400,000 | $442,032 |
Ventas Realty LP/ Ventas Capital Corp., 6.75%, 4/1/17(1) | 450,000 | 468,871 |
| | | 910,903 |
| SPECIALTY RETAIL — 0.1% |
Rent-A-Center, Inc., 6.625%, 11/15/20(1) | 600,000 | 579,000 |
| TEXTILES, APPAREL AND LUXURY GOODS — 0.3% |
Gap, Inc. (The), 5.95%, 4/12/21(1) | 210,000 | 198,140 |
Hanesbrands, Inc., 6.375%, 12/15/20(1) | 390,000 | 380,250 |
Ltd. Brands, Inc., 6.90%, 7/15/17(1) | 430,000 | 452,575 |
Polymer Group, Inc., 7.75%, 2/1/19(1)(2) | 850,000 | 852,125 |
| | | 1,883,090 |
TOTAL CORPORATE BONDS (Cost $50,344,957) | 50,971,993 |
Collateralized Mortgage Obligations(3) — 3.8% |
| PRIVATE SPONSOR COLLATERALIZED MORTGAGE OBLIGATIONS — 3.6% |
| ABN Amro Mortgage Corp., Series 2003-6, Class 1A4, 5.50%, 5/25/33 | 525,504 | 548,050 |
Banc of America Mortgage Securities, Inc., Series 2004-7, Class 7A1, 5.00%, 8/25/19(1) | 661,665 | 677,089 |
Bear Stearns Adjustable Rate Mortgage Trust, Series 2004-12, Class 2A1, VRN, 2.752%, 10/25/11(1) | 823,025 | 652,654 |
| Bear Stearns Adjustable Rate Mortgage Trust, Series 2006-1, Class A1, VRN, 2.52%, 10/25/11 | 1,435,800 | 1,204,935 |
Chase Mortgage Finance Corp., Series 2006-S4, Class A3, 6.00%, 12/25/36(1) | 541,397 | 523,176 |
Citigroup Mortgage Loan Trust, Inc., Series 2005-4, Class A, VRN, 5.323%, 10/25/11(1) | 1,204,533 | 1,127,182 |
| JP Morgan Mortgage Trust, Series 2004-S2, Class 1A3 SEQ, 4.75%, 11/25/19 | 553,919 | 556,726 |
JP Morgan Mortgage Trust, Series 2005-A6, Class 7A1, VRN, 2.727%, 10/25/11(1) | 1,169,086 | 848,886 |
MASTR Asset Securitization Trust, Series 2003-10, Class 3A1, 5.50%, 11/25/33(1) | 1,035,239 | 1,081,252 |
| PHHMC Mortgage Pass-Through Certificates, Series 2007-6, Class A1, VRN, 6.141%, 10/18/11 | 938,881 | 968,384 |
Residential Funding Mortgage Securities I, Series 2006-S10, Class 2A1 SEQ, 5.50%, 10/25/21(1) | 1,050,750 | 999,093 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-1, Class A10, 5.50%, 2/25/34(1) | 1,052,642 | 1,110,934 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2005-17, Class 1A1, 5.50%, 1/25/36 | 1,296,509 | 1,210,813 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2005-2, Class 1A1 SEQ, 5.50%, 4/25/35 | 876,315 | 884,641 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2005-5, Class 1A1, 5.00%, 5/25/20 | 963,012 | 960,638 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR16, Class 1A1, VRN, 2.762%, 10/25/11(1) | 1,866,318 | 1,876,460 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR2, Class 2A2, VRN, 2.737%, 10/25/11 | 533,458 | 476,502 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2006-10, Class A4 SEQ, 6.00%, 8/25/36 | 1,569,443 | 1,524,109 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-9, Class 1A9 SEQ, 6.00%, 8/25/36(1) | 1,548,350 | 1,463,814 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-AR19, Class A1, VRN, 5.447%, 10/25/11(1) | 932,229 | 826,394 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-13, Class A1, 6.00%, 9/25/37(1) | 1,351,972 | 1,285,553 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2007-3, Class 3A1, 5.50%, 4/25/22 | 963,861 | 996,128 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2007-AR10, Class 1A1, VRN, 6.063%, 10/25/11 | $860,996 | $827,835 |
| | | 22,631,248 |
| U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATION — 0.2% |
| NCUA Guaranteed Notes, Series 2010-C1, Class A2 SEQ, 2.90%, 10/29/20 | 900,000 | 945,460 |
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS(Cost $23,980,956) | 23,576,708 |
Commercial Mortgage-Backed Securities(3) — 3.0% |
Banc of America Commercial Mortgage, Inc., Series 2004-1, Class A4 SEQ, 4.76%, 11/10/39(1) | 1,200,000 | 1,257,460 |
Banc of America Commercial Mortgage, Inc., Series 2005-5, Class A4, VRN, 5.115%, 10/10/11(1) | 1,000,000 | 1,093,257 |
Banc of America Commercial Mortgage, Inc., Series 2005-5, Class AM, VRN, 5.176%, 10/10/11(1) | 950,000 | 957,729 |
Credit Suisse Mortgage Capital Certificates, Series 2007-TF2A, Class A1, VRN, 0.409%, 10/15/11(1)(2) | 390,449 | 353,872 |
GE Capital Commercial Mortgage Corp., Series 2005-C3, Class A5, VRN, 4.979%, 10/10/11(1) | 550,000 | 553,060 |
Greenwich Capital Commercial Funding Corp., Series 2004-GG1, Class B, VRN, 5.426%, 10/10/11(1) | 675,000 | 692,494 |
Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class A4, VRN, 4.799%, 10/10/11(1) | 700,000 | 739,864 |
GS Mortgage Securities Corp. II, Series 2004-GG2, Class A4 SEQ, 4.964%, 8/10/38(1) | 1,444,873 | 1,446,083 |
GS Mortgage Securities Corp. II, Series 2004-GG2, Class A6 SEQ, VRN, 5.396%, 10/10/11(1) | 2,000,000 | 2,131,009 |
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4 SEQ, 4.761%, 7/10/39(1) | 834,000 | 881,764 |
| | Principal Amount/ Shares | Value |
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A SEQ, 4.751%, 7/10/39(1) | $1,600,000 | $1,703,556 |
LB-UBS Commercial Mortgage Trust, Series 2004-C4, Class A4, VRN, 5.497%, 10/15/11(1) | 1,560,000 | 1,679,479 |
LB-UBS Commercial Mortgage Trust, Series 2004-C8, Class AJ, VRN, 4.858%, 10/15/11(1) | 350,000 | 345,739 |
LB-UBS Commercial Mortgage Trust, Series 2005 C3, Class AJ SEQ, 4.843%, 7/15/40(1) | 875,000 | 744,845 |
| LB-UBS Commercial Mortgage Trust, Series 2005-C2, Class A4 SEQ, 4.998%, 4/15/30 | 2,000,000 | 2,032,313 |
LB-UBS Commercial Mortgage Trust, Series 2005-C7, Class AM SEQ, VRN, 5.263%, 10/15/11(1) | 1,000,000 | 1,012,140 |
Lehman Brothers Floating Rate Commercial Mortgage Trust, Series 2007-LLFA, Class A1, VRN, 0.529%, 10/15/11(1)(2) | 332,746 | 324,962 |
Wachovia Bank Commercial Mortgage Trust, Series 2005-C20, Class A6A, VRN, 5.11%, 10/15/11(1) | 699,029 | 710,203 |
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $18,980,230) | 18,659,829 |
| Temporary Cash Investments — 0.2% |
Toyota Motor Credit Corp., 0.071%, 10/3/11(4) | 1,500,000 | 1,499,998 |
| SSgA U.S. Government Money Market Fund | 84,050 | 84,050 |
TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,584,044) | 1,584,048 |
TOTAL INVESTMENT SECURITIES — 99.8% (Cost $619,991,311) | 624,574,547 |
| OTHER ASSETS AND LIABILITIES — 0.2% | 1,299,008 |
| TOTAL NET ASSETS — 100.0% | $625,873,555 |
| Credit Default Swap Agreements |
Counterparty/ Reference Entity | | Notional Amount | Buy/Sell Protection | | Interest Rate | Termination Date | | Premiums Paid (Received) | | Unrealized Appreciation (Depreciation) | | Value |
Bank of America N.A. /CDX North America Investment Grade 16 Index | | $4,800,000 | | Buy | | 1.00 | % | 6/20/16 | | $(6,641 | ) | | $81,405 | | | $74,764 | |
Barclays Bank plc/ CDX North America High Yield 11 Index | | 870,000 | | Sell* | | 5.00 | % | 12/20/13 | | (89,027 | ) | | 78,666 | | | (10,361 | ) |
Barclays Bank plc/ Community Health Systems, Inc. | | 850,000 | | Sell* | | 5.00 | % | 12/20/12 | | 34,738 | | | (25,573 | ) | | 9,165 | |
| | | | | | | | | | | | | | | | | $73,568 | |
| Total Return Swap Agreements | |
| Counterparty | | Floating Rate Referenced Index | Pay/Receive Total Return of Referenced Index | Fixed Rate | Termination Date | Value |
| Bank of America N.A. | $19,000,000 | | U.S. CPI Urban Consumers NSA Index | Receive | 1.23% | 8/30/13 | $13,927 | |
| Bank of America N.A. | 8,200,000 | | U.S. CPI Urban Consumers NSA Index | Receive | 1.57% | 9/8/14 | (36,559) | |
| Bank of America N.A. | 12,000,000 | | U.S. CPI Urban Consumers NSA Index | Receive | 2.33% | 1/22/15 | (328,986) | |
| Bank of America N.A. | 1,800,000 | | U.S. CPI Urban Consumers NSA Index | Receive | 2.51% | 3/30/19 | (69,798) | |
| Bank of America N.A. | 13,000,000 | | U.S. CPI Urban Consumers NSA Index | Receive | 2.66% | 12/4/19 | (699,254) | |
| Barclays Bank plc | 800,000 | | U.S. CPI Urban Consumers NSA Index | Receive | 2.45% | 1/16/12 | (4,712) | |
| Barclays Bank plc | 18,500,000 | | U.S. CPI Urban Consumers NSA Index | Receive | 1.29% | 8/31/13 | (8,032) | |
| Barclays Bank plc | 6,400,000 | | U.S. CPI Urban Consumers NSA Index | Receive | 1.58% | 9/6/13 | (40,489) | |
| Barclays Bank plc | 5,800,000 | | U.S. CPI Urban Consumers NSA Index | Receive | 2.30% | 1/11/16 | (79,428) | |
| Barclays Bank plc | 1,000,000 | | U.S. CPI Urban Consumers NSA Index | Receive | 2.74% | 4/25/17 | (79,554) | |
| | | | | | | | $(1,332,885) | |
| * | The maximum potential amount the fund could be required to deliver as a seller of credit protection if a credit event occurs as defined under the terms of the agreement is the notional amount. The maximum potential amount may be partially offset by any recovery values of the referenced obligations and upfront payments received upon entering into the agreement. The quoted market prices and resulting market value for credit default swap agreements on credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability or profit at the period end. Increasing market values in absolute terms when compared to the notional amount of the credit default swap agreement represent a deterioration of the referenced entity’s credit soundness and an increased likelihood or risk of a credit event occurring as defined in the agreement. |
Notes to Schedule of Investments
CDX = Credit Derivatives Indexes
CPI = Consumer Price Index
LB-UBS = Lehman Brothers, Inc. - UBS AG
MASTR = Mortgage Asset Securitization Transactions, Inc.
NCUA = National Credit Union Administration
NSA = Not Seasonally Adjusted
PHHMC = PHH Mortgage Corporation
SEQ = Sequential Payer
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is effective at the period end.
| † | Category is less than 0.05% of total net assets. |
| (1) | Security, or a portion thereof, has been segregated for swap agreements. At the period end, the aggregate value of securities pledgedwas $3,136,000. |
| (2) | Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of these securities at the period end was $7,617,366, which represented 1.2% of total net assets. |
| (3) | Final maturity date indicated, unless otherwise noted. |
| (4) | The rate indicated is the yield to maturity at purchase. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
| SEPTEMBER 30, 2011 (UNAUDITED) | |
| Assets | |
| Investment securities, at value (cost of $619,991,311) | | | $624,574,547 | |
| Receivable for capital shares sold | | | 3,739,601 | |
| Swap agreements, at value (including net premiums paid (received) of $28,097) | | | 97,856 | |
| Interest receivable | | | 2,946,890 | |
| | | | 631,358,894 | |
| | | | | |
| Liabilities | |
| Payable for capital shares redeemed | | | 3,731,472 | |
| Swap agreements, at value (including net premiums paid (received) of $(89,027)) | | | 1,357,173 | |
| Accrued management fees | | | 240,827 | |
| Distribution and service fees payable | | | 155,867 | |
| | | | 5,485,339 | |
| | | | | |
| Net Assets | | | $625,873,555 | |
| | | | | |
| Net Assets Consist of: | |
| Capital paid in | | | $569,611,297 | |
| Undistributed net investment income | | | 12,970,932 | |
| Undistributed net realized gain | | | 39,906,477 | |
| Net unrealized appreciation | | | 3,384,849 | |
| | | | $625,873,555 | |
| | | | | | | | | |
| | Net assets | | Shares outstanding | | Net asset value per share |
| Investor Class | $198,182,164 | | | 17,727,336 | | | $11.18 | |
| Institutional Class | $84,773,487 | | | 7,543,586 | | | $11.24 | |
| A Class | $192,197,067 | | | 17,303,565 | | | $11.11 | * |
| B Class | $6,452,133 | | | 585,803 | | | $11.01 | |
| C Class | $114,036,625 | | | 10,348,559 | | | $11.02 | |
| R Class | $30,232,079 | | | 2,659,741 | | | $11.37 | |
*Maximum offering price $11.37 (net asset value divided by 0.9775)
See Notes to Financial Statements.
| FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED) | |
| Investment Income (Loss) | |
| Income: | | | |
| Interest | | | $15,336,437 | |
| | | | | |
| Expenses: | | | | |
| Management fees | | | 1,650,390 | |
| Distribution and service fees: | | | | |
| A Class | | | 237,432 | |
| B Class | | | 33,112 | |
| C Class | | | 617,299 | |
| R Class | | | 62,693 | |
| Trustees’ fees and expenses | | | 24,134 | |
| | | | 2,625,060 | |
| Fees waived | | | (266,048 | ) |
| | | | 2,359,012 | |
| | | | | |
| Net investment income (loss) | | | 12,977,425 | |
| | | | | |
| Realized and Unrealized Gain (Loss) | |
| Net realized gain (loss) on: | | | | |
| Investment transactions | | | 42,072,995 | |
| Futures contract transactions | | | 385,202 | |
| Swap agreement transactions | | | (725,837 | ) |
| Foreign currency transactions | | | 47,598 | |
| | | | 41,779,958 | |
| | | | | |
| Change in net unrealized appreciation (depreciation) on: | | | | |
| Investments | | | (21,150,019 | ) |
| Futures contracts | | | 10,900 | |
| Swap agreements | | | (873,125 | ) |
| Translation of assets and liabilities in foreign currencies | | | (17,732 | ) |
| | | | (22,029,976 | ) |
| | | | | |
| Net realized and unrealized gain (loss) | | | 19,749,982 | |
| | | | | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | | | $32,727,407 | |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
| SIX MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED) AND YEAR ENDED MARCH 31, 2011 | |
| Increase (Decrease) in Net Assets | | September 30, 2011 | | | March 31, 2011 | |
| Operations | |
| Net investment income (loss) | | | $12,977,425 | | | | $12,801,975 | |
| Net realized gain (loss) | | | 41,779,958 | | | | 5,777,814 | |
| Change in net unrealized appreciation (depreciation) | | | (22,029,976 | ) | | | 16,126,062 | |
| Net increase (decrease) in net assets resulting from operations | | | 32,727,407 | | | | 34,705,851 | |
| | | | | | | | | |
| Distributions to Shareholders | |
| From net investment income: | | | | | | | | |
| Investor Class | | | (2,220,286 | ) | | | (3,059,789 | ) |
| Institutional Class | | | (1,211,150 | ) | | | (1,494,956 | ) |
| A Class | | | (2,354,367 | ) | | | (3,977,102 | ) |
| B Class | | | (71,799 | ) | | | (88,023 | ) |
| C Class | | | (1,348,341 | ) | | | (1,518,771 | ) |
| R Class | | | (277,576 | ) | | | (276,730 | ) |
| From net realized gains: | | | | | | | | |
| Investor Class | | | — | | | | (1,492,627 | ) |
| Institutional Class | | | — | | | | (887,053 | ) |
| A Class | | | — | | | | (1,887,626 | ) |
| B Class | | | — | | | | (67,715 | ) |
| C Class | | | — | | | | (1,291,053 | ) |
| R Class | | | — | | | | (191,398 | ) |
| Decrease in net assets from distributions | | | (7,483,519 | ) | | | (16,232,843 | ) |
| | | | | | | | | |
| Capital Share Transactions | |
| Net increase (decrease) in net assets from capital share transactions | | | 25,140,261 | | | | 80,179,560 | |
| | | | | | | | | |
| Net increase (decrease) in net assets | | | 50,384,149 | | | | 98,652,568 | |
| | | | | | | | | |
| Net Assets | |
| Beginning of period | | | 575,489,406 | | | | 476,836,838 | |
| End of period | | | $625,873,555 | | | | $575,489,406 | |
| | | | | | | | | |
| Undistributed net investment income | | | $12,970,932 | | | | $7,477,026 | |
See Notes to Financial Statements.
Notes to Financial Statements |
SEPTEMBER 30, 2011 (UNAUDITED)
1. Organization
American Century Investment Trust (the trust) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Massachusetts business trust. Inflation Protection Bond Fund (the fund) is one fund in a series issued by the trust. The fund is nondiversified as defined under the 1940 Act. The fund’s investment objective is to seek total return and protection against U.S. inflation. The fund pursues its objective by investing primarily in inflation-linked debt securities. These securities include inflation-linked securities issued by the U.S. Treasury, by U.S. government agencies and instrumentalities, and by entities other than the U.S. Treasury or U.S. government agencies and instrumentalities.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open.
Debt securities maturing in greater than 60 days at the time of purchase are valued at the evaluated mean as provided by independent pricing services or at the mean of the most recent bid and asked prices as provided by investment dealers. Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Swap agreements are valued at an evaluated price as provided by independent pricing services or investment dealers. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Trustees or its designee, in accordance with procedures adopted by the Board of Trustees. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Interest income is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums. Inflation adjustments related to inflation-linked debt securities are reflected as interest income.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
When-Issued — The fund may engage in securities transactions on a when-issued basis. Under these arrangements, the securities’ prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly, but may be paid less frequently. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Management Fees — The trust has entered into a management agreement with American Century Investment Management, Inc. (ACIM) (the investment advisor), under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent trustees (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the fund and certain other accounts managed by the investment advisor that are in the same broad investment category as the fund and (2) a Complex Fee based on the assets of all the funds in the American Century Investments family of funds. The rates for the Investment Category Fee range from 0.2625% to 0.3800%. The rates for the Complex Fee range from 0.2500% to 0.3100% for the Investor Class, A Class, B Class, C Class and R Class. The Institutional Class is 0.2000% less at each point within the Complex Fee range. From April 1, 2011 through July 31, 2011, the investment advisor voluntarily agreed to waive 0.091% of its management fee. Effective August 1, 2011, the investment advisor voluntarily agreed to waive 0.080% of its management fee. The investment advisor expects the fee waiver to continue through July 31, 2012, and cannot terminate it without consulting the Board of Trustees. The total amount of the waiver for each class for the six months ended September 30, 2011 was $76,423, $39,086, $82,837, $2,893, $53,927 and $10,882 for the Investor Class, Institutional Class, A Class, B Class, C Class and R Class, respectively. The effective annual management fee before waiver for each class for the six months ended September 30, 2011 was 0.57% for the Investor Class, A Class, B Class, C Class and R Class and 0.37% for the Institutional Class. The effective annual management fee after waiver for each class for the six months ended September 30, 2011 was 0.48% for the Investor Class, A Class, B Class, C Class and R Class and 0.28% for the Institutional Class.
Distribution and Service Fees — The Board of Trustees has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and trustees of the trust are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the trust’s investment advisor, ACIM, the distributor of the trust, ACIS, and the trust’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMorgan Chase Bank (JPMCB) was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases of investment securities, excluding short-term investments, for the six months ended September 30, 2011 totaled $433,117,063, of which $389,440,386 represented U.S. Treasury and Government Agency obligations.
Sales of investment securities, excluding short-term investments, for the six months ended September 30, 2011 totaled $407,703,484, of which $357,811,563 represented U.S. Treasury and Government Agency obligations.
5. Capital Share Transactions
Transactions in shares of the fund were as follows (unlimited number of shares authorized):
| | | | | | | |
| | | Six months ended September 30, 2011 | | | Year ended March 31, 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Investor Class | | | | | | | | | | | | |
| Sold | | | 5,887,914 | | | | $65,368,387 | | | | 8,097,265 | | | | $86,278,961 | |
| Issued in reinvestment of distributions | | | 188,588 | | | | 2,046,176 | | | | 364,412 | | | | 3,807,862 | |
| Redeemed | | | (2,444,798 | ) | | | (27,138,114 | ) | | | (5,147,030 | ) | | | (54,565,139 | ) |
| | | | 3,631,704 | | | | 40,276,449 | | | | 3,314,647 | | | | 35,521,684 | |
| Institutional Class | | | | | | | | | | | | | | | | |
| Sold | | | 985,045 | | | | 10,965,145 | | | | 7,842,546 | | | | 83,597,445 | |
| Issued in reinvestment of distributions | | | 94,452 | | | | 1,029,522 | | | | 202,830 | | | | 2,128,552 | |
| Redeemed | | | (2,409,088 | ) | | | (26,850,305 | ) | | | (1,354,663 | ) | | | (14,508,848 | ) |
| | | | (1,329,591 | ) | | | (14,855,638 | ) | | | 6,690,713 | | | | 71,217,149 | |
| A Class | | | | | | | | | | | | | | | | |
| Sold | | | 3,958,569 | | | | 43,660,697 | | | | 6,507,025 | | | | 68,995,777 | |
| Issued in reinvestment of distributions | | | 183,779 | | | | 1,982,980 | | | | 511,501 | | | | 5,314,634 | |
| Redeemed | | | (3,874,681 | ) | | | (42,816,908 | ) | | | (11,034,800 | ) | | | (117,018,070 | ) |
| | | | 267,667 | | | | 2,826,769 | | | | (4,016,274 | ) | | | (42,707,659 | ) |
| B Class | | | | | | | | | | | | | | | | |
| Sold | | | 22,913 | | | | 250,323 | | | | 38,554 | | | | 402,407 | |
| Issued in reinvestment of distributions | | | 3,754 | | | | 40,238 | | | | 9,368 | | | | 96,742 | |
| Redeemed | | | (61,260 | ) | | | (669,927 | ) | | | (116,714 | ) | | | (1,229,606 | ) |
| | | | (34,593 | ) | | | (379,366 | ) | | | (68,792 | ) | | | (730,457 | ) |
| C Class | | | | | | | | | | | | | | | | |
| Sold | | | 1,235,574 | | | | 13,509,810 | | | | 4,153,425 | | | | 43,792,693 | |
| Issued in reinvestment of distributions | | | 84,233 | | | | 903,817 | | | | 188,578 | | | | 1,948,619 | |
| Redeemed | | | (2,350,265 | ) | | | (25,906,326 | ) | | | (3,751,491 | ) | | | (39,458,664 | ) |
| | | | (1,030,458 | ) | | | (11,492,699 | ) | | | 590,512 | | | | 6,282,648 | |
| R Class | | | | | | | | | | | | | | | | |
| Sold | | | 1,001,676 | | | | 11,353,207 | | | | 1,404,509 | | | | 15,233,384 | |
| Issued in reinvestment of distributions | | | 25,120 | | | | 277,576 | | | | 43,811 | | | | 465,987 | |
| Redeemed | | | (253,190 | ) | | | (2,866,037 | ) | | | (471,069 | ) | | | (5,103,176 | ) |
| | | | 773,606 | | | | 8,764,746 | | | | 977,251 | | | | 10,596,195 | |
| Net increase (decrease) | | | 2,278,335 | | | | $25,140,261 | | | | 7,488,057 | | | | $80,179,560 | |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
| ● | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
| | | | | | | | | | |
| | | Level 1 | | Level 2 | | Level 3 |
| Investment Securities | |
| U.S. Treasury Securities | | | — | | | | $529,781,969 | | | | — | |
| Corporate Bonds | | | — | | | | 50,971,993 | | | | — | |
| Collateralized Mortgage Obligations | | | — | | | | 23,576,708 | | | | — | |
| Commercial Mortgage-Backed Securities | | | — | | | | 18,659,829 | | | | — | |
| Temporary Cash Investments | | | $84,050 | | | | 1,499,998 | | | | — | |
| Total Value of Investment Securities | | | $84,050 | | | | $624,490,497 | | | | — | |
| | | | | | | | | | | | | |
| Other Financial Instruments | |
| Total Unrealized Gain (Loss) on Swap Agreements | | | — | | | | $(1,198,387 | ) | | | — | |
7. Derivative Instruments
Credit Risk — The fund is subject to credit risk in the normal course of pursuing its investment objectives. The value of a bond generally declines as the credit quality of its issuer declines. Credit default swap agreements enable a fund to buy/sell protection against a credit event of a specific issuer or index. A fund may attempt to enhance returns by selling protection or attempt to mitigate credit risk by buying protection. The buyer/seller of credit protection against a security or basket of securities may pay/receive an up-front or periodic payment to compensate for/against potential default events. A fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Changes in value, including the periodic amounts of interest to be paid or received on swap agreements, are recorded as unrealized appreciation (depreciation) on swap agreements. Realized gain or loss is recorded upon receipt or payment of a periodic settlement or termination of swap agreements. Net realized and unrealized gains or losses occurring during the holding period of swap agreements are a component of net realized gain (loss) on swap agreement transactions and change in net unrealized appreciation (depreciation) on swap agreements, respectively. The risks of entering into swap agreements include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments or instruments. The credit risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments
held by a fund may be significantly affected by changes in foreign 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 declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. During the period, the fund regularly held foreign currency risk derivative instruments though none were held at period end.
Interest Rate Risk — The fund is subject to interest rate risk in the normal course of pursuing its investment objectives. The value of bonds generally declines as interest rates rise. A fund may enter into futures contracts based on a bond index or a specific underlying security. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Subsequent payments (variation margin) are made or received daily, in cash, by a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the futures contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period, the fund regularly held interest rate risk derivative instruments though none were held at period end.
Other Contracts — A fund may enter into total return swap agreements in order to 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 or gain exposure to certain markets in the most economical way possible. A fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Changes in value, including the periodic amounts of interest to be paid or received on swap agreements, are recorded as unrealized appreciation (depreciation) on swap agreements. Realized gain or loss is recorded upon receipt or payment of a periodic settlement or termination of swap agreements. Net realized and unrealized gains or losses occurring during the holding period of swap agreements are a component of net realized gain (loss) on swap agreement transactions and change in net unrealized appreciation (depreciation) on swap agreements, respectively. The risks of entering into swap agreements include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments or instruments. The other contracts derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
Value of Derivative Instruments as of September 30, 2011
| | |
| | Asset Derivatives | | Liability Derivatives |
Type of Risk Exposure | Location on Statement of Assets and Liabilities | Value | | Location on Statement of Assets and Liabilities | Value |
| Credit Risk | Swap agreements | $83,929 | | | Swap agreements | $10,361 | |
| Other Contracts | Swap agreements | 13,927 | | | Swap agreements | 1,346,812 | |
| | | $97,856 | | | | $1,357,173 | |
Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended September 30, 2011 |
| | Net Realized Gain (Loss) | | Change in Net Unrealized Appreciation (Depreciation) |
Type of Risk Exposure | Location on Statement of Operations | Value | | Location on Statement of Operations | Value |
| Credit Risk | Net realized gain (loss) on swap agreement transactions | $12,810 | | | Change in net unrealized appreciation (depreciation) on swap agreements | $(10,214) | |
| Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | (21,854) | | | Change in net unrealized appreciation (depreciation) on translation of assets and iabilities in foreign currencies | 12,307 | |
| Interest Rate Risk | Net realized gain (loss) on futures contract transactions | 385,202 | | | Change in net unrealized appreciation (depreciation) on futures contracts | 10,900 | |
| Other Contracts | Net realized gain (loss) on swap agreement transactions | (738,647) | | | Change in net unrealized appreciation (depreciation) on swap agreements | (862,911) | |
| | | $(362,489) | | | | $(849,918) | |
8. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of September 30, 2011, the components of investments for federal income tax purposes were as follows:
| | | | | |
| Federal tax cost of investments | | | $620,005,360 | |
| Gross tax appreciation of investments | | | $7,876,280 | |
| Gross tax depreciation of investments | | | (3,307,093 | ) |
| Net tax appreciation (depreciation) of investments | | | $4,569,187 | |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
The fund has elected to treat $(1,718,439) of net capital losses incurred in the five-month period ended March 31, 2011, as having been incurred in the following fiscal year for federal income tax purposes.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period.
| For a Share Outstanding Throughout the Years Ended March 31 (except as noted) |
| Per-Share Data | Ratios and Supplemental Data |
| | | Income From Investment Operations: | Distributions From: | | | Ratio to Average Net Assets of: | | |
| | Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Tax Return of Capital | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) |
| Investor Class |
2011(3) | $10.71 | 0.24 | 0.38 | 0.62 | (0.15) | — | — | (0.15) | $11.18 | 5.79% | 0.49%(4) | 0.58%(4) | 4.55%(4) | 4.46%(4) | 69% | $198,182 |
| 2011 | $10.33 | 0.28 | 0.45 | 0.73 | (0.24) | (0.11) | — | (0.35) | $10.71 | 7.16% | 0.49% | 0.58% | 2.66% | 2.57% | 58% | $150,984 |
| 2010 | $9.86 | 0.34 | 0.29 | 0.63 | (0.16) | — | — | (0.16) | $10.33 | 6.42% | 0.51% | 0.58% | 3.39% | 3.32% | 24% | $111,327 |
| 2009 | $10.48 | 0.07 | (0.29) | (0.22) | (0.30) | (0.01) | (0.09) | (0.40) | $9.86 | (2.13)% | 0.59% | 0.59% | 0.97% | 0.97% | 37% | $39,101 |
| 2008 | $9.57 | 0.49 | 0.88 | 1.37 | (0.46) | — | — | (0.46) | $10.48 | 14.87% | 0.59% | 0.59% | 4.95% | 4.95% | 31% | $21,968 |
| 2007 | $9.47 | 0.33 | 0.08 | 0.41 | (0.31) | — | —(5) | (0.31) | $9.57 | 4.46% | 0.59% | 0.59% | 3.26% | 3.26% | 52% | $596 |
| Institutional Class |
2011(3) | $10.76 | 0.27 | 0.36 | 0.63 | (0.15) | — | — | (0.15) | $11.24 | 5.91% | 0.29%(4) | 0.38%(4) | 4.75%(4) | 4.66%(4) | 69% | $84,773 |
| 2011 | $10.37 | 0.30 | 0.46 | 0.76 | (0.26) | (0.11) | — | (0.37) | $10.76 | 7.45% | 0.29% | 0.38% | 2.86% | 2.77% | 58% | $95,487 |
| 2010 | $9.90 | 0.34 | 0.31 | 0.65 | (0.18) | — | — | (0.18) | $10.37 | 6.61% | 0.30% | 0.38% | 3.60% | 3.52% | 24% | $22,633 |
| 2009 | $10.51 | (0.20) | —(5) | (0.20) | (0.31) | (0.01) | (0.09) | (0.41) | $9.90 | (1.93)% | 0.39% | 0.39% | 1.17% | 1.17% | 37% | $2,512 |
| 2008 | $9.57 | 0.49 | 0.93 | 1.42 | (0.48) | — | — | (0.48) | $10.51 | 15.43% | 0.39% | 0.39% | 5.15% | 5.15% | 31% | $460 |
| 2007 | $9.47 | 0.35 | 0.11 | 0.46 | (0.36) | — | — | (0.36) | $9.57 | 4.81% | 0.39% | 0.39% | 3.46% | 3.46% | 52% | $43 |
| For a Share Outstanding Throughout the Years Ended March 31 (except as noted) |
| Per-Share Data | Ratios and Supplemental Data |
| | | Income From Investment Operations: | Distributions From: | | | Ratio to Average Net Assets of: | | |
| | Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Tax Return of Capital | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) |
| A Class |
2011(3) | $10.65 | 0.24 | 0.36 | 0.60 | (0.14) | — | — | (0.14) | $11.11 | 5.66% | 0.74%(4) | 0.83%(4) | 4.30%(4) | 4.21%(4) | 69% | $192,197 |
| 2011 | $10.27 | 0.26 | 0.44 | 0.70 | (0.21) | (0.11) | — | (0.32) | $10.65 | 6.93% | 0.74% | 0.83% | 2.41% | 2.32% | 58% | $181,430 |
| 2010 | $9.81 | 0.33 | 0.27 | 0.60 | (0.14) | — | — | (0.14) | $10.27 | 6.08% | 0.76% | 0.83% | 3.14% | 3.07% | 24% | $216,174 |
| 2009 | $10.43 | 0.08 | (0.31) | (0.23) | (0.29) | (0.01) | (0.09) | (0.39) | $9.81 | (2.27)% | 0.84% | 0.84% | 0.72% | 0.72% | 37% | $112,039 |
| 2008 | $9.52 | 0.46 | 0.89 | 1.35 | (0.44) | — | — | (0.44) | $10.43 | 14.66% | 0.84% | 0.84% | 4.70% | 4.70% | 31% | $72,397 |
| 2007 | $9.45 | 0.28 | 0.11 | 0.39 | (0.30) | — | (0.02) | (0.32) | $9.52 | 4.25% | 0.84% | 0.84% | 3.01% | 3.01% | 52% | $12,402 |
| B Class |
2011(3) | $10.58 | 0.20 | 0.35 | 0.55 | (0.12) | — | — | (0.12) | $11.01 | 5.21% | 1.49%(4) | 1.58%(4) | 3.55%(4) | 3.46%(4) | 69% | $6,452 |
| 2011 | $10.20 | 0.18 | 0.44 | 0.62 | (0.13) | (0.11) | — | (0.24) | $10.58 | 6.17% | 1.49% | 1.58% | 1.66% | 1.57% | 58% | $6,565 |
| 2010 | $9.75 | 0.25 | 0.26 | 0.51 | (0.06) | — | — | (0.06) | $10.20 | 5.21% | 1.51% | 1.58% | 2.39% | 2.32% | 24% | $7,032 |
| 2009 | $10.41 | (0.04) | (0.27) | (0.31) | (0.26) | (0.01) | (0.08) | (0.35) | $9.75 | (3.04)% | 1.59% | 1.59% | (0.03)% | (0.03)% | 37% | $4,731 |
| 2008 | $9.50 | 0.41 | 0.86 | 1.27 | (0.36) | — | — | (0.36) | $10.41 | 13.86% | 1.59% | 1.59% | 3.95% | 3.95% | 31% | $2,826 |
| 2007 | $9.45 | 0.21 | 0.11 | 0.32 | (0.23) | — | (0.04) | (0.27) | $9.50 | 3.41% | 1.59% | 1.59% | 2.26% | 2.26% | 52% | $1,132 |
| C Class |
2011(3) | $10.59 | 0.20 | 0.35 | 0.55 | (0.12) | — | — | (0.12) | $11.02 | 5.21% | 1.49%(4) | 1.58%(4) | 3.55%(4) | 3.46%(4) | 69% | $114,037 |
| 2011 | $10.21 | 0.17 | 0.45 | 0.62 | (0.13) | (0.11) | — | (0.24) | $10.59 | 6.16% | 1.49% | 1.58% | 1.66% | 1.57% | 58% | $120,461 |
| 2010 | $9.75 | 0.23 | 0.29 | 0.52 | (0.06) | — | — | (0.06) | $10.21 | 5.32% | 1.51% | 1.58% | 2.39% | 2.32% | 24% | $110,123 |
| 2009 | $10.41 | 0.02 | (0.33) | (0.31) | (0.26) | (0.01) | (0.08) | (0.35) | $9.75 | (3.04)% | 1.59% | 1.59% | (0.03)% | (0.03)% | 37% | $33,530 |
| 2008 | $9.49 | 0.41 | 0.87 | 1.28 | (0.36) | — | — | (0.36) | $10.41 | 13.98% | 1.59% | 1.59% | 3.95% | 3.95% | 31% | $20,978 |
| 2007 | $9.44 | 0.21 | 0.12 | 0.33 | (0.23) | — | (0.05) | (0.28) | $9.49 | 3.54% | 1.59% | 1.59% | 2.26% | 2.26% | 52% | $6,682 |
| For a Share Outstanding Throughout the Years Ended March 31 (except as noted) |
| Per-Share Data | Ratios and Supplemental Data |
| | | Income From Investment Operations: | Distributions From: | | | Ratio to Average Net Assets of: | | |
| | Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Tax Return of Capital | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) |
| R Class |
2011(3) | $10.90 | 0.21 | 0.39 | 0.60 | (0.13) | — | — | (0.13) | $11.37 | 5.56% | 0.99%(4) | 1.08%(4) | 4.05%(4) | 3.96%(4) | 69% | $30,232 |
| 2011 | $10.51 | 0.24 | 0.45 | 0.69 | (0.19) | (0.11) | — | (0.30) | $10.90 | 6.60% | 0.99% | 1.08% | 2.16% | 2.07% | 58% | $20,563 |
| 2010 | $10.03 | 0.27 | 0.32 | 0.59 | (0.11) | — | — | (0.11) | $10.51 | 5.89% | 1.00% | 1.08% | 2.90% | 2.82% | 24% | $9,548 |
| 2009 | $10.68 | (0.01) | (0.26) | (0.27) | (0.28) | (0.01) | (0.09) | (0.38) | $10.03 | (2.62)% | 1.09% | 1.09% | 0.47% | 0.47% | 37% | $1,062 |
| 2008 | $9.74 | 0.46 | 0.90 | 1.36 | (0.42) | — | — | (0.42) | $10.68 | 14.47% | 1.09% | 1.09% | 4.45% | 4.45% | 31% | $299 |
| 2007 | $9.46 | 0.15 | 0.23 | 0.38 | (0.10) | — | — | (0.10) | $9.74 | 4.03% | 1.09% | 1.09% | 2.76% | 2.76% | 52% | $123 |
Notes to Financial Highlights
| (1) | Computed using average shares outstanding throughout the period. |
| (2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
| (3) | Six months ended September 30, 2011 (unaudited). |
| (5) | Per-share amount was less than $0.005. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 28, 2011, the Fund’s Board of Directors/Trustees unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors/trustees (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| ● | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| the investment performance of the fund, including data comparing the Fund’s performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
| data comparing the cost of owning the Fund to the cost of owning similar funds; |
| the Advisor’s compliance policies, procedures, and regulatory experience; |
| financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| data comparing services provided and charges to other investment management clients of the Advisor; and |
| ● | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Board also had the benefit of the advice of its independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and the Board’s independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| constructing and designing the Fund |
| portfolio research and security selection |
| initial capitalization/funding |
| ● | daily valuation of the Fund’s portfolio |
| shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
| ● | regulatory and portfolio compliance |
| ● | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to seek the best execution of fund trades. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Portfolio Committee, regularly reviews investment performance information for the Fund, together with
comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance section of this report.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board also requested and received information from the Advisor concerning the nature of the services, fees, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent directors and assisted by the advice of independent legal counsel, taking into account all of the factors discussed above and the information provided by the Advisor and others, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
| Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
| Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Investment Trust
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-SAN-73685 1111
SEMIANNUAL REPORT SEPTEMBER 30, 2011
| President’s Letter | 2 |
| Performance | 3 |
| Fund Characteristics | 4 |
| Shareholder Fee Example | 5 |
| Schedule of Investments | 7 |
| Statement of Assets and Liabilities | 13 |
| Statement of Operations | 14 |
| Statement of Changes in Net Assets | 15 |
| Notes to Financial Statements | 16 |
| Financial Highlights | 20 |
| Approval of Management Agreement | 22 |
| Additional Information | 27 |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
Dear Investor:
Thank you for reviewing our semiannual report for the six months ended September 30, 2011. This report offers a macroeconomic and financial market overview of the period, followed by fund performance, a schedule of fund investments, and other financial information.
For additional, updated information on fund performance, portfolio strategy, and the investment markets, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site. Also, the fund’s annual report, dated March 31, 2012, will provide additional market perspective from our portfolio management team.
Macroeconomic and Financial Market Overview
This reporting period differed dramatically from the six months that preceded it. As the period covered by this report opened in April 2011, U.S. stocks were approaching the crest of an eight-month rally, originating back in late August 2010, which pushed the broad market approximately 30% higher. At the same time, the 10-year U.S. Treasury yield climbed above 3.50%, responding to global growth and inflation pressures.
All of that changed during the late spring and summer of 2011. High fuel prices, declining U.S. home values, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide globally and in the U.S.
Investors’ risk tolerance reversed as recession fears re-emerged. A full-blown flight to safety ensued by mid-summer, sending U.S. Treasury yields to record lows, boosting the U.S. dollar, and undermining stock prices, both domestically and abroad. By September 30, the financial markets had priced in recessionary expectations.
Fundamental signs of economic resilience remained, however, particularly in corporate earnings, with potentially more monetary and fiscal stimuli on the way. The Federal Reserve resurrected “Operation Twist,” an attempt to further lower long-term interest rates, and the Obama administration worked to implement job-creation legislation.
We don’t think there will be a double-dip recession, but we do believe we face another period of slow, sub-par economic growth. We appreciate your continued trust in us during these uncertain times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
| Total Returns as of September 30, 2011 |
| | | | | Average Annual Returns | |
| | Ticker Symbol | 6 months(1) | 1 year | 5 years | 10 years | Since Inception | Inception Date |
| Investor Class | BPRXX | 0.01%(2) | 0.01%(2) | 1.87%(2) | 1.88%(2) | 3.29%(2) | 11/17/93 |
A Class No sales charge* With sales charge* | ACAXX | 0.01%(2) -0.99%(2) | 0.01%(2) 0.01%(2) | 1.72%(2) 1.72%(2) | 1.68%(2) 1.68%(2) | 2.42%(2) 2.42%(2) | 8/28/98 |
B Class No sales charge* With sales charge* | BPMXX | 0.01%(2) -4.99%(2) | 0.01%(2) -3.99%(2) | 1.33%(2) 1.14%(2) | — — | 1.32%(2) 1.32%(2) | 1/31/03 |
C Class No sales charge* With sales charge* | ARCXX | 0.01%(2) -0.99%(2) | 0.01%(2) 0.01%(2) | 1.46%(2) 1.46%(2) | — — | 1.36%(2) 1.36%(2) | 5/7/02 |
| * | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class and C Class shares may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
| (1) | Total returns for periods less than one year are not annualized. |
| (2) | Returns would have been lower if a portion of the management fee and/or distribution and service fee had not been waived. |
| Total Annual Fund Operating Expenses |
| Investor Class | A Class | B Class | C Class |
| 0.58% | 0.83% | 1.58% | 1.33% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
The 7-day current yield more closely reflects the current earnings of the fund than the total return.
SEPTEMBER 30, 2011 |
| 7-Day Current Yields | Investor Class | A Class | B Class | C Class |
After waiver(1) | 0.01% | 0.01% | 0.01% | 0.01% |
| Before waiver | -0.31% | -0.57% | -1.30% | -1.07% |
| 7-Day Effective Yields | Investor Class | A Class | B Class | C Class |
After waiver(1) | 0.01% | 0.01% | 0.01% | 0.01% |
(1) Yields would have been lower if a portion of the management fee and/or distribution and service fee had not been waived. |
| |
| Portfolio at a Glance |
| Weighted Average Maturity | 50 days |
| Weighted Average Life | 74 days |
| |
| Portfolio Composition by Maturity | % of fund investments |
| 1-30 days | 65% |
| 31-90 days | 19% |
| 91-180 days | 7% |
| More than 180 days | 9% |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2011 to September 30, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | Beginning Account Value 4/1/11 | Ending Account Value 9/30/11 | Expenses Paid During Period(1) 4/1/11 – 9/30/11 | Annualized Expense Ratio(1) |
| Actual |
| Investor Class (after waiver) | $1,000 | $1,000.10 | | $1.35 | 0.27% |
| Investor Class (before waiver) | $1,000 | $1,000.10(2) | | $2.90 | 0.58% |
| A Class (after waiver) | $1,000 | $1,000.10 | | $1.35 | 0.27% |
| A Class (before waiver) | $1,000 | $1,000.10(2) | | $4.15 | 0.83% |
| B Class (after waiver) | $1,000 | $1,000.10 | | $1.35 | 0.27% |
| B Class (before waiver) | $1,000 | $1,000.10(2) | | $7.90 | 1.58% |
| C Class (after waiver) | $1,000 | $1,000.10 | | $1.35 | 0.27% |
| C Class (before waiver) | $1,000 | $1,000.10(2) | | $6.65 | 1.33% |
| Hypothetical |
| Investor Class (after waiver) | $1,000 | $1,023.65 | | $1.37 | 0.27% |
| Investor Class (before waiver) | $1,000 | $1,022.10 | | $2.93 | 0.58% |
| A Class (after waiver) | $1,000 | $1,023.65 | | $1.37 | 0.27% |
| A Class (before waiver) | $1,000 | $1,020.85 | | $4.19 | 0.83% |
| B Class (after waiver) | $1,000 | $1,023.65 | | $1.37 | 0.27% |
| B Class (before waiver) | $1,000 | $1,017.10 | | $7.97 | 1.58% |
| C Class (after waiver) | $1,000 | $1,023.65 | | $1.37 | 0.27% |
| C Class (before waiver) | $1,000 | $1,018.35 | | $6.71 | 1.33% |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
| (2) | Ending account value assumes the return earned after waiver and would have been lower if a portion of the management fee and/or distribution and service fee had not been waived. |
SEPTEMBER 30, 2011 (UNAUDITED)
| | Principal Amount | Value |
Commercial Paper(2) — 45.8% |
| Bank of Nova Scotia, 0.274%, 12/20/11 | $12,000,000 | $ 11,992,800 |
Barclays Bank PLC, 0.223%, 10/7/11(3) | 20,000,000 | 19,999,267 |
| Catholic Health Intitiatives, 0.45%, 11/2/11 | 71,763,000 | 71,763,000 |
| Catholic Health Intitiatives, 0.32%, 12/6/11 | 32,563,000 | 32,563,000 |
Chariot Funding LLC, 0.223%, 10/24/11(3) | 30,750,000 | 30,745,678 |
Charta LLC, 0.22%, 10/11/11(3) | 10,000,000 | 9,999,389 |
Charta LLC, 0.22%, 10/17/11(3) | 24,000,000 | 23,997,653 |
Charta LLC, 0.13%, 11/16/11(3) | 26,000,000 | 25,993,407 |
| City of Austin, 0.20%, 10/18/11 (LOC: JPMorgan Chase Bank) | 1,502,000 | 1,501,872 |
| City of Austin, 0.203%, 10/18/11 (LOC: JPMorgan Chase Bank) | 8,000,000 | 7,999,244 |
| City of Austin, 0.233%, 10/18/11 (LOC: JPMorgan Chase Bank) | 1,106,000 | 1,105,880 |
| City of Chicago, 0.29%, 10/13/11 (LOC: Bayerische Landesbank) | 23,215,000 | 23,212,756 |
| City of Chicago, 0.30%, 11/2/11 (LOC: Bayerische Landesbank) | 10,067,000 | 10,064,315 |
Crown Point Capital Co. LLC, 0.25%, 10/4/11(3) | 32,000,000 | 31,999,333 |
Crown Point Capital Co. LLC, 0.233%, 10/5/11(3) | 25,000,000 | 24,999,361 |
Crown Point Capital Co. LLC, 0.233%, 10/7/11(3) | 43,200,000 | 43,198,344 |
Falcon Asset Securitization Co. LLC, 0.16%, 10/11/11(3) | 27,000,000 | 26,998,800 |
Govco LLC, 0.233%, 10/17/11(3) | 31,250,000 | 31,246,806 |
Govco LLC, 0.233%, 10/27/11(3) | 40,000,000 | 39,993,356 |
Govco LLC, 0.325%, 1/17/12(3) | 15,000,000 | 14,985,600 |
Govco LLC, 0.325%, 1/24/12(3) | 25,000,000 | 24,974,444 |
Jupiter Securitization Co. LLC, 0.21%, 11/10/11(3) | 34,000,000 | 33,992,067 |
Legacy Capital LLC, 0.254%, 10/4/11(3) | 15,000,000 | 14,999,688 |
Legacy Capital LLC, 0.233%, 10/6/11(3) | 90,000,000 | 89,997,125 |
Lexington Parker Capital, 0.254%, 10/4/11(3) | 53,050,000 | 53,048,895 |
Lexington Parker Capital, 0.233%, 10/11/11(3) | 41,000,000 | 40,997,381 |
| Providence Health & Services, 0.30%, 1/24/12 | 50,000,000 | 50,000,000 |
Reckitt Benckiser Treasury Services plc, 0.376%, 11/17/11 (LOC: Reckitt Benckiser Group plc)(3) | 11,000,000 | 10,994,686 |
Reckitt Benckiser Treasury Services plc, 0.304%, 1/4/12 (LOC: Reckitt Benckiser Group plc)(3) | 600,000 | 599,525 |
| Regent of the University of California, 0.254%, 2/6/12 | 26,223,000 | 26,199,691 |
| Salvation Army (The), 0.32%, 10/3/11 | 16,200,000 | 16,200,000 |
| Salvation Army (The), 0.386%, 10/17/11 | 17,460,000 | 17,457,051 |
| Salvation Army (The), 0.34%, 11/3/11 | 16,000,000 | 16,000,000 |
Sanofi, 0.13%, 11/14/11(3) | 30,000,000 | 29,995,233 |
Sanofi, 0.183%, 11/16/11(3) | 25,000,000 | 24,994,250 |
| South Carolina State Public Service Authority, 0.34%, 10/4/11 | 10,000,000 | 10,000,000 |
| South Carolina State Public Service Authority, 0.27%, 12/5/11 | 14,500,000 | 14,500,000 |
| South Carolina State Public Service Authority, 0.27%, 12/5/11 | 8,000,000 | 8,000,000 |
| South Carolina State Public Service Authority, 0.26%, 12/8/11 | 20,000,000 | 20,000,000 |
| South Carolina State Public Service Authority, 0.22%, 12/15/11 | 17,773,000 | 17,773,000 |
| South Carolina State Public Service Authority, 0.22%, 12/15/11 | 4,800,000 | 4,800,000 |
| Toyota Motor Credit Corp., 0.21%, 11/4/11 | 35,000,000 | 34,993,058 |
| TOTAL COMMERCIAL PAPER | 1,044,875,955 |
| Municipal Securities — 36.6% |
| ABAG Finance Authority for Nonprofit Corp. (899 Charleston LLC), VRDN, 0.20%, 10/3/11 (LOC: Bank of America N.A.) | $ 3,605,000 | $ 3,605,000 |
| ABAG Finance Authority for Nonprofit Corp. Series 2001 B (Public Policy Institute), VRDN, 0.38%, 10/3/11 (LOC: Wells Fargo Bank N.A.) | 2,435,000 | 2,435,000 |
| Alameda County Industrial Development Authority (Segale Bros. Wood Products), VRDN, 0.38%, 10/3/11 (LOC: Bank of the West) | 1,810,000 | 1,810,000 |
| Appling County Development Authority Pollution Control (Georgia Power Co.-Plant Hatch), VRDN, 0.25%, 10/1/11 | 7,200,000 | 7,200,000 |
| California School Cash Reserve Program Authority, Series 2011 B, 2.00%, 6/1/12 | 3,000,000 | 3,030,217 |
| California Statewide Communities Development Authority (Varenna Care Center), VRDN, 0.33%, 10/3/11 (LOC: FHLB) | 1,470,000 | 1,470,000 |
| City of Alliance (Alliance Obligated Group), VRDN, 0.20%, 10/3/11 (Radian) (LOC: JPMorgan Chase Bank N.A.) | 2,500,000 | 2,500,000 |
| City of Chicago (Lufthansa German), VRDN, 0.23%, 10/5/11 (LOC: Bayerische Landesbank) | 4,870,000 | 4,870,000 |
| City of Chula Vista Industrial Development, Series 2006 A (San Diego Gas & Electric Co.), VRDN, 0.15%, 10/3/11 | 15,900,000 | 15,900,000 |
| City of Durham GO, VRDN, 0.32%, 10/5/11 (SBBPA: Bank of America N.A.) | 5,500,000 | 5,500,000 |
| City of El Monte COP, Series 2003 B, (Community Improvement), VRDN, 0.48%, 10/3/11 (LOC: Union Bank of California N.A. and California State Teacher’s Retirement) | 1,935,000 | 1,935,000 |
| City of Indianapolis (Nora Pines Apartments), VRDN, 0.19%, 10/15/11 (LIQ FAC: FNMA) | 9,275,000 | 9,275,000 |
| City of Moorhead (American Crystal Sugar Co.), VRDN, 0.31%, 10/6/11 (LOC: Wells Fargo Bank N.A.) | 5,500,000 | 5,500,000 |
| City of New York GO, Series 1994 H-3, VRDN, 0.15%, 10/1/11 (AGM) (SBBPA: State Street Bank & Trust Co.) | 4,200,000 | 4,200,000 |
| City of Palm Bay (Pension Funding), VRDN, 0.30%, 10/3/11 (AGM) (SBBPA: State Street Bank & Trust Co.) | 17,975,000 | 17,975,000 |
| City of Pasadena, COP, (Los Robles Avenue Parking Facilities), VRDN, 0.20%, 10/3/11 (LOC: Mellon Bank N.A. and California State Teacher’s Retirement) | 2,200,000 | 2,200,000 |
| City of Plymouth (Carlson Center), VRDN, 0.23%, 10/1/11 (LOC: U.S. Bank N.A.) | 100,000 | 100,000 |
| City of Plymouth Series 1994 B, (Westhealth), VRDN, 0.18%, 12/1/11 (AGM) (SBBPA: JPMorgan Chase Bank N.A.) | 8,815,000 | 8,815,000 |
| City of Portland GO, (Pension Buildings), VRDN, 0.32%, 10/3/11 (SBBPA: Landesbank Hessen-Thuringen Girozentrale) | 77,255,000 | 77,254,717 |
| City of Quincy (Blessing Hospital), VRDN, 0.21%, 10/3/11 (LOC: JPMorgan Chase Bank N.A.) | 3,200,000 | 3,200,000 |
| City of Riverside, Series 2011 A, VRN, 0.23%, 10/3/11 | 9,870,000 | 9,870,000 |
| City of St. Cloud Series 2008 A (Centracare), VRDN, 0.15%, 10/3/11 (AGM) (SBBPA: JPMorgan Chase Bank N.A.) | 22,000,000 | 22,000,000 |
| Colorado Educational & Cultural Facilities Authority Series 2005 C1 (National Jewish Federation Bond Program), VRDN, 0.14%, 10/3/11 (LOC: U.S. Bank N.A.) | 10,890,000 | 10,890,000 |
| Connecticut Housing Finance Authority, Series 2002 B3 (Housing Mortgage Finance), VRDN, 0.15%, 11/15/11 (AMBAC) (SBBPA: FHLB) | $11,875,000 | $ 11,875,000 |
| Connecticut Housing Finance Authority, Series 2008 A5 (Housing Mortgage Finance), VRDN, 0.18%, 11/15/11 (SBBPA: FHLB) | 35,835,000 | 35,835,000 |
| County of Buchanan, Series 2009 A (Lifeline Foods, LLC), VRDN, 0.26%, 10/6/11 (LOC: Wells Fargo Bank N.A.) | 7,000,000 | 7,000,000 |
| County of Escambia Solid Waste Disposal System, (Gulf Power Co.), VRDN, 0.21%, 10/1/11 | 19,700,000 | 19,700,000 |
| County of Kent GO, 1.50%, 4/1/12 | 24,000,000 | 24,132,433 |
| County of Suffolk GO, 1.50%, 9/13/12 | 35,000,000 | 35,368,744 |
| Floyd County Development Authority Pollution Control (Georgia Power Co. Plant Hammond), VRDN, 0.26%, 10/1/11 | 8,000,000 | 8,000,000 |
| Harris County Cultural Education Facilities Finance Corp. Series 2008 C1 (Methodist Hospital System), VRDN, 0.12%, 10/3/11 | 33,000,000 | 33,000,000 |
| Harris County Health Facilities Development Corp. Series 2008 A2 (Methodist Hospital System), VRDN, 0.12%, 10/3/11 | 7,000,000 | 7,000,000 |
| Harrisonburg Redevelopment & Housing Authority Multi-Family (Stoney Ridge/Dale Forest), VRDN, 0.14%, 10/6/11 (FHLMC) (LIQ FAC: FHLMC) | 5,100,000 | 5,100,000 |
| Hunt Memorial Hospital District, VRDN, 0.25%, 10/3/11 (AGM) (SBBPA: JPMorgan Chase Bank N.A.) | 4,375,000 | 4,375,000 |
| Iowa Finance Authority Private College (Central College), VRDN, 0.20%, 10/3/11 (LOC: Wells Fargo Bank N.A.) | 2,545,000 | 2,545,000 |
JEA, 2.00%, 10/1/12(1) | 7,935,000 | 8,053,787 |
| JJB Properties LLC (Rental Property), VRDN, 0.22%, 10/1/11 (LOC: Arvest Bank and FHLB) | 5,850,000 | 5,850,000 |
| King County Housing Authority (Auburn Court Apartments), VRDN, 0.19%, 10/15/11 (LIQ FAC: FNMA) | 11,445,000 | 11,445,000 |
| Lansing Economic Development Corp. (Accident Fund), VRDN, 0.26%, 10/6/11 (LOC: FHLB) | 7,405,000 | 7,405,000 |
| Long Island Power Authority Electric System, Series 1998-2B, VRDN, 0.22%, 10/3/11 (LOC: Bayerische Landesbank) | 21,840,000 | 21,840,000 |
| Louisiana Public Facilities Authority (Dynamic Fuels LLC), VRDN, 0.14%, 10/1/11 (LOC: JPMorgan Chase Bank N.A.) | 9,000,000 | 9,000,000 |
| Massachusetts Health & Educational Facilities Authority, Series 2008 G, (South Shore Hospital), VRDN, 0.24%, 10/3/11 (AGM) (SBBPA: JPMorganChase Bank N.A.) | 11,790,000 | 11,790,000 |
| Massachusetts Health & Educational Facilities Authority, Series 2008 N1 (Tufts University), VRDN, 0.15%, 10/3/11 (SBBPA: JPMorgan Chase Bank N.A.) | 11,000,000 | 11,000,000 |
| Massachusetts Water Resources Authority Series 2002 C, (Multi-Modal), VRDN, 0.18%, 10/3/11 (LOC: Landesbank Hessen-Thuringen Girozentrale) | 11,000,000 | 11,000,000 |
| Michigan State Hospital Finance Authority (Ascension Health Senior Credit), 0.45%, 11/15/11 | 7,000,000 | 7,000,000 |
| Michigan State Hospital Finance Authority (Ascension Health Senior Credit), 0.45%, 11/15/11 | 11,000,000 | 11,000,000 |
| Michigan Strategic Fund Ltd. Obligation (Orchestra Place), VRDN, 0.53%, 10/5/11 (LOC: Bank of America N.A.) | 2,585,000 | 2,585,000 |
| Minneapolis & St. Paul Housing & Redevelopment Authority Series 2004 B (Children’s Healthcare Facilities), VRDN, 0.15%, 10/1/11 (AGM)(SBBPA: U.S. Bank N.A.) | $13,000,000 | $ 13,000,000 |
| Minneapolis & St. Paul Housing & Redevelopment Authority Healthcare System, Series 2007 A (Childrens Hospital Clinics), VRDN, 0.19%, 10/3/11 (AGM) (SBBPA: U.S. Bank N.A.) | 7,400,000 | 7,400,000 |
| Minneapolis & St. Paul Housing & Redevelopment Authority Healthcare System, Series 2007 A (Childrens Hospital Clinics), VRDN, 0.19%, 10/3/11 (AGM) (SBBPA: U.S. Bank N.A.) | 11,750,000 | 11,750,000 |
| Mississippi Business Finance Corp. (Medical Development Properties LLC), VRDN, 0.30%, 10/6/11 (LOC: BancorpSouth Bank and FHLB) | 5,060,000 | 5,060,000 |
| Mississippi Business Finance Corp., Series 2006 R-1 (Brown Bottling Group, Inc.), VRDN, 0.30%, 10/6/11 (LOC: Trustmark National Bank and FHLB) | 3,745,000 | 3,745,000 |
| Missouri State Health & Educational Facilities Authority Series 2002 A, (Christian Brothers), VRDN, 0.14%, 10/6/11 (LOC: Commerce Bank) | 8,700,000 | 8,700,000 |
| Monterey Peninsula Water Management District COP, (Wasterwater Reclamation), VRDN, 0.22%, 10/1/11 (LOC: Wells Fargo Bank N.A.) | 7,805,000 | 7,805,000 |
| New Mexico Educational Assistance Foundation Series 2003 A2 (Education Loan), VRDN, 0.19%, 3/1/12 (LOC: Royal Bank of Canada) | 5,350,000 | 5,350,000 |
| New York City Housing Development Corp., Series 2003 A (Upper East Lease Associations), VRDN, 0.40%, 10/3/11 (LOC: Landesbank Baden Wurttemberg) | 10,900,000 | 10,900,000 |
| New York City Transitional Finance Authority, Series 1998 C, (Future Tax Secured Bonds), VRDN, 0.12%, 10/3/11 (LOC: Morgan Stanley Bank N.A.) | 5,000,000 | 5,000,000 |
| Oregon State Facilities Authority, Series 2003 A (Housing Vintage at Bend Apartments), VRDN, 0.22%, 10/15/11 (LIQ FAC: FNMA) | 5,600,000 | 5,600,000 |
| Oregon State Housing & Community Services Department, Series 2009 B1 (Pearl Family Housing), VRDN, 0.20%, 10/3/11 (LOC: U.S. Bank N.A.) | 3,650,000 | 3,650,000 |
| Pennsylvania Economic Development Financing Authority (NHS-AVS LLC), VRDN, 0.18%, 10/1/11 (LOC: Commerce Bank) | 9,590,000 | 9,590,000 |
| Pittsburgh Water & Sewer Authority, Series 2007 B1, (First Lien), VRDN, 0.15%, 10/3/11 (AGM) (SBBPA: JPMorgan Chase Bank N.A.) | 11,340,000 | 11,340,000 |
| Port Freeport (BASF Corp.), VRDN, 0.31%, 10/3/11 | 6,600,000 | 6,600,000 |
| Port Freeport (Multi Mode-BASF Corp), VRDN, 0.31%, 10/3/11 | 4,000,000 | 4,000,000 |
| Poughkeepsie Industrial Development Agency (Manor at Woodside), VRDN, 0.20%, 10/3/11 (LOC: JPMorgan Chase Bank N.A.) | 6,405,000 | 6,405,000 |
| Putnam County Development Authority (Georgia Power Co.- Plant Branch), VRDN, 0.25%, 10/1/11 | 6,800,000 | 6,800,000 |
| Rhode Island Health & Educational Building Corp. (Bryant University), VRDN, 0.15%, 10/1/11 (LOC: TD Banknorth N.A.) | 20,105,000 | 20,105,000 |
| Santa Ana Housing Authority, Series 1996 A, (Vintage Apartments), VRDN, 0.17%, 10/6/11 (LIQ FAC: FNMA) | 5,335,000 | 5,335,000 |
| South Dakota Health & Educational Facilities Authority (Regular Health), VRDN, 0.16%, 10/3/11 (LOC: U.S. Bank N.A.) | 27,805,000 | 27,805,000 |
| Southeastern Pennsylvania Transportation Authority, VRDN, 0.11%, 10/3/11 (LOC: PNC Bank N.A.) | $ 3,330,000 | $ 3,330,000 |
| Sports & Exhibition Authority of Pittsburgh and Allegheny County, Series 2007 A, VRDN, 0.19%, 10/3/11 (AGM) (SBBPA: PNC Bank N.A.) | 15,000,000 | 15,000,000 |
| State of Texas GO, Series 2002 IB (Veterans Housing), VRDN, 0.18%, 10/3/11 (SBBPA: Landesbank Hessen-Thuringen Girozentrale) | 13,345,000 | 13,345,000 |
| Town of Oyster Bay GO, (Public Improvement), 2.00%, 3/1/12 | 5,470,000 | 5,506,169 |
| University of California, Series 2011 AA-1, 0.48%, 7/1/12 | 5,000,000 | 5,000,000 |
| University of California, Series 2011 Y1, VRN, 0.302%, 11/1/11 | 30,000,000 | 30,000,000 |
| University of Kansas Hospital Authority (Health System), VRDN, 0.16%, 10/3/11 (LOC: U.S. Bank N.A.) | 6,020,000 | 6,020,000 |
| Washington State Housing Finance Commission (Vintage Chehalis Senior Living), VRDN, 0.19%, 10/15/11 (LIQ FAC: FNMA) | 8,190,000 | 8,190,000 |
| Washington State Housing Finance Commission, Series 1996 A, (Brittany Park LLC), VRDN, 0.19%, 10/3/11 (LIQ FAC: FNMA) | 8,930,000 | 8,930,000 |
| Washington State Housing Finance Commission, Series 2004 A (Vintage Burien Senior Living), VRDN, 0.19%, 10/15/11 (LIQ FAC: FNMA) | 6,570,000 | 6,570,000 |
| Wisconsin Health & Educational Facilities Authority, Series 2008 B, (ProHealth Care, Inc.), VRDN, 0.21%, 10/3/11 (LOC: JPMorgan Chase Bank) | 13,600,000 | 13,600,000 |
| TOTAL MUNICIPAL SECURITIES | 834,866,067 |
| U.S. Government Agency Securities — 11.6% |
| ADJUSTABLE-RATE U.S. GOVERNMENT AGENCY SECURITIES — 3.4% |
| Federal Farm Credit Bank, VRN, 0.245%, 10/12/12 | 10,000,000 | 10,002,099 |
| Federal Home Loan Bank, VRN, 0.21%, 1/23/13 | 50,000,000 | 50,000,000 |
| Federal Home Loan Bank, VRN, 0.25%, 2/25/13 | 17,000,000 | 17,000,000 |
| | | 77,002,099 |
| FIXED-RATE U.S. GOVERNMENT AGENCY SECURITIES — 6.1% |
| Federal Farm Credit Bank, 0.13%, 10/26/11 | 24,230,000 | 24,230,000 |
| Federal Home Loan Bank, 0.33%, 7/16/12 | 25,000,000 | 25,000,000 |
| Federal Home Loan Bank, 0.35%, 7/17/12 | 10,000,000 | 10,000,000 |
| Federal Home Loan Bank, 0.375%, 7/27/12 | 20,000,000 | 20,000,000 |
| Federal Home Loan Bank, 0.35%, 8/10/12 | 35,000,000 | 35,000,000 |
| Federal Home Loan Bank, 0.425%, 9/21/12 | 17,000,000 | 17,000,000 |
| Federal Home Loan Bank, 0.49%, 9/21/12 | 9,000,000 | 9,000,000 |
| | | 140,230,000 |
GOVERNMENT-BACKED CORPORATE BONDS(4) — 2.1% |
| Citibank NA, VRN, 0.301%, 12/5/11 | 39,200,000 | 39,233,771 |
| Citigroup, Inc., 2.125%, 4/30/12 | 9,401,000 | 9,500,099 |
| | | 48,733,870 |
| TOTAL U.S. GOVERNMENT AGENCY SECURITIES | 265,965,969 |
| Corporate Bonds — 5.4% |
| Anacortes Class Assets LLC, VRDN, 0.63%, 10/6/11 (LOC: Bank of America N.A.) | 2,175,000 | 2,175,000 |
| Blodgett Capital LLC, VRDN, 0.26%, 10/6/11 (LOC: FHLB) | 5,980,000 | 5,980,000 |
| Colorado Natural Gas, Inc., VRDN, 0.48%, 10/6/11 (LOC: JPMorgan Chase Bank N. A.) | 2,435,000 | 2,435,000 |
| Cypress Bend Real Estate Development Co. LLC, VRDN, 0.24%, 10/6/11 (LOC: FHLB) | 20,767,000 | 20,767,000 |
| Herman & Kittle Capital LLC, VRDN, 0.18%, 10/6/11 (LOC: FHLB) | 1,320,000 | 1,320,000 |
| HHH Investment Co., VRDN, 0.28%, 10/5/11 (LOC: Bank of the West) | $ 6,800,000 | $ 6,800,000 |
| High Track LLC, VRDN, 0.26%, 10/5/11 (LOC: FHLB) | 2,495,000 | 2,495,000 |
| Labcon North America, VRDN, 0.40%, 10/5/11 (LOC: Bank of the West) | 2,040,000 | 2,040,000 |
Lammert Building LP, VRDN, 0.22%, 10/6/11 (LOC: U.S. Bank N.A.)(3) | 3,015,000 | 3,015,000 |
| Northcreek Church, VRDN, 0.40%, 10/6/11 (LOC: FHLB) | 12,055,000 | 12,055,000 |
| Pfizer, Inc., 4.45%, 3/15/12 | 10,000,000 | 10,185,618 |
| RMD Note Issue LLC, VRDN, 0.26%, 10/5/11 (LOC: FHLB) | 9,750,000 | 9,750,000 |
| Saddleback Valley Community Church, VRDN, 0.16%, 10/6/11 (LOC: FHLB) | 9,150,000 | 9,150,000 |
| Salvation Army (The), VRDN, 0.25%, 10/7/11 (LOC: Bank of New York Mellon) | 7,500,000 | 7,500,000 |
| | Principal Amount/ Shares | Value |
| Salvation Army (The), VRDN, 0.25%, 10/7/11 (LOC: Bank of New York Mellon) | $ 8,000,000 | $ 8,000,000 |
| Sanofi, VRN, 0.413%, 12/28/11 | 20,000,000 | 20,008,920 |
| TOTAL CORPORATE BONDS | 123,676,538 |
U.S. Treasury Securities(2) — 0.9% |
U.S. Treasury Bill, 0.252%, 2/9/12(5) | 20,000,000 | 19,981,951 |
| Temporary Cash Investments — 0.8% |
| SSgA U.S. Government Money Market Fund | 19,010,379 | 19,010,379 |
| TOTAL INVESTMENT SECURITIES — 101.1% | 2,308,376,859 |
| OTHER ASSETS AND LIABILITIES — (1.1)% | (25,478,315) |
| TOTAL NET ASSETS — 100.0% | $2,282,898,544 |
Notes to Schedule of Investments
ABAG = Association of Bay Area Governments
AGM = Assured Guaranty Municipal Corporation
AMBAC = American Municipal Bond Assurance Corporation
COP = Certificates of Participation
FDIC = Federal Deposit Insurance Corporation
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GO = General Obligation
LIQ FAC = Liquidity Facilities
LOC = Letter of Credit
Radian = Radian Asset Assurance, Inc.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective at the period end.
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is effective at the period end.
| (2) | The rate indicated is the yield to maturity at purchase for non-interest bearing securities. For interest bearing securities, the stated coupon rate is shown. |
| (3) | Security was purchased under Rule 144A or Section 4(2) of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of these securities at the period end was $651,765,288, which represented 28.6% of total net assets. None of these securities were considered illiquid. |
| (4) | The debt is guaranteed under the FDIC Temporary Liquidity Guarantee Program and is backed by the full faith and credit of the United States. The expiration date of the FDIC’s guarantee is the earlier of the maturity date of the debt or December 31, 2012. |
| (5) | Security, or a portion thereof, has been segregated for when-issued securities. At the period end, the aggregate value of securities pledgedwas $8,054,000. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
| SEPTEMBER 30, 2011 (UNAUDITED) | |
| Assets | |
| Investment securities, at value (amortized cost and cost for federal income tax purposes) | | | $2,308,376,859 | |
| Receivable for investments sold | | | 2,661,000 | |
| Receivable for capital shares sold | | | 2,142,749 | |
| Interest receivable | | | 911,394 | |
| | | | 2,314,092,002 | |
| | | | | |
| Liabilities | |
| Payable for investments purchased | | | 28,064,083 | |
| Payable for capital shares redeemed | | | 2,682,696 | |
| Accrued management fees | | | 446,679 | |
| | | | 31,193,458 | |
| | | | | |
| Net Assets | | | $2,282,898,544 | |
| | | | | |
| Net Assets Consist of: | |
| Capital paid in | | | $2,283,376,084 | |
| Undistributed net investment income | | | 13 | |
| Accumulated net realized loss | | | (477,553 | ) |
| | | | $2,282,898,544 | |
| | | | | | | | | | |
| | | Net assets | | Shares outstanding | | Net asset value per share |
| Investor Class | | | $2,179,963,091 | | | | 2,180,423,660 | | | | $1.00 | |
| A Class | | | $96,659,431 | | | | 96,689,007 | | | | $1.00 | |
| B Class | | | $1,262,109 | | | | 1,262,405 | | | | $1.00 | |
| C Class | | | $5,013,913 | | | | 5,014,604 | | | | $1.00 | |
See Notes to Financial Statements.
| FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED) | |
| Investment Income (Loss) | |
| Income: | | | |
| Interest | | | $3,132,354 | |
| | | | | |
| Expenses: | | | | |
| Management fees | | | 6,475,640 | |
| Distribution and service fees: | | | | |
| A Class | | | 120,765 | |
| B Class | | | 5,953 | |
| C Class | | | 13,192 | |
| Trustees’ fees and expenses | | | 67,505 | |
| | | | 6,683,055 | |
| Fees waived | | | (3,657,766 | ) |
| | | | 3,025,289 | |
| | | | | |
| Net investment income (loss) | | | 107,065 | |
| | | | | |
| Net realized gain (loss) on investment transactions | | | (2,208 | ) |
| | | | | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | | | $104,857 | |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
| SIX MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED) AND YEAR ENDED MARCH 31, 2011 | |
| Increase (Decrease) in Net Assets | | September 30, 2011 | | | March 31, 2011 | |
| Operations | |
| Net investment income (loss) | | | $107,065 | | | | $226,093 | |
| Net realized gain (loss) | | | (2,208 | ) | | | 60,043 | |
| Net increase (decrease) in net assets resulting from operations | | | 104,857 | | | | 286,136 | |
| | | | | | | | | |
| Distributions to Shareholders | |
| From net investment income: | | | | | | | | |
| Investor Class | | | (102,081 | ) | | | (215,925 | ) |
| A Class | | | (4,753 | ) | | | (9,822 | ) |
| B Class | | | (49 | ) | | | (104 | ) |
| C Class | | | (169 | ) | | | (242 | ) |
| Decrease in net assets from distributions | | | (107,052 | ) | | | (226,093 | ) |
| | | | | | | | | |
| Capital Share Transactions | |
| Net increase (decrease) in net assets from capital share transactions | | | 52,725,666 | | | | (327,006,672 | ) |
| | | | | | | | | |
| Net increase (decrease) in net assets | | | 52,723,471 | | | | (326,946,629 | ) |
| | | | | | | | | |
| Net Assets | |
| Beginning of period | | | 2,230,175,073 | | | | 2,557,121,702 | |
| End of period | | | $2,282,898,544 | | | | $2,230,175,073 | |
| | | | | | | | | |
| Undistributed net investment income | | | $13 | | | | — | |
See Notes to Financial Statements.
Notes to Financial Statements |
SEPTEMBER 30, 2011 (UNAUDITED)
1. Organization
American Century Investment Trust (the trust) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Massachusetts business trust. Prime Money Market Fund (the fund) is one fund in a series issued by the trust. The fund is diversified as defined under Rule 2a-7 of the 1940 Act. The fund’s investment objective is to earn the highest level of current income while preserving the value of your investment. The fund invests most of its assets in high-quality, very short-term debt securities issued by corporations, banks and governments.
The fund is authorized to issue the Investor Class, the A Class, the B Class and the C Class. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. Securities are generally valued at amortized cost, which approximates fair value. Investments in open-end management investment companies are valued at the reported net asset value per share. When such valuations do not reflect fair value, securities are valued as determined in good faith by the Board of Trustees or its designee, in accordance with procedures adopted by the Board of Trustees.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
When-Issued — The fund may engage in securities transactions on a when-issued basis. Under these arrangements, the securities’ prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income are declared daily and paid monthly. The fund may make short-term capital gains distributions to comply with the distribution requirements of the Internal Revenue Code. The fund does not expect to realize any long-term capital gains, and accordingly, does not expect to pay any long-term capital gains distributions.
Indemnifications — Under the trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Management Fees — The trust has entered into a management agreement with American Century Investment Management, Inc. (ACIM) (the investment advisor), under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent trustees (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the fund and certain other accounts managed by the investment advisor that are in the same broad investment category as the fund and (2) a Complex Fee based on the assets of all the funds in the American Century Investments family of funds. The rates for the Investment Category Fee range from 0.2370% to 0.3500%. The rates for the Complex Fee range from 0.2500% to 0.3100% for the Investor Class, A Class, B Class and C Class. From April 1, 2011 through July 31, 2011, the investment advisor voluntarily agreed to waive 0.062% of its management fee. In order to maintain a positive yield, ACIM may voluntarily waive a portion of its management fee on a daily basis. This fee waiver may be revised or terminated at any time without notice. The total amount of the waiver for each class for the six months ended September 30, 2011 was $3,359,126, $153,765, $1,883 and $5,584 for the Investor Class, A Class, B Class and C Class, respectively. The effective annual management fee before waiver for each class for the six months ended September 30, 2011 was 0.57%. The effective annual management fee after waiver for each class for the six months ended September 30, 2011 was 0.26%.
Distribution and Service Fees — The Board of Trustees has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class and C Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 0.75%, of which 0.25% is paid for individual shareholder services and 0.50% is paid for distribution services. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2011 are detailed in the Statement of Operations.
In order to maintain a positive yield, ACIS may voluntarily waive a portion of its distribution and/or service fee on a daily basis. The fee waiver may be revised or terminated at any time without notice. For the A Class, B Class, and C Class for the six months ended September 30, 2011, the total amount of the waiver was $118,302, $5,915, and $13,191, respectively, and the effective annual distribution and service fee after waiver was less than 0.005% for each class.
Related Parties — Certain officers and trustees of the trust are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the trust’s investment advisor, ACIM, the distributor of the trust, ACIS, and the trust’s transfer agent, American Century Services, LLC. ACIM owns 8% of the fund’s outstanding shares. Various funds in a series issued by American Century Asset Allocation Portfolios, Inc. (ACAAP) own, in aggregate, 5% of the shares of the fund. ACAAP does not invest in the fund for the purpose of exercising management or control.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMorgan Chase Bank (JPMCB) was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Capital Share Transactions
Transactions in shares of the fund were as follows (unlimited number of shares authorized):
| | | Six months ended September 30, 2011 | | | Year ended March 31, 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Investor Class | |
| Sold | | | 742,467,618 | | | | $742,467,618 | | | | 1,474,496,210 | | | | $1,474,496,210 | |
| Issued in reinvestment of distributions | | | 75,004 | | | | 75,004 | | | | 213,766 | | | | 213,766 | |
| Redeemed | | | (691,923,061 | ) | | | (691,923,061 | ) | | | (1,783,121,699 | ) | | | (1,783,121,699 | ) |
| | | | 50,619,561 | | | | 50,619,561 | | | | (308,411,723 | ) | | | (308,411,723 | ) |
| A Class | |
| Sold | | | 25,167,828 | | | | 25,167,828 | | | | 44,032,218 | | | | 44,032,218 | |
| Issued in reinvestment of distributions | | | 3,817 | | | | 3,817 | | | | 9,477 | | | | 9,477 | |
| Redeemed | | | (25,289,136 | ) | | | (25,289,136 | ) | | | (62,349,082 | ) | | | (62,349,082 | ) |
| | | | (117,491 | ) | | | (117,491 | ) | | | (18,307,387 | ) | | | (18,307,387 | ) |
| B Class | |
| Sold | | | 328,239 | | | | 328,239 | | | | 163,019 | | | | 163,019 | |
| Issued in reinvestment of distributions | | | 31 | | | | 31 | | | | 87 | | | | 87 | |
| Redeemed | | | (312,158 | ) | | | (312,158 | ) | | | (682,507 | ) | | | (682,507 | ) |
| | | | 16,112 | | | | 16,112 | | | | (519,401 | ) | | | (519,401 | ) |
| C Class | |
| Sold | | | 4,252,094 | | | | 4,252,094 | | | | 3,847,251 | | | | 3,847,251 | |
| Issued in reinvestment of distributions | | | 131 | | | | 131 | | | | 210 | | | | 210 | |
| Redeemed | | | (2,044,741 | ) | | | (2,044,741 | ) | | | (3,615,622 | ) | | | (3,615,622 | ) |
| | | | 2,207,484 | | | | 2,207,484 | | | | 231,839 | | | | 231,839 | |
| Net increase (decrease) | | | 52,725,666 | | | | $52,725,666 | | | | (327,006,672 | ) | | | $(327,006,672 | ) |
5. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
| ● | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
| | | | | | | | | | |
| | | Level 1 | | Level 2 | | Level 3 |
| Investment Securities | |
| Commercial Paper | | | — | | | | $1,044,875,955 | | | | — | |
| Municipal Securities | | | — | | | | 834,866,067 | | | | — | |
| U.S. Government Agency Securities | | | — | | | | 265,965,969 | | | | — | |
| Corporate Bonds | | | — | | | | 123,676,538 | | | | — | |
| U.S. Treasury Securities | | | — | | | | 19,981,951 | | | | — | |
| Temporary Cash Investments | | | $19,010,379 | | | | — | | | | — | |
| Total Value of Investment Securities | | | $19,010,379 | | | | $2,289,366,480 | | | | — | |
6. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of March 31, 2011, the fund had accumulated capital losses of $(475,345), which represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers of $(459,307) and $(16,038) expire in 2017 and 2018, respectively.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
| For a Share Outstanding Throughout the Years Ended March 31 (except as noted) |
| Per-Share Data | Ratios and Supplemental Data |
| | Net Asset Value, Beginning of Period | Income From Investment Operations: Net Investment Income (Loss) | Distributions From: Net Investment Income | Net Asset Value, End of Period | Total Return(1) | Ratio to Average Net Assets of: | Net Assets, End of Period (in thousands) |
Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) |
| Investor Class |
2011(2) | $1.00 | —(3) | —(3) | $1.00 | 0.01% | 0.27%(4) | 0.58%(4) | 0.01%(4) | (0.30)%(4) | $2,179,963 |
| 2011 | $1.00 | —(3) | —(3) | $1.00 | 0.01% | 0.36% | 0.58% | 0.01% | (0.21)% | $2,129,346 |
| 2010 | $1.00 | —(3) | —(3) | $1.00 | 0.20% | 0.50% | 0.59% | 0.21% | 0.12% | $2,437,700 |
| 2009 | $1.00 | 0.02 | (0.02) | $1.00 | 2.19% | 0.57% | 0.61% | 2.16% | 2.12% | $2,769,906 |
| 2008 | $1.00 | 0.04 | (0.04) | $1.00 | 4.58% | 0.56% | 0.59% | 4.47% | 4.44% | $2,539,830 |
| 2007 | $1.00 | 0.05 | (0.05) | $1.00 | 4.83% | 0.55% | 0.59% | 4.73% | 4.69% | $2,155,800 |
A Class(5) |
2011(2) | $1.00 | —(3) | —(3) | $1.00 | 0.01% | 0.27%(4) | 0.83%(4) | 0.01%(4) | (0.55)%(4) | $96,659 |
| 2011 | $1.00 | —(3) | —(3) | $1.00 | 0.01% | 0.36% | 0.83% | 0.01% | (0.46)% | $96,777 |
| 2010 | $1.00 | —(3) | —(3) | $1.00 | 0.10% | 0.62% | 0.84% | 0.09% | (0.13)% | $115,082 |
| 2009 | $1.00 | 0.02 | (0.02) | $1.00 | 1.94% | 0.82% | 0.86% | 1.91% | 1.87% | $181,371 |
| 2008 | $1.00 | 0.04 | (0.04) | $1.00 | 4.32% | 0.81% | 0.84% | 4.22% | 4.19% | $176,175 |
| 2007 | $1.00 | 0.04 | (0.04) | $1.00 | 4.58% | 0.80% | 0.84% | 4.48% | 4.44% | $4,185 |
| For a Share Outstanding Throughout the Years Ended March 31 (except as noted) |
| Per-Share Data | Ratios and Supplemental Data |
| | Net Asset Value, Beginning of Period | Income From Investment Operations: Net Investment Income (Loss) | Distributions From: Net Investment Income | Net Asset Value, End of Period | Total Return(1) | Ratio to Average Net Assets of: | Net Assets, End of Period (in thousands) |
Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) |
| B Class |
2011(2) | $1.00 | —(3) | —(3) | $1.00 | 0.01% | 0.27%(4) | 1.58%(4) | 0.01%(4) | (1.30)%(4) | $1,262 |
| 2011 | $1.00 | —(3) | —(3) | $1.00 | 0.01% | 0.36% | 1.58% | 0.01% | (1.21)% | $1,246 |
| 2010 | $1.00 | —(3) | —(3) | $1.00 | 0.01% | 0.74% | 1.59% | (0.03)% | (0.88)% | $1,765 |
| 2009 | $1.00 | 0.01 | (0.01) | $1.00 | 1.19% | 1.55% | 1.61% | 1.18% | 1.12% | $3,189 |
| 2008 | $1.00 | 0.03 | (0.03) | $1.00 | 3.54% | 1.56% | 1.59% | 3.47% | 3.44% | $1,194 |
| 2007 | $1.00 | 0.04 | (0.04) | $1.00 | 3.80% | 1.55% | 1.59% | 3.73% | 3.69% | $838 |
| C Class |
2011(2) | $1.00 | —(3) | —(3) | $1.00 | 0.01% | 0.27%(4) | 1.33%(4) | 0.01%(4) | (1.05)%(4) | $5,014 |
| 2011 | $1.00 | —(3) | —(3) | $1.00 | 0.01% | 0.36% | 1.33% | 0.01% | (0.96)% | $2,806 |
| 2010 | $1.00 | —(3) | —(3) | $1.00 | 0.02% | 0.74% | 1.34% | (0.03)% | (0.63)% | $2,575 |
| 2009 | $1.00 | 0.01 | (0.01) | $1.00 | 1.44% | 1.32% | 1.36% | 1.41% | 1.37% | $5,602 |
| 2008 | $1.00 | 0.04 | (0.04) | $1.00 | 3.81% | 1.31% | 1.34% | 3.72% | 3.69% | $1,963 |
| 2007 | $1.00 | 0.04 | (0.04) | $1.00 | 4.06% | 1.30% | 1.34% | 3.98% | 3.94% | $527 |
Notes to Financial Highlights
| (1) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
| (2) | Six months ended September 30, 2011 (unaudited). |
| (3) | Per-share amount was less than $0.005. |
| (5) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 28, 2011, the Fund’s Board of Directors/Trustees unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors/trustees (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| ● | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| the investment performance of the fund, including data comparing the Fund’s performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
| data comparing the cost of owning the Fund to the cost of owning similar funds; |
| the Advisor’s compliance policies, procedures, and regulatory experience; |
| financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| data comparing services provided and charges to other investment management clients of the Advisor; and |
| consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Board also had the benefit of the advice of its independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and the Board’s independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| constructing and designing the Fund |
| portfolio research and security selection |
| initial capitalization/funding |
| ● | daily valuation of the Fund’s portfolio |
| ● | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
| regulatory and portfolio compliance |
| marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to seek the best execution of fund trades. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Portfolio Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups
of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance section of this report.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board also requested and received information from the Advisor concerning the nature of the services, fees, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent directors and assisted by the advice of independent legal counsel, taking into account all of the factors discussed above and the information provided by the Advisor and others, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
| Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
| Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Investment Trust
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-SAN-73687 1111
SEMIANNUAL REPORT SEPTEMBER 30, 2011
| President’s Letter | 2 |
| Performance | 3 |
| Fund Characteristics | 4 |
| Shareholder Fee Example | 5 |
| Schedule of Investments | 7 |
| Statement of Assets and Liabilities | 17 |
| Statement of Operations | 18 |
| Statement of Changes in Net Assets | 19 |
| Notes to Financial Statements | 20 |
| Financial Highlights | 28 |
| Approval of Management Agreement | 31 |
| Additional Information | 36 |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
Dear Investor:
Thank you for reviewing our semiannual report for the six months ended September 30, 2011. This report offers a macroeconomic and financial market overview of the period, followed by fund performance, a schedule of fund investments, and other financial information.
For additional, updated information on fund performance, portfolio strategy, and the investment markets, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site. Also, the fund’s annual report, dated March 31, 2012, will provide additional market perspective and portfolio commentary from our portfolio management team.
Macroeconomic and Financial Market Overview
This reporting period differed dramatically from the six months that preceded it. As the period covered by this report opened in April 2011, U.S. stocks were approaching the crest of an eight-month rally, originating back in late August 2010, which pushed the broad market approximately 30% higher. At the same time, the 10-year U.S. Treasury yield climbed above 3.50%, responding to global growth and inflation pressures.
All of that changed during the late spring and summer of 2011. High fuel prices, declining U.S. home values, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide globally and in the U.S.
Investors’ risk tolerance reversed as recession fears re-emerged. A full-blown flight to safety ensued by mid-summer, sending U.S. Treasury yields to record lows, boosting the U.S. dollar, and undermining stock prices, both domestically and abroad. By September 30, the financial markets had priced in recessionary expectations.
Fundamental signs of economic resilience remained, however, particularly in corporate earnings, with potentially more monetary and fiscal stimuli on the way. The Federal Reserve resurrected “Operation Twist,” an attempt to further lower long-term interest rates, and the Obama administration worked to implement job-creation legislation.
We don’t think there will be a double-dip recession, but we do believe we face another period of slow, sub-par economic growth. We appreciate your continued trust in us during these uncertain times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
| Total Returns as of September 30, 2011 |
| | | | | Average Annual Returns | |
| | Ticker Symbol | 6 months(1) | 1 year | Since Inception | Inception Date |
| Investor Class | ACSNX | 1.16% | 1.31% | 4.45% | 11/30/06 |
Barclays Capital U.S. 1-3 Years Government/Credit Bond Index | — | 1.16% | 1.28% | 4.09% | — |
| Institutional Class | ACSUX | 1.17% | 1.41% | 4.64% | 11/30/06 |
A Class No sales charge* With sales charge* | ACSQX | 1.03% -1.22% | 1.05% -1.18% | 4.19% 3.70% | 11/30/06 |
B Class No sales charge* With sales charge* | ACSJX | 0.56% -4.44% | 0.20% -3.80% | 3.39% 3.03% | 11/30/06 |
C Class No sales charge* With sales charge* | ACSKX | 0.65% -0.35% | 0.30% 0.30% | 3.41% 3.41% | 11/30/06 |
| R Class | ACSPX | 0.81% | 0.80% | 3.93% | 11/30/06 |
*
| Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 2.25% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
| (1) | Total returns for periods less than one year are not annualized. |
| Total Annual Fund Operating Expenses |
| Investor Class | Institutional Class | A Class | B Class | C Class | R Class |
| 0.61% | 0.41% | 0.86% | 1.61% | 1.61% | 1.11% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
| SEPTEMBER 30, 2011 | |
| Portfolio at a Glance | |
| Average Duration (effective) | 1.8 years |
| Weighted Average Life | 2.2 years |
| | |
| 30-Day SEC Yields | |
| Investor Class | 0.90% |
| Institutional Class | 1.11% |
| A Class | 0.64% |
| B Class | -0.09% |
| C Class | -0.09% |
| R Class | 0.41% |
| | |
| Types of Investments in Portfolio | % of net assets |
| Corporate Bonds | 40.8% |
| U.S. Treasury Securities | 24.8% |
| U.S. Government Agency Securities | 12.2% |
| Collateralized Mortgage Obligations | 6.9% |
| Commercial Mortgage-Backed Securities | 6.2% |
| Sovereign Governments and Agencies | 4.8% |
| U.S. Government Agency Mortgage-Backed Securities | 1.2% |
| Municipal Securities | 0.7% |
| Asset-Backed Securities | 0.6% |
| Temporary Cash Investments | 1.4% |
| Other Assets and Liabilities | 0.4% |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2011 to September 30, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | | | | |
| | Beginning Account Value 4/1/11 | Ending Account Value 9/30/11 | Expenses Paid During Period(1) 4/1/11 – 9/30/11 | Annualized Expense Ratio(1) |
| Actual | | | | |
| Investor Class | $1,000 | $1,011.60 | $3.07 | 0.61% |
| Institutional Class | $1,000 | $1,011.70 | $2.06 | 0.41% |
| A Class | $1,000 | $1,010.30 | $4.32 | 0.86% |
| B Class | $1,000 | $1,005.60 | $8.07 | 1.61% |
| C Class | $1,000 | $1,006.50 | $8.08 | 1.61% |
| R Class | $1,000 | $1,008.10 | $5.57 | 1.11% |
| Hypothetical | | | | |
| Investor Class | $1,000 | $1,021.95 | $3.08 | 0.61% |
| Institutional Class | $1,000 | $1,022.95 | $2.07 | 0.41% |
| A Class | $1,000 | $1,020.70 | $4.34 | 0.86% |
| B Class | $1,000 | $1,016.95 | $8.12 | 1.61% |
| C Class | $1,000 | $1,016.95 | $8.12 | 1.61% |
| R Class | $1,000 | $1,019.45 | $5.60 | 1.11% |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
SEPTEMBER 30, 2011 (UNAUDITED)
| | Principal Amount | Value |
| Corporate Bonds — 40.8% |
| AEROSPACE AND DEFENSE — 0.7% |
BAE Systems Holdings, Inc., 6.40%, 12/15/11(1)(2) | $ 500,000 | $ 505,509 |
Boeing Co. (The), 1.875%, 11/20/12(1) | 500,000 | 505,234 |
L-3 Communications Corp., 6.375%, 10/15/15(1) | 1,000,000 | 1,023,750 |
Northrop Grumman Corp., 3.70%, 8/1/14(1) | 500,000 | 531,320 |
| | | 2,565,813 |
| AUTOMOBILES — 1.8% |
American Honda Finance Corp., 2.375%, 3/18/13(1)(2) | 1,000,000 | 1,014,360 |
American Honda Finance Corp., 1.85%, 9/19/14(2) | 1,000,000 | 1,002,664 |
Daimler Finance North America LLC, 1.543%, 9/13/13(2) | 1,000,000 | 1,000,700 |
Daimler Finance North America LLC, 6.50%, 11/15/13(1) | 970,000 | 1,065,637 |
Ford Motor Credit Co. LLC, 7.00%, 10/1/13(1) | 1,000,000 | 1,052,734 |
Nissan Motor Acceptance Corp., 3.25%, 1/30/13(1)(2) | 1,250,000 | 1,274,775 |
| | | 6,410,870 |
| BEVERAGES — 1.9% |
Anheuser-Busch InBev Worldwide, Inc., 3.00%, 10/15/12(1) | 500,000 | 510,546 |
Anheuser-Busch InBev Worldwide, Inc., 2.50%, 3/26/13(1) | 1,500,000 | 1,533,238 |
Coca-Cola Enterprises, Inc., 1.125%, 11/12/13(1) | 1,000,000 | 998,985 |
Coca-Cola Refreshments USA, Inc., 3.75%, 3/1/12(1) | 300,000 | 303,680 |
Dr Pepper Snapple Group, Inc., 6.12%, 5/1/13(1) | 700,000 | 751,492 |
| PepsiCo, Inc., 0.80%, 8/25/14 | 1,400,000 | 1,394,544 |
SABMiller plc, 5.50%, 8/15/13(1)(2) | 1,110,000 | 1,191,683 |
| | | 6,684,168 |
| CAPITAL MARKETS — 0.2% |
Mellon Funding Corp., 5.00%, 12/1/14(1) | 500,000 | 537,418 |
| CHEMICALS — 1.0% |
Ashland, Inc., 9.125%, 6/1/17(1) | 1,000,000 | 1,111,250 |
Dow Chemical Co. (The), 4.85%, 8/15/12(1) | 1,000,000 | 1,029,822 |
Dow Chemical Co. (The), 5.90%, 2/15/15(1) | 470,000 | 519,464 |
Mosaic Co. (The), 7.625%, 12/1/16(1)(2) | 1,000,000 | 1,048,792 |
| | | 3,709,328 |
| COMMERCIAL BANKS — 2.4% |
Bank of Nova Scotia, 2.375%, 12/17/13(1) | 460,000 | 473,187 |
Barclays Bank plc, 2.50%, 1/23/13(1) | 320,000 | 317,958 |
BB&T Corp., 5.70%, 4/30/14(1) | 500,000 | 546,272 |
BB&T Corp., MTN, 3.375%, 9/25/13(1) | 400,000 | 414,655 |
| Capital One Financial Corp., 2.125%, 7/15/14 | 1,300,000 | 1,288,461 |
Fifth Third Bancorp., 6.25%, 5/1/13(1) | 640,000 | 677,955 |
HSBC Bank plc, 1.625%, 8/12/13(1)(2) | 1,000,000 | 992,790 |
US Bancorp., 2.00%, 6/14/13(1) | 330,000 | 336,677 |
US Bank N.A., 6.30%, 2/4/14(1) | 1,000,000 | 1,099,160 |
Wachovia Corp., MTN, 5.70%, 8/1/13(1) | 600,000 | 642,049 |
Wells Fargo & Co., 4.375%, 1/31/13(1) | 1,000,000 | 1,038,032 |
Westpac Banking Corp., 2.10%, 8/2/13(1) | 750,000 | 761,148 |
| | | 8,588,344 |
| COMMERCIAL SERVICES AND SUPPLIES — 0.6% |
Corrections Corp. of America, 6.25%, 3/15/13(1) | 1,100,000 | 1,102,750 |
Waste Management, Inc., 6.375%, 11/15/12(1) | 850,000 | 900,453 |
| | | 2,003,203 |
| COMMUNICATIONS EQUIPMENT — 0.2% |
American Tower Corp., 4.625%, 4/1/15(1) | 600,000 | 637,016 |
| CONSUMER FINANCE — 1.6% |
American Express Centurion Bank, 5.55%, 10/17/12(1) | 1,600,000 | 1,667,773 |
Credit Suisse (New York), 5.50%, 5/1/14(1) | 380,000 | 402,111 |
Credit Suisse (New York), MTN, 5.00%, 5/15/13(1) | 1,100,000 | 1,137,426 |
HSBC Finance Corp., 7.00%, 5/15/12(1) | 300,000 | 308,903 |
HSBC Finance Corp., 6.375%, 11/27/12(1) | $ 785,000 | $ 813,892 |
HSBC Finance Corp., 4.75%, 7/15/13(1) | 300,000 | 310,313 |
John Deere Capital Corp., MTN, 1.875%, 6/17/13(1) | 500,000 | 509,456 |
SLM Corp., 5.00%, 10/1/13(1) | 420,000 | 411,366 |
| | | 5,561,240 |
| DIVERSIFIED FINANCIAL SERVICES — 5.8% |
Ally Financial, Inc., 4.50%, 2/11/14(1) | 1,000,000 | 917,500 |
Ally Financial, Inc., 8.30%, 2/12/15(1) | 210,000 | 208,163 |
Bank of America Corp., 4.875%, 1/15/13(1) | 1,400,000 | 1,395,652 |
Bank of America Corp., MTN, 4.90%, 5/1/13(1) | 1,400,000 | 1,389,049 |
Caterpillar Financial Services Corp., MTN, 4.85%, 12/7/12(1) | 500,000 | 521,933 |
Citigroup, Inc., 6.00%, 12/13/13(1) | 2,600,000 | 2,732,696 |
Deutsche Bank AG (London), 4.875%, 5/20/13(1) | 935,000 | 966,744 |
Deutsche Bank AG (London), 3.875%, 8/18/14(1) | 300,000 | 306,518 |
General Electric Capital Corp., 2.80%, 1/8/13(1) | 3,500,000 | 3,561,614 |
General Electric Capital Corp., 2.10%, 1/7/14(1) | 1,000,000 | 1,006,878 |
General Electric Capital Corp., MTN, 1.875%, 9/16/13(1) | 1,000,000 | 1,005,191 |
Goldman Sachs Group, Inc. (The), 4.75%, 7/15/13(1) | 1,000,000 | 1,029,630 |
Goldman Sachs Group, Inc. (The), 5.00%, 10/1/14(1) | 1,000,000 | 1,037,121 |
Goldman Sachs Group, Inc. (The), 3.625%, 2/7/16(1) | 200,000 | 195,024 |
JPMorgan Chase & Co., 5.375%, 10/1/12(1) | 2,100,000 | 2,185,802 |
Morgan Stanley, 2.875%, 1/24/14(1) | 1,800,000 | 1,734,628 |
UBS AG (Stamford Branch), 2.25%, 8/12/13(1) | 610,000 | 599,396 |
| | | 20,793,539 |
| DIVERSIFIED TELECOMMUNICATION SERVICES — 2.8% |
AT&T, Inc., 6.70%, 11/15/13(1) | 1,500,000 | 1,667,341 |
British Telecommunications plc, 5.15%, 1/15/13(1) | 1,000,000 | 1,046,222 |
CenturyLink, Inc., Series L, 7.875%, 8/15/12(1) | 1,000,000 | 1,042,824 |
Deutsche Telekom International Finance BV, 5.25%, 7/22/13(1) | 1,300,000 | 1,373,635 |
Frontier Communications Corp., 6.25%, 1/15/13(1) | 1,200,000 | 1,209,000 |
Telecom Italia Capital SA, 5.25%, 11/15/13(1) | 500,000 | 489,035 |
Telefonica Emisiones SAU, 2.582%, 4/26/13(1) | 1,000,000 | 968,179 |
Verizon Communications, Inc., 1.95%, 3/28/14(1) | 1,000,000 | 1,024,532 |
Windstream Corp., 8.125%, 8/1/13(1) | 1,000,000 | 1,057,500 |
| | | 9,878,268 |
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS† |
Jabil Circuit, Inc., 7.75%, 7/15/16(1) | 100,000 | 110,750 |
| FOOD AND STAPLES RETAILING — 0.7% |
Delhaize Group SA, 5.875%, 2/1/14(1) | 1,000,000 | 1,090,403 |
Kroger Co. (The), 6.20%, 6/15/12(1) | 200,000 | 206,864 |
Safeway, Inc., 5.80%, 8/15/12(1) | 800,000 | 830,872 |
SUPERVALU, Inc., 7.50%, 5/15/12(1) | 500,000 | 511,250 |
| | | 2,639,389 |
| FOOD PRODUCTS — 0.8% |
General Mills, Inc., 5.25%, 8/15/13(1) | 1,100,000 | 1,186,761 |
Kraft Foods, Inc., 5.625%, 11/1/11(1) | 65,000 | 65,208 |
Kraft Foods, Inc., 2.625%, 5/8/13(1) | 1,500,000 | 1,531,845 |
Mead Johnson Nutrition Co., 3.50%, 11/1/14(1) | 200,000 | 209,944 |
| | | 2,993,758 |
| GAS UTILITIES — 0.6% |
Kinder Morgan Energy Partners LP, 5.85%, 9/15/12(1) | 500,000 | 520,431 |
Kinder Morgan Energy Partners LP, 5.00%, 12/15/13(1) | 500,000 | 536,245 |
Kinder Morgan Kansas, Inc., 6.50%, 9/1/12(1) | 219,000 | 226,118 |
Plains All American Pipeline LP/PAA Finance Corp., 4.25%, 9/1/12(1) | 960,000 | 987,154 |
| | | 2,269,948 |
| HEALTH CARE EQUIPMENT AND SUPPLIES — 1.2% |
Baxter International, Inc., 1.80%, 3/15/13(1) | $ 1,000,000 | $ 1,014,722 |
CareFusion Corp., 4.125%, 8/1/12(1) | 1,330,000 | 1,360,254 |
Covidien International Finance SA, 1.875%, 6/15/13(1) | 1,000,000 | 1,014,609 |
St. Jude Medical, Inc., 2.20%, 9/15/13(1) | 1,000,000 | 1,021,116 |
| | | 4,410,701 |
| HEALTH CARE PROVIDERS AND SERVICES — 0.8% |
Express Scripts, Inc., 5.25%, 6/15/12(1) | 1,600,000 | 1,643,195 |
Medco Health Solutions, Inc., 6.125%, 3/15/13(1) | 500,000 | 530,891 |
Medco Health Solutions, Inc., 7.25%, 8/15/13(1) | 500,000 | 547,482 |
Universal Health Services, Inc., 7.125%, 6/30/16(1) | 290,000 | 305,225 |
| | | 3,026,793 |
| HOTELS, RESTAURANTS AND LEISURE — 0.1% |
Wyndham Worldwide Corp., 6.00%, 12/1/16(1) | 300,000 | 314,323 |
| HOUSEHOLD DURABLES — 0.1% |
Toll Brothers Finance Corp., 6.875%, 11/15/12(1) | 500,000 | 516,972 |
| HOUSEHOLD PRODUCTS — 0.3% |
| Jarden Corp., 8.00%, 5/1/16 | 850,000 | 902,063 |
| INDUSTRIAL CONGLOMERATES — 0.6% |
Bombardier, Inc., 6.75%, 5/1/12(1)(2) | 170,000 | 172,550 |
General Electric Co., 5.00%, 2/1/13(1) | 1,000,000 | 1,047,749 |
Whirlpool Corp., MTN, 8.00%, 5/1/12(1) | 1,000,000 | 1,038,630 |
| | | 2,258,929 |
| INSURANCE — 1.3% |
| American International Group, Inc., 3.65%, 1/15/14 | 640,000 | 624,556 |
Berkshire Hathaway Finance Corp., 1.50%, 1/10/14(1) | 1,000,000 | 1,013,931 |
Hartford Financial Services Group, Inc., 4.00%, 3/30/15(1) | 410,000 | 412,987 |
MetLife, Inc., 2.375%, 2/6/14(1) | 500,000 | 509,042 |
Metropolitan Life Global Funding I, 2.875%, 9/17/12(1)(2) | 400,000 | 406,436 |
Prudential Financial, Inc., MTN, 3.625%, 9/17/12(1) | 400,000 | 406,801 |
Prudential Financial, Inc., MTN, 2.75%, 1/14/13(1) | 200,000 | 201,843 |
Travelers Cos., Inc. (The), MTN, 5.375%, 6/15/12(1) | 1,000,000 | 1,027,695 |
| | | 4,603,291 |
| INTERNET SOFTWARE AND SERVICES — 0.3% |
eBay, Inc., 0.875%, 10/15/13(1) | 1,000,000 | 1,004,061 |
| LIFE SCIENCES TOOLS AND SERVICES — 0.4% |
Thermo Fisher Scientific, Inc., 2.15%, 12/28/12(1) | 500,000 | 508,413 |
Thermo Fisher Scientific, Inc., 2.05%, 2/21/14(1) | 1,000,000 | 1,029,212 |
| | | 1,537,625 |
| MEDIA — 3.0% |
Comcast Cable Communications LLC, 7.125%, 6/15/13(1) | 500,000 | 546,221 |
Comcast Corp., 5.30%, 1/15/14(1) | 1,560,000 | 1,692,697 |
CSC Holdings LLC, 6.75%, 4/15/12(1) | 1,273,000 | 1,298,460 |
CSC Holdings LLC, 8.50%, 4/15/14(1) | 100,000 | 108,375 |
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 4.75%, 10/1/14(1) | 1,000,000 | 1,084,645 |
DISH DBS Corp., 7.00%, 10/1/13(1) | 750,000 | 781,875 |
Interpublic Group of Cos., Inc. (The), 6.25%, 11/15/14(1) | 410,000 | 434,600 |
Lamar Media Corp., 9.75%, 4/1/14(1) | 250,000 | 276,875 |
NBCUniversal Media LLC, 2.10%, 4/1/14(1) | 1,220,000 | 1,239,705 |
Qwest Corp., 8.875%, 3/15/12(1) | 671,000 | 695,324 |
Time Warner Cable, Inc., 5.40%, 7/2/12(1) | 1,460,000 | 1,507,292 |
Viacom, Inc., 4.375%, 9/15/14(1) | 1,000,000 | 1,069,737 |
| | | 10,735,806 |
| METALS AND MINING — 1.6% |
Anglo American Capital plc, 2.15%, 9/27/13(1)(2) | 1,000,000 | 997,632 |
ArcelorMittal, 5.375%, 6/1/13(1) | 1,100,000 | 1,122,997 |
| Barrick Gold Corp., 1.75%, 5/30/14 | 1,000,000 | 1,005,769 |
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 4/1/17(1) | $ 1,560,000 | $ 1,674,942 |
Rio Tinto Finance USA Ltd., 5.875%, 7/15/13(1) | 1,000,000 | 1,077,120 |
| | | 5,878,460 |
| MULTI-UTILITIES — 2.7% |
Carolina Power & Light Co., 6.50%, 7/15/12(1) | 750,000 | 783,232 |
| CMS Energy Corp., 4.25%, 9/30/15 | 530,000 | 524,389 |
Commonwealth Edison Co., 1.625%, 1/15/14(1) | 980,000 | 987,626 |
Consolidated Edison Co. of New York, Inc., Series 02-A, 5.625%, 7/1/12(1) | 600,000 | 621,400 |
Dominion Resources, Inc., 5.70%, 9/17/12(1) | 1,000,000 | 1,044,098 |
Dominion Resources, Inc., Series B, 6.25%, 6/30/12(1) | 404,000 | 419,286 |
DTE Energy Co., VRN, 1.031%, 9/6/11(1) | 960,000 | 958,743 |
Duke Energy Carolinas LLC, 5.625%, 11/30/12(1) | 250,000 | 262,407 |
Duke Energy Ohio, Inc., 5.70%, 9/15/12(1) | 500,000 | 522,406 |
Duke Energy Ohio, Inc., 2.10%, 6/15/13(1) | 250,000 | 254,510 |
FirstEnergy Corp., Series B, 6.45%, 11/15/11(1) | 7,000 | 7,038 |
FirstEnergy Solutions Corp., 4.80%, 2/15/15(1) | 425,000 | 451,257 |
Midamerican Energy Holdings Co., 5.875%, 10/1/12(1) | 1,000,000 | 1,048,635 |
Pacific Gas & Electric Co., 6.25%, 12/1/13(1) | 1,000,000 | 1,104,343 |
Progress Energy, Inc., 6.85%, 4/15/12(1) | 500,000 | 515,836 |
Sempra Energy, 8.90%, 11/15/13(1) | 100,000 | 114,139 |
| | | 9,619,345 |
| MULTILINE RETAIL — 0.3% |
Macy’s Retail Holdings, Inc., 5.35%, 3/15/12(1) | 1,000,000 | 1,015,526 |
| OFFICE ELECTRONICS — 0.5% |
Xerox Corp., 5.50%, 5/15/12(1) | 1,025,000 | 1,053,576 |
Xerox Corp., 5.65%, 5/15/13(1) | 500,000 | 529,412 |
Xerox Corp., 4.25%, 2/15/15(1) | 200,000 | 211,821 |
| | | 1,794,809 |
| OIL, GAS AND CONSUMABLE FUELS — 1.7% |
Anadarko Petroleum Corp., 5.95%, 9/15/16(1) | 400,000 | 438,274 |
Arch Western Finance LLC, 6.75%, 7/1/13(1) | 471,000 | 472,177 |
Canadian Natural Resources Ltd., 5.15%, 2/1/13(1) | 420,000 | 442,187 |
Cenovus Energy, Inc., 4.50%, 9/15/14(1) | 1,000,000 | 1,079,266 |
Chesapeake Energy Corp., 7.625%, 7/15/13(1) | 750,000 | 789,375 |
Encana Corp., 6.30%, 11/1/11(1) | 325,000 | 326,305 |
Encana Corp., 4.75%, 10/15/13(1) | 1,000,000 | 1,061,917 |
Forest Oil Corp., 8.50%, 2/15/14(1) | 50,000 | 53,125 |
Newfield Exploration Co., 6.625%, 4/15/16(1) | 1,000,000 | 1,015,000 |
Peabody Energy Corp., 7.375%, 11/1/16(1) | 400,000 | 441,500 |
Sabine Pass LNG LP, 7.25%, 11/30/13(1) | 100,000 | 97,250 |
| | | 6,216,376 |
| PERSONAL PRODUCTS — 0.4% |
Procter & Gamble Co. (The), 0.70%, 8/15/14(1) | 1,300,000 | 1,304,160 |
| PHARMACEUTICALS — 0.9% |
AstraZeneca plc, 5.40%, 9/15/12(1) | 500,000 | 523,299 |
Pfizer, Inc., 4.45%, 3/15/12(1) | 1,000,000 | 1,017,218 |
Roche Holdings, Inc., 5.00%, 3/1/14(1)(2) | 127,000 | 139,737 |
| Sanofi, 1.20%, 9/30/14 | 950,000 | 952,866 |
Watson Pharmaceuticals, Inc., 5.00%, 8/15/14(1) | 400,000 | 433,466 |
| | | 3,066,586 |
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.8% |
Developers Diversified Realty Corp., 5.375%, 10/15/12(1) | 745,000 | 749,080 |
ERP Operating LP, 5.20%, 4/1/13(1) | 475,000 | 495,382 |
| HCP, Inc., 2.70%, 2/1/14 | 1,000,000 | 986,073 |
Ventas Realty LP/Ventas Capital Corp., 6.75%, 4/1/17(1) | 720,000 | 750,193 |
| | | 2,980,728 |
| REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.1% |
ProLogis LP, MTN, 6.30%, 6/1/13(1) | $ 400,000 | $ 419,799 |
| ROAD AND RAIL — 0.6% |
Burlington Northern Santa Fe LLC, 5.90%, 7/1/12(1) | 750,000 | 775,750 |
CSX Corp., 6.30%, 3/15/12(1) | 575,000 | 588,480 |
CSX Corp., 5.75%, 3/15/13(1) | 600,000 | 638,052 |
Norfolk Southern Corp., 5.257%, 9/17/14(1) | 121,000 | 132,865 |
| | | 2,135,147 |
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 0.2% |
Broadcom Corp., 1.50%, 11/1/13(1)(2) | 670,000 | 671,699 |
| SOFTWARE — 0.4% |
Adobe Systems, Inc., 3.25%, 2/1/15(1) | 100,000 | 105,124 |
Intuit, Inc., 5.40%, 3/15/12(1) | 500,000 | 509,144 |
Intuit, Inc., 5.75%, 3/15/17(1) | 200,000 | 225,208 |
Oracle Corp., 3.75%, 7/8/14(1) | 650,000 | 700,776 |
| | | 1,540,252 |
| SPECIALTY RETAIL — 0.5% |
GameStop Corp./GameStop, Inc., 8.00%, 10/1/12(1) | 96,000 | 96,360 |
Home Depot, Inc. (The), 5.25%, 12/16/13(1) | 1,400,000 | 1,523,428 |
| | | 1,619,788 |
| TOBACCO — 0.2% |
Philip Morris International, Inc., 4.875%, 5/16/13(1) | 400,000 | 424,596 |
UST, Inc., 6.625%, 7/15/12(1) | 400,000 | 416,501 |
| | | 841,097 |
| WIRELESS TELECOMMUNICATION SERVICES — 0.7% |
Cellco Partnership/Verizon Wireless Capital LLC, 5.55%, 2/1/14(1) | 1,000,000 | 1,095,030 |
Vodafone Group plc, 5.00%, 12/16/13(1) | 1,320,000 | 1,424,743 |
| | | 2,519,773 |
TOTAL CORPORATE BONDS (Cost $145,557,711) | 146,317,161 |
| U.S. Treasury Securities — 24.8% |
U.S. Treasury Inflation Indexed Notes, 0.625%, 4/15/13(1) | 10,289,703 | 10,478,611 |
U.S. Treasury Notes, 1.375%, 11/15/12(1) | 1,800,000 | 1,824,188 |
U.S. Treasury Notes, 0.50%, 11/30/12(1) | 840,000 | 843,216 |
U.S. Treasury Notes, 1.375%, 1/15/13(1) | 11,500,000 | 11,672,052 |
U.S. Treasury Notes, 1.125%, 6/15/13(1) | 4,500,000 | 4,566,092 |
| U.S. Treasury Notes, 0.375%, 7/31/13 | 4,000,000 | 4,009,844 |
U.S. Treasury Notes, 1.25%, 2/15/14(1) | 15,500,000 | 15,831,793 |
U.S. Treasury Notes, 1.25%, 3/15/14(1) | 3,000,000 | 3,065,871 |
U.S. Treasury Notes, 0.75%, 6/15/14(1) | 2,000,000 | 2,020,470 |
U.S. Treasury Notes, 0.625%, 7/15/14(1) | 8,000,000 | 8,053,736 |
U.S. Treasury Notes, 0.50%, 8/15/14(1) | 2,000,000 | 2,006,414 |
| U.S. Treasury Notes, 0.25%, 9/15/14 | 1,000,000 | 995,236 |
U.S. Treasury Notes, 2.625%, 12/31/14(1) | 3,000,000 | 3,206,016 |
U.S. Treasury Notes, 2.25%, 1/31/15(1) | 17,500,000 | 18,511,727 |
U.S. Treasury Notes, 1.25%, 9/30/15(1) | 2,000,000 | 2,046,094 |
TOTAL U.S. TREASURY SECURITIES (Cost $88,761,276) | 89,131,360 |
| U.S. Government Agency Securities — 12.2% |
| FIXED-RATE U.S. GOVERNMENT AGENCY SECURITIES — 7.5% |
FHLB, 0.22%, 9/12/12(1) | 3,500,000 | 3,498,705 |
FHLB, 3.625%, 10/18/13(1) | 4,000,000 | 4,259,656 |
| FHLMC, 0.625%, 12/28/12 | 2,000,000 | 2,008,150 |
| FHLMC, 1.00%, 8/27/14 | 3,000,000 | 3,036,480 |
FHLMC, 2.875%, 2/9/15(1) | 7,000,000 | 7,494,431 |
| FNMA, 1.00%, 9/23/13 | 2,000,000 | 2,021,502 |
FNMA, 0.55%, 9/27/13(1) | 1,500,000 | 1,496,347 |
FNMA, 0.70%, 9/19/14(1) | 2,000,000 | 1,993,592 |
FNMA, 1.25%, 9/28/16(1) | 1,000,000 | 1,000,295 |
| | | 26,809,158 |
GOVERNMENT-BACKED CORPORATE BONDS(3) — 4.7% |
Ally Financial, Inc., 1.75%, 10/30/12(1) | 1,500,000 | 1,523,808 |
Ally Financial, Inc., 2.20%, 12/19/12(1) | $ 1,500,000 | $ 1,533,954 |
Bank of America Corp., 3.125%, 6/15/12(1) | 1,100,000 | 1,122,801 |
| Citigroup Funding, Inc., 1.875%, 10/22/12 | 1,200,000 | 1,219,276 |
Citigroup Funding, Inc., 1.875%, 11/15/12(1) | 2,000,000 | 2,034,846 |
General Electric Capital Corp., 2.625%, 12/28/12(1) | 2,470,000 | 2,540,696 |
Goldman Sachs Group, Inc. (The), 3.25%, 6/15/12(1) | 1,900,000 | 1,940,626 |
JPMorgan Chase & Co., 2.125%, 12/26/12(1) | 1,500,000 | 1,533,388 |
Morgan Stanley, 1.95%, 6/20/12(1) | 2,000,000 | 2,024,242 |
State Street Corp., 2.15%, 4/30/12(1) | 500,000 | 505,642 |
| U.S. Bancorp., 1.80%, 5/15/12 | 1,000,000 | 1,009,161 |
| | | 16,988,440 |
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (Cost $43,238,732) | 43,797,598 |
Collateralized Mortgage Obligations(4) — 6.9% |
| PRIVATE SPONSOR COLLATERALIZED MORTGAGE OBLIGATIONS — 3.1% |
Banc of America Mortgage Securities, Inc., Series 2004-4, Class 2A1 SEQ, 5.50%, 5/25/34(1) | 177,259 | 178,098 |
Banc of America Mortgage Securities, Inc., Series 2004-7, Class 7A1, 5.00%, 8/25/19(1) | 441,110 | 451,392 |
| Citicorp Mortgage Securities, Inc., Series 2003-6, Class 1A2 SEQ, 4.50%, 5/25/33 | 140,305 | 141,321 |
Countrywide Home Loan Mortgage Pass-Through Trust, Series 2003-35, Class 1A3 SEQ, 5.00%, 9/25/18(1) | 362,172 | 377,815 |
| Countrywide Home Loan Mortgage Pass-Through Trust, Series 2004-5, Class 2A4, 5.50%, 5/25/34 | 546,969 | 568,328 |
Countrywide Home Loan Mortgage Pass-Through Trust, Series 2005-17, Class 1A11, 5.50%, 9/25/35(1) | 151,705 | 148,283 |
Credit Suisse First Boston Mortgage Securities Corp., Series 2003-AR28, Class 2A1, VRN, 2.742%, 10/25/11(1) | 71,223 | 60,127 |
GSR Mortgage Loan Trust, Series 2005-6F, Class 3A15, 5.50%, 7/25/35(1) | 462,337 | 461,289 |
| JP Morgan Mortgage Trust, Series 2004-S2, Class 1A3 SEQ, 4.75%, 11/25/19 | 438,519 | 440,742 |
MASTR Asset Securitization Trust, Series 2003-10, Class 3A1, 5.50%, 11/25/33(1) | 680,720 | 710,976 |
Residential Funding Mortgage Securities I, Series 2006-S10, Class 2A1 SEQ, 5.50%, 10/25/21(1) | 630,450 | 599,456 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2003-17, Class 1A14, 5.25%, 1/25/34(1) | 683,938 | 719,329 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-1, Class A10, 5.50%, 2/25/34(1) | 701,761 | 740,623 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-A, Class A1, VRN, 4.85%, 10/25/11(1) | 707,524 | 695,618 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2005-2, Class 1A1 SEQ, 5.50%, 4/25/35 | 539,271 | 544,394 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2005-5, Class 1A1, 5.00%, 5/25/20 | 339,887 | 339,049 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2005-6, Class A1 SEQ, 5.25%, 8/25/35 | 674,757 | 674,630 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR16, Class 1A1, VRN, 2.762%, 10/25/11(1) | 1,085,858 | 1,091,759 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR16, Class 4A6, VRN, 2.727%, 10/25/11(1) | 452,579 | 443,048 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR2, Class 2A2, VRN, 2.737%, 10/25/11 | 847,257 | 756,798 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2006-3, Class A9 SEQ, 5.50%, 3/25/36 | $ 413,943 | $ 407,807 |
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-9, Class 1A15 SEQ, 6.00%, 8/25/36(1) | 218,608 | 218,008 |
| Wells Fargo Mortgage-Backed Securities Trust, Series 2007-3, Class 3A1, 5.50%, 4/25/22 | 457,216 | 472,522 |
| | | 11,241,412 |
| U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS — 3.8% |
FHLMC, Series 2430, Class QC, 5.50%, 2/15/17(1) | 277,296 | 291,791 |
FHLMC, Series 2625, Class FJ SEQ, VRN, 0.529%, 10/15/11(1) | 589,748 | 590,267 |
| FHLMC, Series 2706, Class BL SEQ, 3.50%, 11/15/18 | 1,000,000 | 1,069,316 |
| FHLMC, Series 2713, Class G SEQ, 4.00%, 8/15/16 | 108,710 | 109,193 |
| FHLMC, Series 2854, Class DJ SEQ, 4.00%, 8/15/17 | 149,265 | 150,865 |
| FHLMC, Series 2899, Class HA SEQ, 4.00%, 5/15/19 | 701,110 | 734,631 |
| FHLMC, Series 2958, Class QC, 4.50%, 9/15/18 | 294,619 | 301,132 |
| FHLMC, Series 2989, Class CN, 4.50%, 2/15/23 | 493,399 | 502,654 |
| FNMA, Series 2003-123, Class AY SEQ, 4.00%, 12/25/18 | 1,000,000 | 1,068,238 |
| FNMA, Series 2003-125, Class AY SEQ, 4.00%, 12/25/18 | 2,000,000 | 2,131,726 |
| FNMA, Series 2003-128, Class NG, 4.00%, 1/25/19 | 1,000,000 | 1,067,955 |
| FNMA, Series 2004-17, Class CJ SEQ, 4.00%, 4/25/19 | 2,500,000 | 2,729,856 |
| FNMA, Series 2004-32, Class AY SEQ, 4.00%, 5/25/19 | 2,165,000 | 2,341,499 |
FNMA, Series 2006-4, Class A SEQ, 6.00%, 11/25/22(1) | 4,900 | 4,899 |
FNMA, Series 2006-77, Class PD, 6.50%, 10/25/30(1) | 16,046 | 16,041 |
| GNMA, Series 2009-61, Class PA, 5.00%, 2/16/32 | 467,981 | 480,856 |
| | | 13,590,919 |
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $24,773,164) | 24,832,331 |
Commercial Mortgage-Backed Securities(4) — 6.2% |
Banc of America Commercial Mortgage, Inc., Series 2004-1, Class A3 SEQ, 4.429%, 11/10/39(1) | 505,902 | 510,555 |
Banc of America Commercial Mortgage, Inc., Series 2004-6, Class A3 SEQ, 4.512%, 12/10/42(1) | 1,058,070 | 1,065,265 |
Banc of America Commercial Mortgage, Inc., Series 2005-5, Class A4, VRN, 5.115%, 10/10/11(1) | 550,000 | 601,291 |
Banc of America Commercial Mortgage, Inc., Series 2005-5, Class AM, VRN, 5.176%, 10/10/11(1) | 550,000 | 554,475 |
Commercial Mortgage Pass-Through Certificates, Series 2004-LB2A, Class A3 SEQ, 4.221%, 3/10/39(1) | 82,394 | 82,620 |
Commercial Mortgage Pass-Through Certificates, Series 2004-LB3A, Class A4 SEQ, VRN, 5.234%, 10/10/11(1) | 311,324 | 319,573 |
First Union National Bank Commercial Mortgage, Series 2000-C1, Class C, VRN, 8.087%, 10/15/11(1) | 247,216 | 246,963 |
GE Capital Commercial Mortgage Corp., Series 2005-C3, Class A5, VRN, 4.979%, 10/10/11(1) | 400,000 | 402,225 |
Greenwich Capital Commercial Funding Corp., Series 2004-GG1, Class B, VRN, 5.426%, 10/10/11(1) | 452,000 | 463,715 |
Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class A3 SEQ, 4.569%, 8/10/42(1) | 1,050,000 | 1,059,885 |
GS Mortgage Securities Corp. II, Series 2004-GG2, Class A4 SEQ, 4.964%, 8/10/38(1) | 1,035,493 | 1,036,359 |
GS Mortgage Securities Corp. II, Series 2004-GG2, Class A6 SEQ, VRN, 5.396%, 10/10/11(1) | 1,000,000 | 1,065,505 |
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A2 SEQ, 4.475%, 7/10/39(1) | 1,238,605 | 1,237,712 |
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4 SEQ, 4.761%, 7/10/39(1) | $ 700,000 | $ 740,090 |
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A SEQ, 4.751%, 7/10/39(1) | 600,000 | 638,834 |
LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class B, VRN, 6.575%, 10/15/11(1) | 700,000 | 706,175 |
LB-UBS Commercial Mortgage Trust, Series 2003-C5, Class A3 SEQ, 4.254%, 7/15/27(1) | 687,137 | 699,698 |
LB-UBS Commercial Mortgage Trust, Series 2004-C1, Class A4 SEQ, 4.568%, 1/15/31(1) | 950,000 | 996,160 |
LB-UBS Commercial Mortgage Trust, Series 2004-C4, Class A4, VRN, 5.497%, 10/15/11(1) | 600,000 | 645,953 |
| LB-UBS Commercial Mortgage Trust, Series 2005-C2, Class A4 SEQ, 4.998%, 4/15/30 | 1,800,000 | 1,829,082 |
LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class A3 SEQ, 4.647%, 7/15/30(1) | 748,140 | 752,351 |
LB-UBS Commercial Mortgage Trust, Series 2005-C5, Class AM, VRN, 5.017%, 10/15/11(1) | 700,000 | 687,277 |
Morgan Stanley Capital I, Series 2001-T5, Class A4 SEQ, 6.39%, 10/15/35(1) | 352,694 | 352,676 |
Morgan Stanley Capital I, Series 2003-T11, Class A3 SEQ, 4.85%, 6/13/41(1) | 299,696 | 300,788 |
Morgan Stanley Capital I, Series 2005-HQ6, Class A2A SEQ, 4.882%, 8/13/42(1) | 346,568 | 348,197 |
Wachovia Bank Commercial Mortgage Trust, Series 2004-C11, Class A3 SEQ, 4.719%, 1/15/41(1) | 61,861 | 62,083 |
Wachovia Bank Commercial Mortgage Trust, Series 2004-C12, Class A3, VRN, 5.23%, 10/15/11(1) | 538,548 | 539,943 |
Wachovia Bank Commercial Mortgage Trust, Series 2004-C15, Class A3 SEQ, 4.502%, 10/15/41(1) | 400,000 | 406,538 |
Wachovia Bank Commercial Mortgage Trust, Series 2004-C15, Class A4 SEQ, 4.803%, 10/15/41(1) | 1,450,000 | 1,539,427 |
Wachovia Bank Commercial Mortgage Trust, Series 2005-C20, Class A6A, VRN, 5.11%, 10/15/11(1) | 2,271,843 | 2,308,160 |
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $22,368,029) | 22,199,575 |
| Sovereign Governments and Agencies — 4.8% |
| GERMANY — 4.8% |
German Federal Republic, 4.00%, 10/11/13 (Cost $17,778,184)EUR 12,022,000 | 17,228,208 |
U.S. Government Agency Mortgage-Backed Securities(4) — 1.2% |
| ADJUSTABLE-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 1.1% |
| FHLMC, VRN, 3.54%, 10/15/11 | 1,906,481 | 2,004,801 |
| FHLMC, VRN, 3.70%, 10/15/11 | 2,060,342 | 2,149,355 |
FNMA, VRN, 5.61%, 10/25/11(1) | 36,025 | 38,351 |
| | | 4,192,507 |
| FIXED-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 0.1% |
FHLMC, 5.50%, 12/1/36(1) | 47,071 | 51,227 |
FNMA, 5.00%, 7/1/20(1) | 119,161 | 128,873 |
FNMA, 5.50%, 7/1/36(1) | 34,199 | 37,274 |
| | | 217,374 |
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Cost $4,376,969) | 4,409,881 |
| Municipal Securities — 0.7% |
California GO, 5.25%, 4/1/14(1) | 1,000,000 | 1,090,490 |
Illinois GO, 4.421%, 1/1/15(1) | 1,000,000 | 1,045,900 |
Irvine Ranch Water District Joint Powers Agency Rev., Series 2010, (Taxable Issue 2), 2.605%, 3/15/14(1)(5) | 400,000 | 417,160 |
TOTAL MUNICIPAL SECURITIES (Cost $2,402,848) | 2,553,550 |
Asset-Backed Securities(4) — 0.6% |
| CenterPoint Energy Transition Bond Co. LLC, Series 2009-1, Class A1 SEQ, 1.833%, 2/15/16 | $ 520,077 | $ 529,933 |
| CNH Equipment Trust, Series 2011-B, Class A2 SEQ, 0.71%, 12/15/14 | 750,000 | 749,766 |
Entergy Texas Restoration Funding LLC, Series 2009-A, Class A1 SEQ, 2.12%, 2/1/16(1) | 723,313 | 740,661 |
TOTAL ASSET-BACKED SECURITIES (Cost $1,993,604) | 2,020,360 |
| | Shares | Value |
| Temporary Cash Investments — 1.4% |
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.25%, 9/15/14, valued at $1,608,607), in a joint trading account at 0.01%, dated 9/30/11, due 10/3/11 (Delivery value $1,576,397) | $ 1,576,396 |
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.50%, 2/15/39, valued at $1,384,451), in a joint trading account at 0.01%, dated 9/30/11, due 10/3/11 (Delivery value $1,351,197) | 1,351,196 |
| SSgA U.S. Government Money Market Fund | 2,168,882 | 2,168,882 |
TOTAL TEMPORARY CASH INVESTMENTS (Cost $5,096,474) | 5,096,474 |
TOTAL INVESTMENT SECURITIES — 99.6% (Cost $356,346,991) | 357,586,498 |
| OTHER ASSETS AND LIABILITIES — 0.4% | 1,446,143 |
| TOTAL NET ASSETS — 100.0% | $359,032,641 |
| Forward Foreign Currency Exchange Contracts | |
| Contracts to Sell | Counterparty | Settlement Date | | Value | | | Unrealized Gain (Loss) | |
| | 13,066,176 | | EUR for USD | UBS AG | 10/28/11 | | | $17,502,271 | | | | $1,375,152 | |
| | 104,100 | | EUR for USD | HSBC Bank plc | 10/28/11 | | | 139,443 | | | | 10,500 | |
| | | | | | | | | $17,641,714 | | | | $1,385,652 | |
(Value on Settlement Date $19,027,366)
| Credit Default Swap Agreements |
Counterparty/ Reference Entity | Notional Amount | Buy/Sell Protection | Interest Rate | Termination Date | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | Value |
Barclays Bank plc/CDX North America High Yield 11 Index | $261,000 | Sell* | 5.00% | 12/20/13 | $(26,708) | $23,600 | $(3,108) |
| * | The maximum potential amount the fund could be required to deliver as a seller of credit protection if a credit event occurs as defined under the terms of the agreement is the notional amount. The maximum potential amount may be partially offset by any recovery values of the referenced obligations and upfront payments received upon entering into the agreement. The quoted market prices and resulting market value for credit default swap agreements on credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability or profit at the period end. Increasing market values in absolute terms when compared to the notional amount of the credit default swap agreement represent a deterioration of the referenced entity’s credit soundness and an increased likelihood or risk of a credit event occurring as defined in the agreement. |
Notes to Schedule of Investments
CDX = Credit Derivatives Indexes
EUR = Euro
FDIC = Federal Deposit Insurance Corporation
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
GO = General Obligation
LB-UBS = Lehman Brothers, Inc. — UBS AG
MASTR = Mortgage Asset Securitization Transactions, Inc.
MTN = Medium Term Note
SEQ = Sequential Payer
USD = United States Dollar
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is effective at the period end.
†Category is less than 0.05% of total net assets.
| (1) | Security, or a portion thereof, has been segregated for swap agreements. At the period end, the aggregate value of securities pledged was $261,000. |
| (2) | Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of these securities at the period end was $10,419,327, which represented 2.9% of total net assets. |
| (3) | The debt is guaranteed under the FDIC Temporary Liquidity Guarantee Program and is backed by the full faith and credit of the United States. The expiration date of the FDIC’s guarantee is the earlier of the maturity date of the debt or December 31, 2012. |
| (4) | Final maturity date indicated, unless otherwise noted. |
| (5) | Escrowed to maturity in U.S. government securities or state and local government securities. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
| SEPTEMBER 30, 2011 (UNAUDITED) | |
| Assets | |
| Investment securities, at value (cost of $356,346,991) | | | $357,586,498 | |
| Receivable for investments sold | | | 6,104,390 | |
| Receivable for capital shares sold | | | 1,210,661 | |
| Unrealized gain on forward foreign currency exchange contracts | | | 1,385,652 | |
| Interest receivable | | | 3,066,046 | |
| | | | 369,353,247 | |
| | | | | |
| Liabilities | | | | |
| Payable for investments purchased | | | 9,516,072 | |
| Payable for capital shares redeemed | | | 513,324 | |
| Swap agreements, at value (including net premiums paid (received) of $(26,708)) | | | 3,108 | |
| Accrued management fees | | | 174,046 | |
| Distribution and service fees payable | | | 60,887 | |
| Dividends payable | | | 53,169 | |
| | | | 10,320,606 | |
| | | | | |
| Net Assets | | | $359,032,641 | |
| | | | | |
| Net Assets Consist of: | | | | |
| Capital paid in | | | $354,257,328 | |
| Undistributed net investment income | | | 608,680 | |
| Undistributed net realized gain | | | 1,564,459 | |
| Net unrealized appreciation | | | 2,602,174 | |
| | | | $359,032,641 | |
| | | | | | | | | | |
| | | Net assets | | Shares outstanding | | Net asset value per share |
| Investor Class | | | $188,763,856 | | | | 17,913,363 | | | | $10.54 | |
| Institutional Class | | | $8,879,277 | | | | 842,875 | | | | $10.53 | |
| A Class | | | $115,702,795 | | | | 10,980,264 | | | | $10.54 | * |
| B Class | | | $828,329 | | | | 78,643 | | | | $10.53 | |
| C Class | | | $43,214,900 | | | | 4,099,764 | | | | $10.54 | |
| R Class | | | $1,643,484 | | | | 155,873 | | | | $10.54 | |
*Maximum offering price $10.78 (net asset value divided by 0.9775)
See Notes to Financial Statements.
| FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED) | |
| Investment Income (Loss) | |
| Income: | | | |
| Interest | | | $3,901,579 | |
| | | | | |
| Expenses: | | | | |
| Management fees | | | 1,058,226 | |
| Distribution and service fees: | | | | |
| A Class | | | 143,345 | |
| B Class | | | 4,253 | |
| C Class | | | 218,545 | |
| R Class | | | 4,737 | |
| Trustees’ fees and expenses | | | 13,335 | |
| | | | 1,442,441 | |
| | | | | |
| Net investment income (loss) | | | 2,459,138 | |
| | | | | |
| Realized and Unrealized Gain (Loss) | | | | |
| Net realized gain (loss) on: | | | | |
| Investment transactions | | | 2,380,526 | |
| Futures contract transactions | | | 543,280 | |
| Swap agreement transactions | | | 12,159 | |
| Foreign currency transactions | | | (1,373,466 | ) |
| | | | 1,562,499 | |
| | | | | |
| Change in net unrealized appreciation (depreciation) on: | | | | |
| Investments | | | (2,524,527 | ) |
| Futures contracts | | | 5,891 | |
| Swap agreements | | | (24,464 | ) |
| Translation of assets and liabilities in foreign currencies | | | 2,237,657 | |
| | | | (305,443 | ) |
| | | | | |
| Net realized and unrealized gain (loss) | | | 1,257,056 | |
| | | | | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | | | $3,716,194 | |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
| SIX MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED) AND YEAR ENDED MARCH 31, 2011 | |
| Increase (Decrease) in Net Assets | | September 30, 2011 | | | March 31, 2011 | |
| Operations | |
| Net investment income (loss) | | | $2,459,138 | | | | $5,393,380 | |
| Net realized gain (loss) | | | 1,562,499 | | | | 1,412,419 | |
| Change in net unrealized appreciation (depreciation) | | | (305,443 | ) | | | 84,639 | |
| Net increase (decrease) in net assets resulting from operations | | | 3,716,194 | | | | 6,890,438 | |
| | | | | | | | | |
| Distributions to Shareholders | | | | | | | | |
| From net investment income: | | | | | | | | |
| Investor Class | | | (1,573,711 | ) | | | (2,732,627 | ) |
| Institutional Class | | | (143,622 | ) | | | (704,041 | ) |
| A Class | | | (850,277 | ) | | | (1,908,227 | ) |
| B Class | | | (3,131 | ) | | | (9,566 | ) |
| C Class | | | (160,206 | ) | | | (346,567 | ) |
| R Class | | | (11,741 | ) | | | (16,258 | ) |
| From net realized gains: | | | | | | | | |
| Investor Class | | | — | | | | (170,107 | ) |
| Institutional Class | | | — | | | | (51,028 | ) |
| A Class | | | — | | | | (123,791 | ) |
| B Class | | | — | | | | (964 | ) |
| C Class | | | — | | | | (43,769 | ) |
| R Class | | | — | | | | (2,029 | ) |
| Decrease in net assets from distributions | | | (2,742,688 | ) | | | (6,108,974 | ) |
| | | | | | | | | |
| Capital Share Transactions | | | | | | | | |
| Net increase (decrease) in net assets from capital share transactions | | | (26,998,933 | ) | | | 159,851,355 | |
| | | | | | | | | |
| Net increase (decrease) in net assets | | | (26,025,427 | ) | | | 160,632,819 | |
| | | | | | | | | |
| Net Assets | | | | | | | | |
| Beginning of period | | | 385,058,068 | | | | 224,425,249 | |
| End of period | | | $359,032,641 | | | | $385,058,068 | |
| | | | | | | | | |
| Undistributed net investment income | | | $608,680 | | | | $892,230 | |
See Notes to Financial Statements.
Notes to Financial Statements |
SEPTEMBER 30, 2011 (UNAUDITED)
1. Organization
American Century Investment Trust (the trust) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Massachusetts business trust. Short Duration Fund (the fund) is one fund in a series issued by the trust. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek to maximize total return. As a secondary objective, the fund seeks a high level of income. The fund pursues its objectives by investing at least 65% of its assets in investment-grade, non-money market debt securities and up to 35% of its assets in high-yield and/or emerging markets debt securities.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. On October 21, 2011, all outstanding B Class shares were converted to A Class shares and the fund discontinued issuance of the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open.
Debt securities maturing in greater than 60 days at the time of purchase are valued at the evaluated mean as provided by independent pricing services or at the mean of the most recent bid and asked prices as provided by investment dealers. Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Swap agreements are valued at an evaluated price as provided by independent pricing services or investment dealers. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Trustees or its designee, in accordance with procedures adopted by the Board of Trustees. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Interest income is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
When-Issued and Forward Commitments — The fund may engage in securities transactions on a when-issued or forward commitment basis. In these transactions, the securities’ prices and yields are fixed on the date of the commitment. In a when-issued transaction, the payment and delivery are scheduled for a future date and during this period, securities are subject to market fluctuations. In a forward commitment transaction, the fund may sell a security and at the same time make a commitment to purchase the same security at a future date at a specified price. Conversely, the fund may purchase a security and at the same time make a commitment to sell the same security at a future date at a specified price. These types of transactions are executed simultaneously in what are known as “roll” transactions. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price. The fund accounts for “roll” transactions as purchases and sales.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Trustees. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Management Fees — The trust has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent trustees (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the fund and certain other accounts managed by the investment advisor that are in the same broad investment category as the fund and (2) a Complex Fee based on the assets of all the funds in the American Century Investments family of funds. The rates for the Investment Category Fee range from 0.2925% to 0.4100%. The rates for the Complex Fee range from 0.2500% to 0.3100% for the Investor Class, A Class, B Class, C Class and R Class. The Institutional Class is 0.2000% less at each point within the Complex Fee range. The effective annual management fee for each class for the six months ended September 30, 2011 was 0.60% for the Investor Class, A Class, B Class, C Class and R Class and 0.40% for the Institutional Class.
Distribution and Service Fees — The Board of Trustees has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and trustees of the trust are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the trust’s investment advisor, ACIM, the distributor of the trust, ACIS, and the trust’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases of investment securities, excluding short-term investments, for the six months ended September 30, 2011 totaled $173,606,494, of which $119,245,059 represented U.S. Treasury and Government Agency obligations.
Sales of investment securities, excluding short-term investments, for the six months ended September 30, 2011 totaled $191,010,604, of which $130,193,158 represented U.S. Treasury and Government Agency obligations.
5. Capital Share Transactions
Transactions in shares of the fund were as follows (unlimited number of shares authorized):
| | | | | | | |
| | | Six months ended September 30, 2011 | | | Year ended March 31, 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Investor Class | | | | | | | | | | | | |
| Sold | | | 5,348,664 | | | | $56,529,791 | | | | 16,380,503 | | | | $172,579,511 | |
| Issued in reinvestment of distributions | | | 131,903 | | | | 1,393,959 | | | | 234,998 | | | | 2,477,741 | |
| Redeemed | | | (4,610,865 | ) | | | (48,719,862 | ) | | | (8,523,681 | ) | | | (89,833,748 | ) |
| | | | 869,702 | | | | 9,203,888 | | | | 8,091,820 | | | | 85,223,504 | |
| Institutional Class | | | | | | | | | | | | | | | | |
| Sold | | | 606,263 | | | | 6,407,210 | | | | 6,874,785 | | | | 72,564,391 | |
| Issued in reinvestment of distributions | | | 13,532 | | | | 142,928 | | | | 71,555 | | | | 755,056 | |
| Redeemed | | | (4,051,863 | ) | | | (42,787,526 | ) | | | (2,800,189 | ) | | | (29,573,528 | ) |
| | | | (3,432,068 | ) | | | (36,237,388 | ) | | | 4,146,151 | | | | 43,745,919 | |
| A Class | | | | | | | | | | | | | | | | |
| Sold | | | 2,666,553 | | | | 28,184,152 | | | | 8,566,366 | | | | 90,234,498 | |
| Issued in reinvestment of distributions | | | 55,790 | | | | 589,590 | | | | 145,147 | | | | 1,530,210 | |
| Redeemed | | | (2,688,590 | ) | | | (28,410,431 | ) | | | (7,259,327 | ) | | | (76,520,168 | ) |
| | | | 33,753 | | | | 363,311 | | | | 1,452,186 | | | | 15,244,540 | |
| B Class | | | | | | | | | | | | | | | | |
| Sold | | | 16,011 | | | | 168,864 | | | | 19,586 | | | | 205,763 | |
| Issued in reinvestment of distributions | | | 198 | | | | 2,088 | | | | 641 | | | | 6,754 | |
| Redeemed | | | (22,733 | ) | | | (240,175 | ) | | | (52,930 | ) | | | (557,025 | ) |
| | | | (6,524 | ) | | | (69,223 | ) | | | (32,703 | ) | | | (344,508 | ) |
| C Class | | | | | | | | | | | | | | | | |
| Sold | | | 1,006,971 | | | | 10,644,157 | | | | 3,004,986 | | | | 31,650,870 | |
| Issued in reinvestment of distributions | | | 10,862 | | | | 114,809 | | | | 25,228 | | | | 266,038 | |
| Redeemed | | | (995,627 | ) | | | (10,522,786 | ) | | | (1,673,127 | ) | | | (17,644,716 | ) |
| | | | 22,206 | | | | 236,180 | | | | 1,357,087 | | | | 14,272,192 | |
| R Class | | | | | | | | | | | | | | | | |
| Sold | | | 50,169 | | | | 530,776 | | | | 200,713 | | | | 2,120,825 | |
| Issued in reinvestment of distributions | | | 1,079 | | | | 11,403 | | | | 1,725 | | | | 18,202 | |
| Redeemed | | | (98,188 | ) | | | (1,037,880 | ) | | | (40,871 | ) | | | (429,319 | ) |
| | | | (46,940 | ) | | | (495,701 | ) | | | 161,567 | | | | 1,709,708 | |
| Net increase (decrease) | | | (2,559,871 | ) | | | $(26,998,933 | ) | | | 15,176,108 | | | | $159,851,355 | |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
| ● | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
| | | | | | | | | | |
| | | Level 1 | | Level 2 | | Level 3 |
| Investment Securities | | | | | | | | | |
| Corporate Bonds | | | — | | | | $146,317,161 | | | | — | |
| U.S. Treasury Securities | | | — | | | | 89,131,360 | | | | — | |
| U.S. Government Agency Securities | | | — | | | | 43,797,598 | | | | — | |
| Collateralized Mortgage Obligations | | | — | | | | 24,832,331 | | | | — | |
| Commercial Mortgage-Backed Securities | | | — | | | | 22,199,575 | | | | — | |
| Sovereign Governments and Agencies | | | — | | | | 17,228,208 | | | | — | |
| U.S. Government Agency Mortgage-Backed Securities | | | — | | | | 4,409,881 | | | | — | |
| Municipal Securities | | | — | | | | 2,553,550 | | | | — | |
| Asset-Backed Securities | | | — | | | | 2,020,360 | | | | — | |
| Temporary Cash Investments | | | $2,168,882 | | | | 2,927,592 | | | | — | |
| Total Value of Investment Securities | | | $2,168,882 | | | | $355,417,616 | | | | — | |
| | | | | | | | | | | | | |
| Other Financial Instruments | | | | | | | | | | | | |
| Forward Foreign Currency Exchange Contracts | | | — | | | | $1,385,652 | | | | — | |
| Swap Agreements | | | — | | | | 23,600 | | | | — | |
| Total Unrealized Gain (Loss) on Other Financial Instruments | | | — | | | | $1,409,252 | | | | — | |
7. Derivative Instruments
Credit Risk — The fund is subject to credit risk in the normal course of pursuing its investment objectives. The value of a bond generally declines as the credit quality of its issuer declines. Credit default swap agreements enable a fund to buy/sell protection against a credit event of a specific issuer or index. A fund may attempt to enhance returns by selling protection or attempt to mitigate credit risk by buying protection. The buyer/seller of credit protection against a security or basket of securities may pay/receive an up-front or periodic payment to compensate for/against potential default events. A fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Changes in value, including the periodic amounts of interest to be paid or received on swap agreements, are recorded as unrealized appreciation (depreciation) on swap agreements. Realized gain or loss is recorded upon receipt or payment of a periodic settlement or termination of swap agreements. Net realized and unrealized gains or losses occurring during the holding period of swap agreements are a component of net realized gain (loss) on swap agreement transactions and change in net unrealized appreciation (depreciation) on swap agreements, respectively. The risks of entering into swap agreements include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments or instruments. The credit risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign 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 declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The foreign currency risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
Interest Rate Risk — The fund is subject to interest rate risk in the normal course of pursuing its investment objectives. The value of bonds generally declines as interest rates rise. A fund may enter into futures contracts based on a bond index or a specific underlying security. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Subsequent payments (variation margin) are made or received daily, in cash, by a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the futures contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period, the fund regularly held interest rate risk derivative instruments though none were held at period end.
Value of Derivative Instruments as of September 30, 2011 | |
| | Asset Derivatives | | | Liability Derivatives | |
Type of Risk Exposure | Location on Statement of Assets and Liabilities | Value | | Location on Statement of Assets and Liabilities | Value |
| Credit Risk | Swap agreements | — | | | Swap agreements | $3,108 | |
| Foreign Currency Risk | Unrealized gain on forward foreign currency exchange contracts | $1,385,652 | | | Unrealized loss on forward foreign currency exchange contracts | — | |
| | | $1,385,652 | | | | $3,108 | |
Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended September 30, 2011 | |
| | Net Realized Gain (Loss) | | | Change in Net Unrealized Appreciation (Depreciation) | |
Type of Risk Exposure | Location on Statement of Operations | Value | | Location on Statement of Operations | Value |
| Credit Risk | Net realized gain (loss) on swap agreement transactions | $ 12,159 | | | Change in net unrealized appreciation (depreciation) on swap agreements | $ (24,464) | |
| Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | (1,453,705) | | | Change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | 2,333,462 | |
| Interest Rate Risk | Net realized gain (loss) on futures contract transactions | 543,280 | | | Change in net unrealized appreciation (depreciation) on futures contracts | 5,891 | |
| | | $(898,266) | | | | $2,314,889 | |
8. Risk Factors
The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
9. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of September 30, 2011, the components of investments for federal income tax purposes were as follows:
| | | | |
| Federal tax cost of investments | | | $356,351,375 | |
| Gross tax appreciation of investments | | | $3,068,397 | |
| Gross tax depreciation of investments | | | (1,833,274 | ) |
| Net tax appreciation (depreciation) of investments | | | $1,235,123 | |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
As of March 31, 2011, the fund had accumulated capital losses of $(604,353), which represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2019.
The fund has elected to treat $(179,072) of net capital losses incurred in the five-month period ended March 31, 2011, as having been incurred in the following fiscal year for federal income tax purposes.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
| For a Share Outstanding Throughout the Years Ended March 31 (except as noted) |
| Per-Share Data | Ratios and Supplemental Data |
| | | Income From Investment Operations: | Distributions From: | | | Ratio to Average Net Assets of: | | |
| | Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) |
| Investor Class |
2011(3) | $10.51 | 0.08 | 0.04 | 0.12 | (0.09) | — | (0.09) | $10.54 | 1.16% | 0.61%(4) | 1.58%(4) | 51% | $188,764 |
| 2011 | $10.46 | 0.19 | 0.07 | 0.26 | (0.20) | (0.01) | (0.21) | $10.51 | 2.48% | 0.61% | 1.77% | 72% | $179,159 |
| 2010 | $10.26 | 0.23 | 0.27 | 0.50 | (0.24) | (0.06) | (0.30) | $10.46 | 4.98% | 0.61% | 2.25% | 111% | $93,643 |
| 2009 | $10.26 | 0.29 | 0.14 | 0.43 | (0.35) | (0.08) | (0.43) | $10.26 | 4.29% | 0.62% | 2.90% | 182% | $14,083 |
| 2008 | $10.00 | 0.45 | 0.25 | 0.70 | (0.44) | — | (0.44) | $10.26 | 7.17% | 0.62% | 4.42% | 113% | $2,301 |
2007(5) | $10.00 | 0.15 | —(6) | 0.15 | (0.15) | — | (0.15) | $10.00 | 1.46% | 0.62%(4) | 4.48%(4) | 157% | $1,700 |
| Institutional Class |
2011(3) | $10.51 | 0.09 | 0.03 | 0.12 | (0.10) | — | (0.10) | $10.53 | 1.17% | 0.41%(4) | 1.78%(4) | 51% | $8,879 |
| 2011 | $10.46 | 0.20 | 0.08 | 0.28 | (0.22) | (0.01) | (0.23) | $10.51 | 2.69% | 0.41% | 1.97% | 72% | $44,932 |
| 2010 | $10.26 | 0.25 | 0.27 | 0.52 | (0.26) | (0.06) | (0.32) | $10.46 | 5.19% | 0.41% | 2.45% | 111% | $1,348 |
| 2009 | $10.26 | 0.37 | 0.08 | 0.45 | (0.37) | (0.08) | (0.45) | $10.26 | 4.49% | 0.42% | 3.10% | 182% | $84 |
| 2008 | $10.00 | 0.47 | 0.25 | 0.72 | (0.46) | — | (0.46) | $10.26 | 7.38% | 0.42% | 4.62% | 113% | $1,818 |
2007(5) | $10.00 | 0.15 | —(6) | 0.15 | (0.15) | — | (0.15) | $10.00 | 1.52% | 0.42%(4) | 4.68%(4) | 157% | $1,693 |
| A Class |
2011(3) | $10.51 | 0.07 | 0.04 | 0.11 | (0.08) | — | (0.08) | $10.54 | 1.03% | 0.86%(4) | 1.33%(4) | 51% | $115,703 |
| 2011 | $10.46 | 0.16 | 0.07 | 0.23 | (0.17) | (0.01) | (0.18) | $10.51 | 2.23% | 0.86% | 1.52% | 72% | $115,063 |
| 2010 | $10.26 | 0.21 | 0.27 | 0.48 | (0.22) | (0.06) | (0.28) | $10.46 | 4.72% | 0.86% | 2.00% | 111% | $99,307 |
| 2009 | $10.26 | 0.26 | 0.15 | 0.41 | (0.33) | (0.08) | (0.41) | $10.26 | 4.03% | 0.87% | 2.65% | 182% | $61,314 |
| 2008 | $10.00 | 0.42 | 0.25 | 0.67 | (0.41) | — | (0.41) | $10.26 | 6.91% | 0.87% | 4.17% | 113% | $4,559 |
2007(5) | $10.00 | 0.14 | —(6) | 0.14 | (0.14) | — | (0.14) | $10.00 | 1.37% | 0.87%(4) | 4.23%(4) | 157% | $1,690 |
| For a Share Outstanding Throughout the Years Ended March 31 (except as noted) |
| Per-Share Data | Ratios and Supplemental Data |
| | | Income From Investment Operations: | Distributions From: | | | Ratio to Average Net Assets of: | | |
| | Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) |
| B Class |
2011(3) | $10.51 | 0.03 | 0.03 | 0.06 | (0.04) | — | (0.04) | $10.53 | 0.56% | 1.61%(4) | 0.58%(4) | 51% | $828 |
| 2011 | $10.46 | 0.09 | 0.06 | 0.15 | (0.09) | (0.01) | (0.10) | $10.51 | 1.47% | 1.61% | 0.77% | 72% | $895 |
| 2010 | $10.26 | 0.13 | 0.27 | 0.40 | (0.14) | (0.06) | (0.20) | $10.46 | 3.94% | 1.61% | 1.25% | 111% | $1,232 |
| 2009 | $10.26 | 0.27 | 0.06 | 0.33 | (0.25) | (0.08) | (0.33) | $10.26 | 3.25% | 1.62% | 1.90% | 182% | $1,075 |
| 2008 | $10.00 | 0.35 | 0.25 | 0.60 | (0.34) | — | (0.34) | $10.26 | 6.11% | 1.62% | 3.42% | 113% | $1,834 |
2007(5) | $10.00 | 0.11 | —(6) | 0.11 | (0.11) | — | (0.11) | $10.00 | 1.13% | 1.62%(4) | 3.48%(4) | 157% | $1,686 |
| C Class |
2011(3) | $10.51 | 0.03 | 0.04 | 0.07 | (0.04) | — | (0.04) | $10.54 | 0.65% | 1.61%(4) | 0.58%(4) | 51% | $43,215 |
| 2011 | $10.46 | 0.08 | 0.07 | 0.15 | (0.09) | (0.01) | (0.10) | $10.51 | 1.47% | 1.61% | 0.77% | 72% | $42,875 |
| 2010 | $10.26 | 0.13 | 0.27 | 0.40 | (0.14) | (0.06) | (0.20) | $10.46 | 3.94% | 1.61% | 1.25% | 111% | $28,464 |
| 2009 | $10.26 | 0.21 | 0.12 | 0.33 | (0.25) | (0.08) | (0.33) | $10.26 | 3.25% | 1.62% | 1.90% | 182% | $10,042 |
| 2008 | $10.00 | 0.34 | 0.26 | 0.60 | (0.34) | — | (0.34) | $10.26 | 6.11% | 1.62% | 3.42% | 113% | $3,006 |
2007(5) | $10.00 | 0.11 | —(6) | 0.11 | (0.11) | — | (0.11) | $10.00 | 1.13% | 1.62%(4) | 3.48%(4) | 157% | $1,686 |
| R Class |
2011(3) | $10.52 | 0.06 | 0.03 | 0.09 | (0.07) | — | (0.07) | $10.54 | 0.81% | 1.11%(4) | 1.08%(4) | 51% | $1,643 |
| 2011 | $10.46 | 0.13 | 0.09 | 0.22 | (0.15) | (0.01) | (0.16) | $10.52 | 2.07% | 1.11% | 1.27% | 72% | $2,133 |
| 2010 | $10.26 | 0.18 | 0.27 | 0.45 | (0.19) | (0.06) | (0.25) | $10.46 | 4.46% | 1.11% | 1.75% | 111% | $432 |
| 2009 | $10.26 | 0.33 | 0.05 | 0.38 | (0.30) | (0.08) | (0.38) | $10.26 | 3.77% | 1.12% | 2.40% | 182% | $61 |
| 2008 | $10.00 | 0.40 | 0.25 | 0.65 | (0.39) | — | (0.39) | $10.26 | 6.64% | 1.12% | 3.92% | 113% | $1,801 |
2007(5) | $10.00 | 0.13 | —(6) | 0.13 | (0.13) | — | (0.13) | $10.00 | 1.29% | 1.12%(4) | 3.98%(4) | 157% | $1,689 |
Notes to Financial Highlights
| (1) | Computed using average shares outstanding throughout the period. |
| (2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
| (3) | Six months ended September 30, 2011 (unaudited). |
| (5) | November 30, 2006 (fund inception) through March 31, 2007. |
| (6) | Per-share amount was less than $0.005. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 28, 2011, the Fund’s Board of Directors/Trustees unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors/trustees (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| ● | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| the investment performance of the fund, including data comparing the Fund’s performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
| data comparing the cost of owning the Fund to the cost of owning similar funds; |
| the Advisor’s compliance policies, procedures, and regulatory experience; |
| financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| data comparing services provided and charges to other investment management clients of the Advisor; and |
| ● | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Board also had the benefit of the advice of its independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and the Board’s independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| constructing and designing the Fund |
| portfolio research and security selection |
| initial capitalization/funding |
| daily valuation of the Fund’s portfolio |
| shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
| regulatory and portfolio compliance |
| marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to seek the best execution of fund trades. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Portfolio Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval
process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance section of this report.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board also requested and received information from the Advisor concerning the nature of the services, fees, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent directors and assisted by the advice of independent legal counsel, taking into account all of the factors discussed above and the information provided by the Advisor and others, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
| Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
| Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Investment Trust
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-SAN-73688 1111
ITEM 2. CODE OF ETHICS.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
ITEM 6. INVESTMENTS.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the reporting period, there were no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board.
ITEM 11. CONTROLS AND PROCEDURES.
ITEM 12. EXHIBITS.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
