UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-0816
----------------------------------------------
AMERICAN CENTURY MUTUAL FUNDS, INC.
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(Exact name of registrant as specified in charter)
4500 MAIN STREET, KANSAS CITY, MISSOURI 64111
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(Address of principal executive offices) (Zip code)
DAVID C. TUCKER, ESQ., 4500 MAIN STREET, 9TH FLOOR, KANSAS CITY, MISSOURI 64111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 816-531-5575
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
[front cover]
OCTOBER 31, 2004
American Century Investments
Annual Report
[photo of market line chart]
[photo of starfish]
[photo of bridge]
Ultra(reg.sm) Fund
Vista(reg.sm) Fund
Prospectus Supplement
Enclosed
[american century investments logo and text logo]
Table of Contents
Our Message to You. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ULTRA
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . . . 5
Schedule of Investments. . . . .. . . . . . . . . . . . . . . . . . . . . . 6
VISTA
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . . .13
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . . .13
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . .14
Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . . . . . .17
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . .19
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .21
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . .22
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . .23
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Report of Independent Registered Public Accounting Firm . . . . . . . . . .40
OTHER INFORMATION
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . .44
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . .45
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
The opinions expressed in each of the Portfolio Commentaries reflect those of
the portfolio management team as of the date of the report, and do not
necessarily represent the opinions of American Century or any other person in
the American Century organization. Any such opinions are subject to change at
any time based upon market or other conditions and American Century 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 funds are based on numerous factors, may not be relied upon as an
indication of trading intent on behalf of any American Century 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 by third
party vendors. To the best of American Century's knowledge, such information is
accurate at the time of printing.
Our Message to You
[photo of James E. Stowers III and James E. Stowers, Jr.]
JAMES E. STOWERS III
WITH JAMES E. STOWERS, JR.
We are pleased to provide you with the annual report for the Ultra and Vista
funds for the year ended October 31, 2004.
The report includes comparative performance figures, portfolio and market
commentary, summary tables, a full list of portfolio holdings, and financial
statements and highlights. We hope you find this information helpful in
monitoring your investment.
Through our Web site, americancentury.com, we provide quarterly commentaries on
all American Century portfolios, the views of our senior investment officers,
and other communications about investments, portfolio strategy, and the markets.
Your next shareholder report for these funds will be the semiannual report dated
April 30, 2005, available in approximately six months.
As always, we deeply appreciate your investment with American Century
Investments.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER AND CHAIRMAN
/s/James E. Stowers III
James E. Stowers III
CO-CHAIRMAN OF THE BOARD
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1
Ultra - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
---------------------------------
AVERAGE ANNUAL RETURNS
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SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
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INVESTOR CLASS 4.46% -3.95% 9.21% 13.48% 11/2/81
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S&P 500 INDEX 9.42% -2.22% 11.01% 13.36%(1) --
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RUSSELL 1000 GROWTH INDEX 3.38% -7.85% 8.63% 11.56%(1) --
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Institutional Class 4.65% -3.77% -- 5.66% 11/14/96
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Advisor Class 4.19% -4.18% -- 5.65% 10/2/96
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C Class 3.40% -- -- 1.17% 10/29/01
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R Class 3.92% -- -- 7.29% 8/29/03
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(1) Since 10/31/81, the date nearest the Investor Class's inception for which
data are available.
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.
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 do not.
(continued)
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2
Ultra - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made October 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended October 31
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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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Investor Class 36.89% 10.79% 19.95% 17.61% 37.94% 9.81% -31.44% -12.99% 19.50% 4.46%
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S&P 500 Index 26.44% 24.10% 32.11% 21.99% 25.67% 6.09% -24.90% -15.11% 20.80% 9.42%
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Russell 1000
Growth Index 29.21% 22.05% 30.47% 24.64% 34.25% 9.33% -39.95% -19.62% 21.81% 3.38%
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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.
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 do not.
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3
Ultra - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE ULTRA INVESTMENT TEAM (LEFT TO RIGHT): WADE SLOME,
JERRY SULLIVAN, BRUCE WIMBERLY, AND JIM STOWERS III.
Ultra gained 4.46%* during the year ended October 31, 2004. The S&P 500 Index
rose 9.42%. Ultra outperformed the 3.15% average return of its Morningstar Large
Growth peer group, and also surpassed the 3.38% return of the Russell 1000
Growth Index, a widely followed barometer of the large-cap growth stocks Ultra
generally invests in.
Corporate earnings reached 10-year highs in the fourth quarter of 2003 amid
strong economic growth and low inflation. Against this backdrop, the broad
market, as measured by the S&P 500, increased 8% in the first three months of
the period covered by this report. But stock market gains eroded over the
summer. The price of crude oil rose 78% to $51.78 a barrel, short-term interest
rates climbed on the back of three interest rate hikes, and the annual real rate
of economic growth decelerated from its 7.4% rate in the third quarter of 2003
to 3.9% by the third quarter of 2004.
Ultra's advance during the period was led by its financial holdings. The biggest
lift came from diversified financial services companies, including Chicago
Mercantile Exchange Holdings. Capital markets and consumer finance companies
also generated positive results. SLM Corp., better known as Sallie Mae, was a
stand out performer. The student loan provider increased its earnings per share
as its managed loan portfolio grew.
The portfolio's health care stake also boosted results. UnitedHealth Group was a
leading contributor during the period. The nation's largest health insurer
reported a surge in earnings and raised its outlook. Not all was positive,
however. Among the detractors in the portfolio were drug-makers Chiron Corp. and
Teva Pharmaceuticals.
Effective stock selection helped Ultra avoid much of the decline in the
information technology sector, the worst performing area in the market. The
portfolio was rewarded for the managers' selections in the Internet software and
services industry. Yahoo! was one company that enjoyed strong revenue growth,
thanks in part to strength in search-related advertising.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004
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% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
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Dell Inc. 2.1% 2.0%
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Wal-Mart Stores, Inc. 2.1% 2.0%
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Medtronic, Inc. 2.1% 1.5%
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UnitedHealth
Group Incorporated 1.9% 1.5%
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Microsoft Corporation 1.8% 2.4%
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SLM Corporation 1.7% 1.1%
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eBay Inc. 1.6% 1.2%
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Teva Pharmaceutical
Industries Ltd. ADR 1.5% 1.6%
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General Electric Co. 1.5% 1.6%
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First Data Corp. 1.4% 1.5%
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*All fund returns referenced in this commentary
are for Investor Class shares. (continued)
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4
Ultra - Portfolio Commentary
Semiconductor stocks finished the year as the market's worst-performing
industry. Intel was among the industry's and the portfolio's largest detractors.
The chip giant cut sales and revenue estimates as semiconductor stocks were hit
by falling demand and too-high inventories.
In the consumer discretionary sector, Internet and catalog retailers weighed on
returns. IAC/InterActive Corp. was the portfolio's top detractor during the
period. The company's revenues declined as hotels and airlines sold more of
their rooms and seats direct and less through discount on-line travel sites,
such as IAC's Hotels.com and Expedia.com.
On the other hand, eBay was the portfolio's top individual contributor during
the period. The online auction company reported a surge in its profit, bolstered
by brisk sales of laptop computers and other back-to-school items.
In the industrials sector, stock selection in the commercial services industry
weighed on results. The portfolio was hurt by its investment in Corinthian
Colleges. Shares of this for-profit, post-secondary education school declined
when Corinthian lowered earnings and revenue targets and confirmed a government
probe into its student loan applications.
The best performing group in the market was the energy sector as tight supplies
and strong demand fueled high oil prices. Exxon Mobil led a rise in Ultra's
energy stake.
OUR COMMITMENT
The management team remains committed to seeking long-term capital growth by
investing in stocks of companies they believe will increase in value over time.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
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% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
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Health Care
Equipment & Supplies 7.6% 5.8%
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Software 6.3% 6.8%
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Specialty Retail 5.8% 4.9%
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Pharmaceuticals 5.7% 8.3%
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Hotels, Restaurants
& Leisure 4.9% 4.6%
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TYPES OF INVESTMENTS IN PORTFOLIO
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% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
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Common Stocks 98.1% 99.2%
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Temporary
Cash Investments 1.7% 0.9%
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Collateral Received
for Securities Lending 4.2% 3.5%
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TOTAL INVESTMENT
SECURITIES 104.0% 103.6%
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Other Assets
and Liabilities (4.0)% (3.6)%
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5
Ultra - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
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COMMON STOCKS -- 98.1%
AEROSPACE & DEFENSE -- 1.4%
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2,380,000 General Dynamics Corp. $ 243,046
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843,000 United Technologies Corp. 78,247
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321,293
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AIR FREIGHT & LOGISTICS -- 2.4%
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862,000 C.H. Robinson Worldwide, Inc.(1) 46,496
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1,872,000 Expeditors International
of Washington, Inc.(1) 106,891
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2,147,000 FedEx Corporation 195,635
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2,327,000 United Parcel Service, Inc. Cl B 184,252
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533,274
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AIRLINES -- 0.1%
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1,290,000 JetBlue Airways Corporation(1)(2) 28,445
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AUTO COMPONENTS -- 0.1%
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2,178,000 China Yuchai International
Limited(1)(2)(3) 29,468
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AUTOMOBILES -- 1.1%
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4,194,000 Harley-Davidson, Inc. 241,449
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BEVERAGES -- 2.5%
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3,204,000 Anheuser-Busch Companies, Inc. 160,040
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3,099,000 Coca-Cola Company (The) 126,005
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5,505,000 PepsiCo, Inc. 272,938
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558,983
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BIOTECHNOLOGY -- 2.6%
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4,010,000 Amgen Inc.(2) 227,768
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2,287,000 Celgene Corp.(1)(2) 67,741
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1,484,000 Cephalon, Inc.(1)(2) 70,742
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691,000 Chiron Corp.(1)(2) 22,402
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2,154,000 Genentech, Inc.(1)(2) 98,072
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1,185,000 Gilead Sciences, Inc.(2) 41,037
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1,189,000 Neurocrine Biosciences Inc.(1)(2) 55,348
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583,110
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CAPITAL MARKETS -- 2.9%
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3,640,000 Bank of New York Co., Inc. (The) 118,154
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1,612,000 Goldman Sachs Group, Inc. (The) 158,589
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1,500,000 Legg Mason, Inc.(1) 95,565
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2,443,000 Merrill Lynch & Co., Inc. 131,775
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2,861,000 T. Rowe Price Group Inc. 159,558
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663,641
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CHEMICALS -- 0.3%
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1,462,000 Monsanto Co. 62,501
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COMMERCIAL BANKS -- 1.0%
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2,001,000 Bank of America Corp. 89,625
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2,235,000 Wells Fargo & Co. 133,474
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223,099
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Shares ($ IN THOUSANDS) Value
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COMMERCIAL SERVICES & SUPPLIES -- 1.3%
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3,560,000 Apollo Group Inc. Cl A(2) $ 234,960
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1,944,000 Monster Worldwide Inc.(1)(2) 54,529
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289,489
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COMMUNICATIONS EQUIPMENT -- 1.6%
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10,524,000 Cisco Systems Inc.(2) 202,166
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3,795,000 QUALCOMM Inc. 158,669
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360,835
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COMPUTERS & PERIPHERALS -- 2.1%
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13,505,000 Dell Inc.(2) 473,485
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CONSUMER FINANCE -- 3.0%
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3,336,000 American Express Co.(1) 177,042
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5,119,000 MBNA Corporation 131,200
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8,208,000 SLM Corporation 371,494
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679,736
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DIVERSIFIED FINANCIAL SERVICES -- 2.7%
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781,000 Chicago Mercantile Exchange
Holdings Inc.(1) 137,245
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7,106,000 Citigroup Inc. 315,293
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1,900,000 Moody's Corp. 147,839
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600,377
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ENERGY EQUIPMENT & SERVICES -- 1.3%
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2,121,000 Baker Hughes Inc. 90,842
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2,053,000 Schlumberger Ltd. 129,216
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1,742,000 Transocean Inc.(2) 61,406
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281,464
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FOOD & STAPLES RETAILING -- 3.3%
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2,297,000 Sysco Corp. 74,124
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8,726,000 Wal-Mart Stores, Inc. 470,506
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3,396,000 Walgreen Co.(1) 121,882
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850,000 Whole Foods Market, Inc.(1) 69,216
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735,728
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HEALTH CARE EQUIPMENT & SUPPLIES -- 7.6%
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1,988,000 Baxter International, Inc. 61,151
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2,242,000 Biomet Inc. 104,657
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7,158,000 Boston Scientific Corp.(2) 252,677
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2,123,000 Guidant Corp. 141,434
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2,502,000 Inamed Corp.(1)(2)(3) 132,981
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9,190,000 Medtronic, Inc. 469,702
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1,281,000 St. Jude Medical, Inc.(2) 98,086
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1,658,000 Stryker Corp. 71,443
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3,220,000 Varian Medical Systems, Inc.(2) 129,283
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2,517,000 Waters Corp.(2) 103,927
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1,619,000 Zimmer Holdings Inc.(2) 125,618
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1,690,959
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See Notes to Financial Statements. (continued)
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6
Ultra - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
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HEALTH CARE PROVIDERS & SERVICES -- 2.3%
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1,383,000 Cerner Corporation(1)(2) $ 62,442
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998,000 Patterson Companies, Inc.(2) 37,425
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5,860,000 UnitedHealth Group Incorporated 424,264
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524,131
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HOTELS, RESTAURANTS & LEISURE -- 4.9%
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3,959,434 Applebee's International Inc.(1)(3) 90,552
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2,347,000 Brinker International, Inc.(1)(2) 75,808
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5,363,000 Carnival Corporation 271,153
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2,754,000 Cheesecake Factory Inc.(1)(2)(3) 119,551
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8,711,000 International Game Technology(1) 287,812
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2,175,000 PF Chang's China
Bistro, Inc.(1)(2)(3) 110,577
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2,973,000 Starbucks Corporation(2) 157,212
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1,112,665
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HOUSEHOLD DURABLES -- 0.4%
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3,265,000 D.R. Horton, Inc. 97,950
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HOUSEHOLD PRODUCTS -- 1.7%
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1,726,000 Colgate-Palmolive Co. 77,014
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6,144,000 Procter & Gamble Co. (The) 314,450
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391,464
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INDUSTRIAL CONGLOMERATES -- 3.3%
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1,570,000 3M Co. 121,785
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9,613,000 General Electric Co. 327,995
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9,619,000 Tyco International Ltd. 299,632
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749,412
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INSURANCE -- 4.6%
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2,159,000 Aflac Inc. 77,465
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1,473,000 Ambac Financial Group, Inc. 114,982
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4,723,000 American International
Group, Inc.(1) 286,734
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2,821 Berkshire Hathaway Inc. Cl A(2) 237,669
- --------------------------------------------------------------------------------
73,870 Berkshire Hathaway Inc. Cl B(1)(2) 207,131
- --------------------------------------------------------------------------------
1,261,000 Progressive Corp. 117,967
- --------------------------------------------------------------------------------
1,041,948
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 3.9%
- --------------------------------------------------------------------------------
7,508,000 Amazon.com, Inc.(1)(2) 256,248
- --------------------------------------------------------------------------------
3,637,000 eBay Inc.(2) 355,008
- --------------------------------------------------------------------------------
12,279,000 IAC/InterActiveCorp(1)(2) 265,472
- --------------------------------------------------------------------------------
876,728
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 3.2%
- --------------------------------------------------------------------------------
3,764,000 Digital River Inc.(1)(2)(3) 125,341
- --------------------------------------------------------------------------------
2,638,000 Sina Corp.(1)(2)(3) 88,373
- --------------------------------------------------------------------------------
7,449,000 VeriSign, Inc.(1)(2) 199,857
- --------------------------------------------------------------------------------
8,738,000 Yahoo! Inc.(2) 316,228
- --------------------------------------------------------------------------------
729,799
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
IT SERVICES -- 4.3%
- --------------------------------------------------------------------------------
6,616,000 Accenture Ltd. Cl A(1)(2) $ 160,173
- --------------------------------------------------------------------------------
6,411,000 Checkfree Corp.(1)(2)(3) 198,741
- --------------------------------------------------------------------------------
3,274,000 Cognizant Technology
Solutions Corporation(1)(2) 111,316
- --------------------------------------------------------------------------------
7,793,000 First Data Corp. 321,695
- --------------------------------------------------------------------------------
5,286,000 Paychex, Inc. 173,349
- --------------------------------------------------------------------------------
965,274
- --------------------------------------------------------------------------------
MACHINERY -- 0.4%
- --------------------------------------------------------------------------------
1,462,000 Danaher Corp.(1) 80,600
- --------------------------------------------------------------------------------
MEDIA -- 2.0%
- --------------------------------------------------------------------------------
222,186 DreamWorks
Animation SKG Inc.(2) 8,676
- --------------------------------------------------------------------------------
2,108,000 McGraw-Hill
Companies, Inc. (The) 181,815
- --------------------------------------------------------------------------------
3,959,000 Univision
Communications Inc. Cl A(2) 122,571
- --------------------------------------------------------------------------------
1,618,000 Viacom, Inc. Cl B 59,041
- --------------------------------------------------------------------------------
2,575,000 XM Satellite Radio
Holdings Inc. Cl A(1)(2) 83,224
- --------------------------------------------------------------------------------
455,327
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.5%
- --------------------------------------------------------------------------------
2,725,000 Family Dollar Stores, Inc. 80,524
- --------------------------------------------------------------------------------
1,333,000 Kohl's Corp.(2) 67,663
- --------------------------------------------------------------------------------
3,813,000 Target Corporation 190,726
- --------------------------------------------------------------------------------
338,913
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.1%
- --------------------------------------------------------------------------------
505,000 Zebra Technologies Corp. Cl A(2) 26,760
- --------------------------------------------------------------------------------
OIL & GAS -- 3.7%
- --------------------------------------------------------------------------------
985,000 Anadarko Petroleum Corp. 66,438
- --------------------------------------------------------------------------------
3,546,000 Apache Corp. 179,782
- --------------------------------------------------------------------------------
599,000 BP plc ADR 34,892
- --------------------------------------------------------------------------------
2,038,000 Burlington Resources, Inc. 84,577
- --------------------------------------------------------------------------------
1,600,000 ChevronTexaco Corp. 84,896
- --------------------------------------------------------------------------------
419,000 EnCana Corp. 20,699
- --------------------------------------------------------------------------------
5,814,000 Exxon Mobil Corp. 286,165
- --------------------------------------------------------------------------------
1,377,000 Occidental Petroleum Corp. 76,878
- --------------------------------------------------------------------------------
834,327
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 0.8%
- --------------------------------------------------------------------------------
1,102,500 Alberto-Culver Company Cl B 49,458
- --------------------------------------------------------------------------------
2,065,000 Avon Products, Inc. 81,671
- --------------------------------------------------------------------------------
957,000 Estee Lauder Companies, Inc. Cl A 41,103
- --------------------------------------------------------------------------------
172,232
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
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7
Ultra - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 5.7%
- --------------------------------------------------------------------------------
596,000 Allergan, Inc. $ 42,650
- --------------------------------------------------------------------------------
2,403,000 American Pharmaceutical
Partners Inc.(1)(2) 67,092
- --------------------------------------------------------------------------------
2,536,000 Eli Lilly and Company 139,252
- --------------------------------------------------------------------------------
1,074,000 Forest Laboratories, Inc. Cl A(2) 47,900
- --------------------------------------------------------------------------------
5,057,000 Johnson & Johnson(1) 295,228
- --------------------------------------------------------------------------------
11,061,000 Pfizer, Inc. 320,216
- --------------------------------------------------------------------------------
1,727,000 Schering-Plough Corp.(1) 31,276
- --------------------------------------------------------------------------------
13,411,000 Teva Pharmaceutical
Industries Ltd. ADR(1) 348,685
- --------------------------------------------------------------------------------
1,292,299
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 4.1%
- --------------------------------------------------------------------------------
2,612,000 Analog Devices, Inc. 105,159
- --------------------------------------------------------------------------------
3,808,000 Applied Materials, Inc.(2) 61,309
- --------------------------------------------------------------------------------
9,327,000 Intel Corp. 207,618
- --------------------------------------------------------------------------------
1,556,000 KLA-Tencor Corp.(1)(2) 70,845
- --------------------------------------------------------------------------------
3,399,000 Maxim Integrated Products, Inc. 149,522
- --------------------------------------------------------------------------------
5,936,000 Microchip Technology Inc.(1) 179,564
- --------------------------------------------------------------------------------
4,648,000 Xilinx, Inc. 142,229
- --------------------------------------------------------------------------------
916,246
- --------------------------------------------------------------------------------
SOFTWARE -- 6.3%
- --------------------------------------------------------------------------------
1,327,000 Adobe Systems Inc.(1) 74,352
- --------------------------------------------------------------------------------
6,299,000 Electronic Arts Inc.(1)(2) 282,951
- --------------------------------------------------------------------------------
3,632,000 Intuit Inc.(2) 164,748
- --------------------------------------------------------------------------------
14,529,000 Microsoft Corporation 406,666
- --------------------------------------------------------------------------------
1,103,571 NAVTEQ Corp.(1)(2) 44,485
- --------------------------------------------------------------------------------
11,118,000 Oracle Corp.(2) 140,754
- --------------------------------------------------------------------------------
1,509,000 SAP AG ADR(1) 64,359
- --------------------------------------------------------------------------------
2,161,000 Symantec Corp.(1)(2) 123,047
- --------------------------------------------------------------------------------
4,928,000 Veritas Software Corp.(2) 107,825
- --------------------------------------------------------------------------------
1,409,187
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 5.8%
- --------------------------------------------------------------------------------
4,976,000 Bed Bath & Beyond Inc.(2) $ 202,971
- --------------------------------------------------------------------------------
4,669,000 Carmax, Inc.(1)(2) 122,981
- --------------------------------------------------------------------------------
2,831,000 Chico's FAS, Inc.(1)(2) 113,325
- --------------------------------------------------------------------------------
5,312,000 Home Depot, Inc. 218,217
- --------------------------------------------------------------------------------
5,089,000 Lowe's Companies, Inc. 286,410
- --------------------------------------------------------------------------------
3,514,000 Michaels Stores, Inc.(1) 102,257
- --------------------------------------------------------------------------------
4,563,000 PETsMART, Inc.(1) 145,925
- --------------------------------------------------------------------------------
1,132,000 TJX Companies, Inc. (The) 27,145
- --------------------------------------------------------------------------------
2,439,000 Weight Watchers
International Inc.(1)(2) 87,609
- --------------------------------------------------------------------------------
1,306,840
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.4%
- --------------------------------------------------------------------------------
1,723,000 Coach Inc.(2) 80,343
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 0.6%
- --------------------------------------------------------------------------------
1,193,000 Golden West Financial Corp. 139,486
- --------------------------------------------------------------------------------
TOBACCO -- 0.1%
- --------------------------------------------------------------------------------
515,000 Altria Group Inc. 24,957
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.7%
- --------------------------------------------------------------------------------
5,180,000 Nextel Communications, Inc.(2) 137,218
- --------------------------------------------------------------------------------
331,242 NII Holdings Inc. Cl B(1)(2) 14,664
- --------------------------------------------------------------------------------
151,882
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $15,956,977) 22,076,106
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 1.7%
Repurchase Agreement, Morgan Stanley
Group, Inc., (collateralized by various U.S.
Treasury obligations, 5.25%, 11/15/28,
valued at $307,404), in a joint trading
account at 1.79%, dated 10/29/04,
due 11/1/04 (Delivery value $300,045) 300,000
- --------------------------------------------------------------------------------
Repurchase Agreement, State Street Corp.,
(collateralized by various U.S. Treasury
obligations, 8.125%, 8/15/19,
valued at $81,861), in a joint trading
account at 1.75%, dated 10/29/04,
due 11/1/04 (Delivery value $80,212) 80,200
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $380,200) 380,200
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
Ultra - Schedule of Investments
OCTOBER 31, 2004
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
COLLATERAL RECEIVED
FOR SECURITIES LENDING(4) -- 4.2%
REPURCHASE AGREEMENTS -- 3.6%
- --------------------------------------------------------------------------------
Repurchase Agreement, Barclays Bank plc,
(collateralized by various U.S. Government
Agency obligations), 1.87%,
dated 10/29/04, due 11/1/04
(Delivery value $100,016) $ 100,000
- --------------------------------------------------------------------------------
Repurchase Agreement, UBS AG,
(collateralized by various U.S. Government
Agency obligations), 1.875%,
dated 10/29/04, due 11/1/04
(Delivery value $722,732) 722,619
- --------------------------------------------------------------------------------
822,619
- --------------------------------------------------------------------------------
SHORT-TERM DEBT -- 0.6%
- --------------------------------------------------------------------------------
$40,000 Bayerische Landesbank
Girozentrale, VRN, 1.85%,
11/1/04, resets daily off the
Federal Funds rate plus 0.06%
with no caps 39,993
- --------------------------------------------------------------------------------
82,000 Morgan Stanley, VRN,
2.06%, 11/1/04 82,000
- --------------------------------------------------------------------------------
3,993 National City Bank of Indiana,
VRN, 1.81%, 11/1/04, resets
daily off the Prime rate minus
2.94% with no caps 3,992
- --------------------------------------------------------------------------------
125,985
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED
FOR SECURITIES LENDING
(Cost $948,604) 948,604
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 104.0%
(Cost $17,285,781) 23,404,910
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (4.0)% (894,102)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $22,510,808
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon
will vary significantly from current market rates.
VRN = Variable Rate Note. Interest reset date is indicated, unless otherwise
noted. Rate shown is effective October 31, 2004.
(1) Security, or a portion thereof, was on loan as of October 31, 2004.
(2) Non-income producing.
(3) Affiliated Company: the fund's holding represents ownership of 5% or
more of the voting securities of the company; therefore, the company is
affiliated as defined in the Investment Company Act of 1940. (See Note 5 in
Notes to Financial Statements for a summary of transactions for each
company which is or was an affiliate at or during the year ended October
31, 2004.)
(4) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions. (See Note 6 in
Notes to Financial Statements.)
See Notes to Financial Statements.
- ------
9
Vista - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
----------------------------------
AVERAGE ANNUAL RETURNS
- -------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- -------------------------------------------------------------------------------
INVESTOR CLASS 9.77% 5.15% 8.45% 10.38% 11/25/83
- -------------------------------------------------------------------------------
RUSSELL MIDCAP
GROWTH INDEX 8.77% -0.19% 9.81% N/A(1) --
- -------------------------------------------------------------------------------
Institutional Class 9.99% 5.35% -- 5.02% 11/14/96
- -------------------------------------------------------------------------------
Advisor Class 9.56% 4.90% -- 3.61% 10/2/96
- -------------------------------------------------------------------------------
C Class 8.71% -- -- 1.63% 7/18/01
- -------------------------------------------------------------------------------
(1) Benchmark began 12/31/85.
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.
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.
(continued)
- ------
10
Vista - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made October 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended October 31
- -------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
- -------------------------------------------------------------------------------------------------
Investor Class 44.20% 6.96% 0.29% -31.94% 66.24% 66.16% -37.48% -12.90% 29.41% 9.77%
- -------------------------------------------------------------------------------------------------
Russell Midcap
Growth Index 24.24% 17.95% 24.61% 2.43% 37.66% 38.67% -42.78% -17.61% 39.30% 8.77%
- -------------------------------------------------------------------------------------------------
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.
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.
- ------
11
Vista - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE VISTA INVESTMENT TEAM: GLENN FOGLE AND DAVID M.
HOLLOND.
Vista gained 9.77%* in the twelve months ended October 31, 2004, outperforming
its benchmark, the Russell Midcap Growth Index, which rose 8.77%. Vista also
surpassed the 5.68% average return of its Morningstar Mid-Cap Growth peer group.
During the year, Vista's management team changed. Portfolio manager David Rose
moved to another American Century team in March. David Hollond, who has been an
analyst on the Vista team since 1998, was promoted to portfolio manager.
Corporate earnings reached 10-year highs in the fourth quarter of 2003 amid
strong economic growth and low inflation. Against this backdrop, the broad
market, as measured by the S&P 500, jumped 8% in the first three months of the
period covered by this report. But stock market gains eroded over the summer.
The price of crude oil jumped 78% to $51.78 a barrel, short-term interest rates
climbed on the back of three interest rate hikes, and the annual real rate of
economic growth decelerated from its 7.4% rate in the third quarter of 2003 to
3.9% by the third quarter of 2004.
Given high oil prices, it's not surprising that energy was one of the
top-performing sectors in the market. Information technology was the
bottom-performing sector. The small-cap stock indices outperformed the
large-cap, and the value discipline significantly outperformed growth.
In this environment, Vista's health care stake led the portfolio's advance
during the period, posting gains in all four of the sector's industries. By far
the biggest gains came from the health care providers and services industry.
Aetna was a top contributor as its earnings soared and the health insurer raised
its earnings outlook, buoyed by profitable enrollment growth.
Vista's financial stake ended the fiscal year as a leading contributor to
returns. Chicago Mercantile Exchange Holdings
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
NII Holdings Inc. Cl B 3.6% 3.3%
- --------------------------------------------------------------------------------
TXU Corp. 3.0% --
- --------------------------------------------------------------------------------
QUALCOMM Inc. 2.5% --
- --------------------------------------------------------------------------------
Chicago Mercantile
Exchange Holdings Inc. 2.4% --
- --------------------------------------------------------------------------------
Symantec Corp. 2.3% 0.5%
- --------------------------------------------------------------------------------
Cooper Companies,
Inc. (The) 2.3% --
- --------------------------------------------------------------------------------
Textron Inc. 2.3% --
- --------------------------------------------------------------------------------
Aetna Inc. 2.2% 2.9%
- --------------------------------------------------------------------------------
American Eagle
Outfitters, Inc. 2.1% --
- --------------------------------------------------------------------------------
Yellow Roadway Corp. 2.1% 0.8%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary
are for Investor Class shares. (continued)
- ------
12
Vista - Portfolio Commentary
was among the standouts as trading volume and profits grew at the country's
largest futures exchange.
Companies within the consumer discretionary sector also turned in strong
results, led by casino-related stocks. On the negative side, slot machine maker
WMS Industries detracted from returns during the period.
An underweight position and effective stock selection drove Vista's information
technology position to better returns than its benchmark's. Research in Motion
was the portfolio's top contributor as the company posted strong profits on
brisk sales of its BlackBerry(reg.sm) wireless e-mail device. Citing further
expected gains in BlackBerry subscribers, the company also increased its revenue
and earnings guidance. On the negative side, OmniVision Technologies, which
manufactures chips used in digital cameras and other electronic imaging
products, declined on concern that increasing competition could depress prices
and hamper margins.
In the industrials sector, for-profit, post-secondary education schools came
under pressure due to a number of high-profile problems at some schools.
Corinthian Colleges was a top detractor during the period. With negative
sentiment already dogging for-profit schools, the company lowered its earnings
and revenue forecasts, blaming higher marketing expenses and slowing enrollment
trends.
OUR COMMITMENT
The Vista team remains committed to American Century's growth investment
approach that has been in place for more than thirty years. They will continue
to look for mid-sized and smaller companies with earnings, revenues and other
key business fundamentals that are growing at an accelerating rate.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Software 8.1% 5.2%
- --------------------------------------------------------------------------------
Hotels, Restaurants
& Leisure 7.3% 5.5%
- --------------------------------------------------------------------------------
Machinery 6.9% 2.3%
- --------------------------------------------------------------------------------
Energy Equipment
& Services 6.6% 1.5%
- --------------------------------------------------------------------------------
Health Care
Equipment & Supplies 6.3% 7.9%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 96.7% 95.5%
- --------------------------------------------------------------------------------
Temporary
Cash Investments 2.9% 2.9%
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES 99.6% 98.4%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities 0.4% 1.6%
- --------------------------------------------------------------------------------
- ------
13
Vista - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.7%
AEROSPACE & DEFENSE -- 1.0%
- --------------------------------------------------------------------------------
115,000 L-3 Communications
Holdings, Inc. $ 7,582
- --------------------------------------------------------------------------------
125,000 Precision Castparts Corp. 7,500
- --------------------------------------------------------------------------------
15,082
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 4.4%
- --------------------------------------------------------------------------------
503,458 CNF Inc. 22,041
- --------------------------------------------------------------------------------
515,000 Expeditors International
of Washington, Inc. 29,406
- --------------------------------------------------------------------------------
345,000 Ryder System, Inc. 17,285
- --------------------------------------------------------------------------------
68,732
- --------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.6%
- --------------------------------------------------------------------------------
274,813 Masco Corp. 9,415
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 2.5%
- --------------------------------------------------------------------------------
391,000 East West BanCorp, Inc. 15,656
- --------------------------------------------------------------------------------
538,000 North Fork Bancorporation, Inc. 23,725
- --------------------------------------------------------------------------------
39,381
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 2.1%
- --------------------------------------------------------------------------------
906,410 Copart Inc.(1) 16,841
- --------------------------------------------------------------------------------
125,000 Corporate Executive
Board Co. (The) 7,956
- --------------------------------------------------------------------------------
277,000 Monster Worldwide Inc.(1) 7,770
- --------------------------------------------------------------------------------
32,567
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 5.5%
- --------------------------------------------------------------------------------
240,000 F5 Networks, Inc.(1) 9,588
- --------------------------------------------------------------------------------
590,000 Juniper Networks, Inc.(1) 15,700
- --------------------------------------------------------------------------------
946,000 QUALCOMM Inc. 39,552
- --------------------------------------------------------------------------------
245,000 Research In Motion Ltd.(1) 21,609
- --------------------------------------------------------------------------------
86,449
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.3%
- --------------------------------------------------------------------------------
517,000 Apple Computer, Inc.(1) 27,158
- --------------------------------------------------------------------------------
155,000 NCR Corp.(1) 8,734
- --------------------------------------------------------------------------------
35,892
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 2.4%
- --------------------------------------------------------------------------------
215,000 Chicago Mercantile Exchange
Holdings Inc. 37,782
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 3.0%
- --------------------------------------------------------------------------------
780,000 TXU Corp. 47,752
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.6%
- --------------------------------------------------------------------------------
593,000 Rockwell Automation Inc. 24,722
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.5%
- --------------------------------------------------------------------------------
228,000 Amphenol Corp. Cl A(1) 7,827
- --------------------------------------------------------------------------------
211,000 Anixter International Inc. 8,153
- --------------------------------------------------------------------------------
349,414 Paxar Corp.(1) 7,705
- --------------------------------------------------------------------------------
23,685
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 6.6%
- --------------------------------------------------------------------------------
305,000 BJ Services Co. $ 15,554
- --------------------------------------------------------------------------------
260,000 Diamond Offshore Drilling, Inc. 8,788
- --------------------------------------------------------------------------------
491,000 ENSCO International Inc. 15,000
- --------------------------------------------------------------------------------
245,000 Global SantaFe Corp. 7,228
- --------------------------------------------------------------------------------
156,388 Lone Star Technologies, Inc.(1) 4,129
- --------------------------------------------------------------------------------
452,000 National-Oilwell, Inc.(1) 15,237
- --------------------------------------------------------------------------------
165,000 Noble Corp.(1) 7,537
- --------------------------------------------------------------------------------
260,000 Smith International, Inc.(1) 15,101
- --------------------------------------------------------------------------------
288,000 Weatherford International Ltd.(1) 15,051
- --------------------------------------------------------------------------------
103,625
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 6.3%
- --------------------------------------------------------------------------------
409,000 Advanced Medical Optics Inc.(1) 15,992
- --------------------------------------------------------------------------------
305,007 Boston Scientific Corp.(1) 10,767
- --------------------------------------------------------------------------------
508,000 Cooper Companies, Inc. (The) 35,738
- --------------------------------------------------------------------------------
122,909 Cytyc Corp.(1) 3,207
- --------------------------------------------------------------------------------
140,000 Fisher Scientific International(1) 8,030
- --------------------------------------------------------------------------------
473,000 Mentor Corp. 16,460
- --------------------------------------------------------------------------------
103,000 St. Jude Medical, Inc.(1) 7,887
- --------------------------------------------------------------------------------
98,081
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 2.2%
- --------------------------------------------------------------------------------
360,000 Aetna Inc. 34,200
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 7.3%
- --------------------------------------------------------------------------------
802,000 Boyd Gaming Corp. 26,859
- --------------------------------------------------------------------------------
139,000 Harrah's Entertainment, Inc. 8,134
- --------------------------------------------------------------------------------
177,000 Red Robin Gourmet Burgers Inc.(1) 7,383
- --------------------------------------------------------------------------------
316,000 Royal Caribbean Cruises Ltd. 14,726
- --------------------------------------------------------------------------------
638,000 Station Casinos Inc. 32,506
- --------------------------------------------------------------------------------
817,000 WMS Industries Inc.(1) 23,897
- --------------------------------------------------------------------------------
113,505
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.6%
- --------------------------------------------------------------------------------
200,000 Garmin Ltd. 10,000
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 2.3%
- --------------------------------------------------------------------------------
519,000 Textron Inc. 35,370
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 2.4%
- --------------------------------------------------------------------------------
235,000 Ask Jeeves, Inc.(1) 6,058
- --------------------------------------------------------------------------------
195,000 Websense Inc.(1) 7,911
- --------------------------------------------------------------------------------
652,000 Yahoo! Inc.(1) 23,596
- --------------------------------------------------------------------------------
37,565
- --------------------------------------------------------------------------------
IT SERVICES -- 1.6%
- --------------------------------------------------------------------------------
139,000 CACI International Inc.(1) 8,475
- --------------------------------------------------------------------------------
251,000 Cognizant Technology
Solutions Corporation(1) 8,533
- --------------------------------------------------------------------------------
125,000 Infosys Technologies Ltd. ADR 8,313
- --------------------------------------------------------------------------------
25,321
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.5%
- --------------------------------------------------------------------------------
171,000 Brunswick Corp. 8,023
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
14
Vista - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
MACHINERY -- 6.9%
- --------------------------------------------------------------------------------
466,000 Cummins Inc. $ 32,658
- --------------------------------------------------------------------------------
28,506 Eaton Corp. 1,823
- --------------------------------------------------------------------------------
413,000 Paccar Inc. 28,625
- --------------------------------------------------------------------------------
338,000 Parker-Hannifin Corp. 23,873
- --------------------------------------------------------------------------------
551,000 Pentair, Inc. 20,596
- --------------------------------------------------------------------------------
107,575
- --------------------------------------------------------------------------------
MEDIA -- 0.5%
- --------------------------------------------------------------------------------
-- KDG Investments
Limited Partnership
(Acquired 7/7/00-5/15/01,
Cost $20,000)(1)(2)(3) 557
- --------------------------------------------------------------------------------
95,000 Pixar(1) 7,640
- --------------------------------------------------------------------------------
8,197
- --------------------------------------------------------------------------------
METALS & MINING -- 1.7%
- --------------------------------------------------------------------------------
535,000 Cia Vale do Rio Doce ADR 11,320
- --------------------------------------------------------------------------------
191,000 Nucor Corp. 8,066
- --------------------------------------------------------------------------------
92,000 Phelps Dodge Corp. 8,054
- --------------------------------------------------------------------------------
27,440
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 1.7%
- --------------------------------------------------------------------------------
500,000 Zebra Technologies Corp. Cl A(1) 26,495
- --------------------------------------------------------------------------------
OIL & GAS -- 4.8%
- --------------------------------------------------------------------------------
222,000 EOG Resources Inc. 14,776
- --------------------------------------------------------------------------------
145,000 Murphy Oil Corp. 11,603
- --------------------------------------------------------------------------------
205,000 Teekay Shipping Corp. 9,471
- --------------------------------------------------------------------------------
359,000 Valero Energy Corp. 15,426
- --------------------------------------------------------------------------------
395,000 Western Gas Resources Inc. 11,570
- --------------------------------------------------------------------------------
390,000 XTO Energy Inc. 13,018
- --------------------------------------------------------------------------------
75,864
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 0.4%
- --------------------------------------------------------------------------------
272,031 First Horizon Pharmaceutical
Corporation(1) 6,687
- --------------------------------------------------------------------------------
ROAD & RAIL -- 4.2%
- --------------------------------------------------------------------------------
284,000 Burlington Northern Santa Fe Corp. 11,874
- --------------------------------------------------------------------------------
165,000 Canadian National Railway Co. 8,918
- --------------------------------------------------------------------------------
351,000 Norfolk Southern Corp. 11,916
- --------------------------------------------------------------------------------
685,000 Yellow Roadway Corp.(1) 32,874
- --------------------------------------------------------------------------------
65,582
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 2.1%
- --------------------------------------------------------------------------------
190,000 Analog Devices, Inc. 7,649
- --------------------------------------------------------------------------------
513,000 Cree Inc.(1) 17,704
- --------------------------------------------------------------------------------
492,000 Microsemi Corporation(1) 7,646
- --------------------------------------------------------------------------------
32,999
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
SOFTWARE -- 8.1%
- --------------------------------------------------------------------------------
289,000 Adobe Systems Inc. $ 16,193
- --------------------------------------------------------------------------------
821,000 Citrix Systems, Inc.(1) 19,811
- --------------------------------------------------------------------------------
336,708 Cognos, Inc.(1) 13,303
- --------------------------------------------------------------------------------
386,000 Internet Security Systems(1) 8,399
- --------------------------------------------------------------------------------
316,000 McAfee Inc.(1) 7,647
- --------------------------------------------------------------------------------
640,000 Symantec Corp.(1) 36,442
- --------------------------------------------------------------------------------
2,491,000 TIBCO Software Inc.(1) 24,213
- --------------------------------------------------------------------------------
126,008
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 3.2%
- --------------------------------------------------------------------------------
825,000 American Eagle Outfitters, Inc. 33,726
- --------------------------------------------------------------------------------
416,000 Urban Outfitters Inc.(1) 17,056
- --------------------------------------------------------------------------------
50,782
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.5%
- --------------------------------------------------------------------------------
208,000 Deckers Outdoor Corp.(1) 7,875
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 0.8%
- --------------------------------------------------------------------------------
657,000 W Holding Company, Inc. 13,133
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS -- 0.5%
- --------------------------------------------------------------------------------
243,000 MSC Industrial Direct Co. 8,296
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES -- 4.6%
- --------------------------------------------------------------------------------
1,583,000 Alamosa Holdings Inc.(1) 15,885
- --------------------------------------------------------------------------------
1,286,000 NII Holdings Inc. Cl B(1) 56,932
- --------------------------------------------------------------------------------
72,817
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,309,932) 1,516,899
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 2.9%
Repurchase Agreement, Deutsche Bank
Securities, Inc., (collateralized by various
U.S. Treasury obligations, 2.00% - 6.50%,
5/15/06 - 10/15/06, valued at $2,561),
in a joint trading account at 1.74%,
dated 10/29/04, due 11/1/04
(Delivery value $2,500) 2,500
- --------------------------------------------------------------------------------
Repurchase Agreement, State Street Corp.,
(collateralized by various U.S. Treasury
obligations, 8.125%, 8/15/19, valued at $44,401),
in a joint trading account at 1.75%,
dated 10/29/04, due 11/1/04
(Delivery value $43,506) 43,500
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $46,000) 46,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 99.6%
(Cost $1,355,932) 1,562,899
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.4% 6,343
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $1,569,242
================================================================================
See Notes to Financial Statements. (continued)
- ------
15
Vista - Schedule of Investments
OCTOBER 31, 2004
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
($ IN THOUSANDS)
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
78,397 Euro for USD 11/30/04 $100 $--
- --------------------------------------------------------------------------------
89,063 Euro for USD 11/30/04 114 --
- --------------------------------------------------------------------------------
138,281 Euro for USD 11/30/04 177 --
- --------------------------------------------------------------------------------
$391 $--
====================================
(Value on Settlement Date $391)
*FORWARD FOREIGN CURRENCY EXCHANGE contracts are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the fund to
exchange a foreign currency for U.S. dollars on a specific date in the
future -- and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
USD = United States Dollar
(1) Non-income producing.
(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 restricted securities at October 31, 2004, was $557 (in
thousands), which represented 0.04% of net assets.
(3) Indicates a fair valued security which has not been valued utilizing an
independent quote but has been valued pursuant to guidelines established by
the Board of Directors. The aggregate value of fair valued securities at
October 31, 2004, was $557 (in thousands), which is 0.04% of net assets.
See Notes to Financial Statements.
- ------
16
Shareholder Fee Examples (Unaudited)
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 May 1, 2004 to October 31, 2004.
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 fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century 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 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
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.
(continued)
- ------
17
Shareholder Fee Examples (Unaudited)
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.
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 5/1/04 - EXPENSE
5/1/04 10/31/04 10/31/04 RATIO*
- --------------------------------------------------------------------------------
ULTRA SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL:
- --------------------------------------------------------------------------------
Investor Class $1,000 $998.50 $4.97 0.99%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $999.30 $3.97 0.79%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $997.00 $6.22 1.24%
- --------------------------------------------------------------------------------
C Class $1,000 $993.20 $9.97 1.99%
- --------------------------------------------------------------------------------
R Class $1,000 $995.90 $7.48 1.49%
- --------------------------------------------------------------------------------
HYPOTHETICAL:
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,020.16 $5.03 0.99%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $1,021.17 $4.01 0.79%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,018.90 $6.29 1.24%
- --------------------------------------------------------------------------------
C Class $1,000 $1,015.13 $10.08 1.99%
- --------------------------------------------------------------------------------
R Class $1,000 $1,017.65 $7.56 1.49%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VISTA SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL:
- --------------------------------------------------------------------------------
Investor Class $1,000 $987.20 $5.00 1.00%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $988.10 $4.00 0.80%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $986.30 $6.24 1.25%
- --------------------------------------------------------------------------------
C Class $1,000 $983.00 $9.97 2.00%
- --------------------------------------------------------------------------------
HYPOTHETICAL:
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,020.11 $5.08 1.00%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $1,021.11 $4.06 0.80%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,018.85 $6.34 1.25%
- --------------------------------------------------------------------------------
C Class $1,000 $1,015.08 $10.13 2.00%
- --------------------------------------------------------------------------------
*Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
184, the number of days in the most recent fiscal half-year, divided by 366,
to reflect the one-half year period.
- ------
18
Statement of Assets and Liabilities
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) ULTRA VISTA
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities -- unaffiliated,
at value (cost of $15,591,011
and $1,355,932, respectively) --
including $763,687 and $- of
securities on loan, respectively $21,560,722 $1,562,899
- --------------------------------------------
Investment securities -- affiliated,
at value (cost of $746,166
and $-, respectively) --
including $164,350 and $- of
securities on loan, respectively 895,584 --
- --------------------------------------------
Investments made with cash
collateral received for securities
on loan, at value (cost of $948,604
and $-, respectively) 948,604 --
- --------------------------------------------------------------------------------
Total investment securities,
at value (cost of $17,285,781
and $1,355,932, respectively) 23,404,910 1,562,899
- --------------------------------------------
Receivable for investments sold 77,865 104,485
- --------------------------------------------
Receivable for capital shares sold 729 225
- --------------------------------------------
Dividends and interest receivable 9,871 804
- --------------------------------------------------------------------------------
23,493,375 1,668,413
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for collateral received
for securities on loan 948,604 --
- --------------------------------------------
Disbursements in excess
of demand deposit cash 7,328 1,965
- --------------------------------------------
Payable for investments purchased 7,873 95,879
- --------------------------------------------
Accrued management fees 18,448 1,282
- --------------------------------------------
Distribution fees payable 159 23
- --------------------------------------------
Service fees (and distribution
fees -- R Class) payable 155 22
- --------------------------------------------------------------------------------
982,567 99,171
- --------------------------------------------------------------------------------
NET ASSETS $22,510,808 $1,569,242
================================================================================
See Notes to Financial Statements. (continued)
- ------
19
Statement of Assets and Liabilities
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) ULTRA VISTA
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $19,107,104 $1,604,192
- --------------------------------------------
Accumulated net realized loss
on investment and foreign
currency transactions (2,715,425) (241,917)
- --------------------------------------------
Net unrealized appreciation
on investments and translation
of assets and liabilities
in foreign currencies 6,119,129 206,967
- --------------------------------------------------------------------------------
$22,510,808 $1,569,242
================================================================================
INVESTOR CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $20,708,250,105 $1,418,305,759
- --------------------------------------------
Shares outstanding 762,182,453 107,902,711
- --------------------------------------------
Net asset value per share $27.17 $13.14
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $1,055,144,872 $42,747,342
- --------------------------------------------
Shares outstanding 38,447,861 3,208,307
- --------------------------------------------
Net asset value per share $27.44 $13.32
- --------------------------------------------------------------------------------
ADVISOR CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $738,032,090 $106,750,064
- --------------------------------------------
Shares outstanding 27,485,109 8,245,038
- --------------------------------------------
Net asset value per share $26.85 $12.95
- --------------------------------------------------------------------------------
C CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $4,836,311 $1,438,583
- --------------------------------------------
Shares outstanding 182,909 113,026
- --------------------------------------------
Net asset value per share $26.44 $12.73
- --------------------------------------------------------------------------------
R CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $4,544,564 N/A
- --------------------------------------------
Shares outstanding 168,261 N/A
- --------------------------------------------
Net asset value per share $27.01 N/A
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
20
Statement of Operations
YEAR ENDED OCTOBER 31, 2004
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) ULTRA VISTA
- --------------------------------------------------------------------------------
INVESTMENT LOSS
- --------------------------------------------------------------------------------
INCOME:
- --------------------------------------------
Dividends (including $1,094
from affiliates in Ultra and
net of foreign taxes
withheld of $770 and
$64, respectively) $ 176,525 $ 7,193
- --------------------------------------------
Interest 2,711 492
- --------------------------------------------
Securities lending 3,475 --
- --------------------------------------------------------------------------------
182,711 7,685
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------
Management fees 224,856 14,415
- --------------------------------------------
Distribution fees:
- --------------------------------------------
Advisor Class 1,777 113
- --------------------------------------------
C Class 33 8
- --------------------------------------------
Service fees:
- --------------------------------------------
Advisor Class 1,777 113
- --------------------------------------------
C Class 11 3
- --------------------------------------------
Service and distribution fees -- R Class 10 --
- --------------------------------------------
Directors' fees and expenses 350 22
- --------------------------------------------
Other expenses 120 18
- --------------------------------------------------------------------------------
228,934 14,692
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (46,223) (7,007)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment
and foreign currency transactions
(including $(105,008) from
affiliates in Ultra) 1,073,441 160,012
- --------------------------------------------
Change in net unrealized
appreciation on investments
and translation of assets and
liabilities in foreign currencies (17,867) (33,247)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 1,055,574 126,765
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,009,351 $119,758
================================================================================
See Notes to Financial Statements.
- ------
21
Statement of Changes in Net Assets
YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) ULTRA VISTA
- --------------------------------------------------------------------------------
INCREASE (DECREASE)
IN NET ASSETS 2004 2003 2004 2003
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment loss $ (46,223) $ (16,642) $ (7,007) $ (6,036)
- ----------------------
Net realized
gain (loss) 1,073,441 (143,036) 160,012 101,437
- ----------------------
Change in net
unrealized
appreciation (17,867) 3,892,939 (33,247) 193,426
- --------------------------------------------------------------------------------
Net increase in
net assets resulting
from operations 1,009,351 3,733,261 119,758 288,827
- --------------------------------------------------------------------------------
DISTRIBUTIONS
TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net
investment income:
- ----------------------
Investor Class -- (53,614) -- --
- ----------------------
Institutional Class -- (2,704) -- --
- ----------------------
Advisor Class -- (160) -- --
- --------------------------------------------------------------------------------
Decrease in net assets
from distributions -- (56,478) -- --
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase (decrease)
in net assets from
capital share
transactions (1,307,713) (432,605) 157,574 (11,897)
- --------------------------------------------------------------------------------
NET INCREASE
(DECREASE)
IN NET ASSETS (298,362) 3,244,178 277,332 276,930
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 22,809,170 19,564,992 1,291,910 1,014,980
- --------------------------------------------------------------------------------
End of period $22,510,808 $22,809,170 $1,569,242 $1,291,910
================================================================================
Accumulated net
investment loss -- -- -- $(164)
================================================================================
See Notes to Financial Statements.
- ------
22
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Ultra Fund (Ultra) and Vista Fund
(Vista) (collectively, the funds) are two funds in a series issued by the
corporation. The funds are diversified under the 1940 Act. The funds' investment
objective is to seek long-term capital growth. The funds pursue this objective
by investing primarily in equity securities. Ultra generally invests in equity
securities of large companies, but may invest in companies of any size. Vista
generally invests in companies that are medium-sized and smaller, but may invest
in companies of any size. The following is a summary of the funds' significant
accounting policies.
MULTIPLE CLASS -- Ultra is authorized to issue the Investor Class, the
Institutional Class, the Advisor Class, the C Class and the R Class. Vista is
authorized to issue the Investor Class, the Institutional Class, the Advisor
Class and the C Class. The C Class may be subject to a contingent deferred sales
charge. The share classes differ principally in their respective sales charges
and shareholder servicing and distribution expenses and arrangements. All shares
of each 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 funds are allocated to each class of shares
based on their relative net assets. Sale of the R Class for Ultra commenced on
August 29, 2003.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. 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 close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
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.
SECURITIES ON LOAN -- Ultra may lend portfolio securities through its lending
agent to certain approved borrowers in order to earn additional income. Ultra
continues to recognize any gain or loss in the market price of the securities
loaned and records any interest earned or dividends declared.
FUTURES CONTRACTS -- The funds may enter into futures contracts in order to
manage the funds' exposure to changes in market conditions. 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. Upon entering into a futures contract, the funds are required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the funds. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The funds recognize a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
(continued)
- ------
23
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially expressed
in foreign currencies are translated into U.S. dollars at prevailing exchange
rates at period end. Purchases and sales of investment securities, dividend and
interest income, and certain expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions. For assets and
liabilities, other than investments in securities, net realized and unrealized
gains and losses from foreign currency translations arise from changes in
currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of investment securities are a component of realized
gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose taxes
on the contract amount of purchases and sales of foreign currency contracts in
their currency. The funds record the foreign tax expense, if any, as a reduction
to the net realized gain (loss) on foreign currency transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The funds may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the funds' exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the funds and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The funds bear the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that ACIM has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. Each fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable each 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 each fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, each fund, along with other registered investment
companies having management agreements with ACIM, 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 each 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. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
USE OF ESTIMATES -- 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.
(continued)
- ------
24
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement with
ACIM, under which ACIM provides the funds 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 the funds, except
brokerage commissions, taxes, interest, fees and expenses of those directors who
are not considered "interested persons" as defined in the 1940 Act (including
counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is
computed and accrued daily based on the daily net assets of the specific class
of shares of each fund and paid monthly in arrears. For funds with a stepped fee
schedule, the rate of the fee is determined by applying a fee rate calculation
formula. This formula takes into account all of the investment manager's assets
under management in each fund's investment strategy (strategy assets) to
calculate the appropriate fee rate for each fund. The strategy assets include
each fund's assets and the assets of other clients of the investment manager
that are not in the American Century family of funds but that have the same
investment team and investment strategy.
The annual management fee for Vista is 1.00%, 0.80%, 0.75%, and 1.00% for the
Investor Class, Institutional Class, Advisor Class, and C Class, respectively.
The annual management fee schedule for each class of Ultra is as follows:
- --------------------------------------------------------------------------------
INVESTOR, C
AND R INSTITUTIONAL ADVISOR
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $20 billion 1.000% 0.800% 0.750%
- --------------------------------------------------------------------------------
Next $10 billion 0.950% 0.750% 0.700%
- --------------------------------------------------------------------------------
Next $10 billion 0.925% 0.725% 0.675%
- --------------------------------------------------------------------------------
Next $10 billion 0.900% 0.700% 0.650%
- --------------------------------------------------------------------------------
Over $50 billion 0.875% 0.675% 0.625%
- --------------------------------------------------------------------------------
For the year ended October 31, 2004, the effective annual management fee for
Ultra was 0.99%, 0.79%, 0.74%, 0.99% and 0.99% for the Investor Class,
Institutional Class, Advisor Class, C Class and R Class, respectively.
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a Master
Distribution and Shareholder Services Plan for the Advisor Class (the Advisor
Class plan) and a separate Master Distribution and Individual Shareholder
Services Plan for each of the C Class and R Class (collectively with the Advisor
Class Plan, the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans
provide that the Advisor Class and C Class will pay American Century Investment
Services, Inc. (ACIS) the following annual distribution and service fees:
- --------------------------------------------------------------------------------
ADVISOR C
- --------------------------------------------------------------------------------
Distribution Fee 0.25% 0.75%
- --------------------------------------------------------------------------------
Service Fee 0.25% 0.25%
- --------------------------------------------------------------------------------
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 distribution fee
provides compensation for expenses incurred in connection with distributing
shares of the classes including, but not limited to, payments to brokers,
dealers, and financial institutions that have entered into sales agreements with
respect to shares of the funds. The service fee provides compensation for
shareholder and administrative services rendered by ACIS, its affiliates or
independent third party providers for Advisor Class shares and for individual
shareholder services rendered by broker/dealers or other independent financial
intermediaries for C Class and R Class shares. Fees incurred under the plans
during the year ended October 31, 2004, are detailed in the Statement of
Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
manager, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services Corporation.
(continued)
- ------
25
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
During the year ended October 31, 2004, the funds invested in a money market
fund for temporary purposes, which was managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC. The funds have a bank line
of credit agreement with JPMorgan Chase Bank (JPMCB). Ultra has a securities
lending agreement with JPMCB. JPMCB is a custodian of the funds and a wholly
owned subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year ended
October 31, 2004, were as follows:
- --------------------------------------------------------------------------------
ULTRA VISTA
- --------------------------------------------------------------------------------
Purchases $7,836,401 $3,779,028
- --------------------------------------------------------------------------------
Proceeds from sales $9,354,084 $3,642,529
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows:
- --------------------------------------------------------------------------------
ULTRA VISTA
- --------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 3,500,000 800,000
================================================================================
Sold 66,316 $ 1,788,649 24,758 $ 327,118
- ----------------------------
Redeemed (124,663) (3,369,841) (20,434) (263,057)
- --------------------------------------------------------------------------------
Net increase (decrease) (58,347) $(1,581,192) 4,324 $ 64,061
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 3,500,000 800,000
================================================================================
Sold 92,700 $ 2,113,606 22,570 $ 230,280
- ----------------------------
Issued in reinvestment
of distributions 2,406 51,578 -- --
- ----------------------------
Redeemed (127,225) (2,895,165) (23,437) (231,251)
- --------------------------------------------------------------------------------
Net decrease (32,119) $ (729,981) (867) $ (971)
================================================================================
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 200,000 80,000
================================================================================
Sold 13,573 $ 374,299 1,199 $ 15,861
- ----------------------------
Redeemed (6,488) (176,711) (812) (10,579)
- --------------------------------------------------------------------------------
Net increase 7,085 $ 197,588 387 $ 5,282
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 200,000 80,000
================================================================================
Sold 11,823 $ 269,361 1,717 $ 17,138
- ----------------------------
Issued in reinvestment
of distributions 125 2,698 -- --
- ----------------------------
Redeemed (5,854) (133,646) (2,937) (30,319)
- --------------------------------------------------------------------------------
Net increase (decrease) 6,094 $ 138,413 (1,220) $(13,181)
================================================================================
(continued)
- ------
26
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
- --------------------------------------------------------------------------------
ULTRA VISTA
- --------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 300,000 210,000
================================================================================
Sold 10,152 $ 272,029 7,687 $ 98,451
- ----------------------------
Redeemed (7,625) (203,174) (885) (11,311)
- --------------------------------------------------------------------------------
Net increase 2,527 $ 68,855 6,802 $ 87,140
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 300,000 210,000
================================================================================
Sold 12,734 $ 291,379 732 $ 7,054
- ----------------------------
Issued in reinvestment
of distributions 7 158 -- --
- ----------------------------
Redeemed (5,909) (134,079) (528) (4,976)
- --------------------------------------------------------------------------------
Net increase 6,832 $ 157,458 204 $ 2,078
================================================================================
C CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 100,000 100,000
================================================================================
Sold 158 $ 4,125 101 $1,300
- ----------------------------
Redeemed (62) (1,689) (16) (209)
- --------------------------------------------------------------------------------
Net increase 96 $ 2,436 85 $1,091
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 100,000 100,000
================================================================================
Sold 73 $1,704 17 $180
- ----------------------------
Redeemed (9) (201) (1) (3)
- --------------------------------------------------------------------------------
Net increase 64 $1,503 16 $177
================================================================================
R CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 50,000 N/A
================================================================================
Sold 191 $5,227
- ----------------------------
Redeemed (23) (627)
- --------------------------------------------------------------------------------
Net increase 168 $4,600
================================================================================
PERIOD ENDED OCTOBER 31, 2003(1)
SHARES AUTHORIZED 50,000 N/A
================================================================================
Sold -- $2
================================================================================
(1) August 29, 2003 (commencement of sale) through October 31, 2003 for Ultra.
(continued)
- ------
27
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
5. AFFILIATED COMPANY TRANSACTIONS (SHARES IN FULL)
If a fund's holding represents ownership of 5% or more of the voting securities
of a company, the company is affiliated as defined in the 1940 Act. A summary of
transactions for each company which is or was an affiliate at or during the year
ended October 31, 2004 follows:
- -----------------------------------------------------------------------------------------------------------
10/31/04
SHARE BALANCE PURCHASE SALES REALIZED DIVIDEND SHARE MARKET
FUND/COMPANY 10/31/03 COST COST GAIN (LOSS) INCOME BALANCE VALUE
- -----------------------------------------------------------------------------------------------------------
ULTRA
- -----------------------------------------------------------------------------------------------------------
Affymetrix Inc.(1)(2) 2,388,000 $ 38,680 $ 91,261 $ 15,942 $ -- -- $ --
- -----------------------
Applebee's
International Inc.(3) 2,639,623 -- -- -- 185 3,959,434(4) 90,552
- -----------------------
Checkfree Corp.(1)(3) 5,736,600 20,092 -- -- -- 6,411,000 198,741
- -----------------------
Cheesecake
Factory Inc.(1)(3) 3,040,000 -- 10,777 1,154 -- 2,754,000 119,551
- -----------------------
Chico's
FAS, Inc.(1)(2)(3) 4,871,000 -- 43,854 26,320 -- 2,831,000 113,325
- -----------------------
China Yuchai
International
Limited(1)(3) 892,000 37,217 -- -- -- 2,178,000 29,468
- -----------------------
Corinthian
Colleges, Inc.(1)(2) 2,396,000 5,359 107,805 (51,293) -- -- --
- -----------------------
Digital River
Inc.(1)(3) 800,000 74,495 -- -- -- 3,764,000 125,341
- -----------------------
Inamed Corp.(1)(3) 659,000 77,400 -- -- -- 2,502,000(4) 132,981
- -----------------------
Krispy Kreme
Doughnuts, Inc.(1)(2) 2,910,000 49,213 158,307 (76,121) -- -- --
- -----------------------
NAM TAI
Electronics Inc.(2) 836,000 33,861 64,311 (7,059) 909 -- --
- -----------------------
Netflix Inc.(1)(2) 1,266,000 16,486 75,413 25,580 -- -- --
- -----------------------
Panera Bread
Company Cl A(1)(2) 1,435,000 -- 62,538 (10,710) -- -- --
- -----------------------
PF Chang's
China Bistro,
Inc.(1)(3) 1,712,000 19,781 -- -- -- 2,175,000 110,577
- -----------------------
Sina Corp.(1)(3) 2,727,000 48,548 53,042 (7,778) -- 2,638,000 88,373
- -----------------------
TiVo Inc.(1)(2) 5,833,400 -- 63,243 (21,043) -- -- --
- -----------------------------------------------------------------------------------------------------------
$421,132 $730,551 $(105,008) $1,094 $1,008,909
===========================================================================================================
(1) Non-income producing.
(2) Issuer was not an affiliate at October 31, 2004.
(3) Security, or a portion thereof, was on loan as of October 31, 2004.
(4) Includes adjustments for shares received from a stock split and/or stock
spinoff during the period.
(continued)
- ------
28
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
6. SECURITIES LENDING
As of October 31, 2004, securities in Ultra valued at $928,037 were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB receives
and maintains collateral in the form of cash, and/or acceptable securities as
approved by ACIM. Cash collateral is invested in authorized investments by the
lending agent in a pooled account. The value of cash collateral received at
period end is disclosed in the Statement of Assets and Liabilities and
investments made with the cash by the lending agent are listed in the Schedule
of Investments. Any deficiencies or excess of collateral must be delivered or
transferred by the member firms no later than the close of business on the next
business day. The total value of all collateral received for Ultra, at this
date, was $948,667. Ultra's risks in securities lending are that the borrower
may not provide additional collateral when required or return the securities
when due. If the borrower defaults, receipt of the collateral by Ultra may be
delayed or limited.
7. BANK LINE OF CREDIT
The funds, along with certain other funds managed by ACIM, have a $650 million
unsecured bank line of credit agreement with JPMCB. The funds may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The
funds did not borrow from the line during the year ended October 31, 2004.
(continued)
- ------
29
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
8. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years ended October 31, 2004
and October 31, 2003 were as follows:
- --------------------------------------------------------------------------------
ULTRA VISTA
- --------------------------------------------------------------------------------
2004 2003 2004 2003
- --------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM
- --------------------------------------------------------------------------------
Ordinary income -- $55,091 -- --
- --------------------------------------------------------------------------------
Long-term capital gains -- -- -- --
- --------------------------------------------------------------------------------
Return of capital -- $1,387 -- --
- --------------------------------------------------------------------------------
The 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 October 31, 2004, the components of distributable earnings on a tax-basis
and the federal tax cost of investments were as follows:
- --------------------------------------------------------------------------------
ULTRA VISTA
- --------------------------------------------------------------------------------
COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST
- --------------------------------------------------------------------------------
Federal tax cost of investments $17,398,443 $1,358,337
================================================================================
Gross tax appreciation of investments $6,194,490 $232,309
- -------------------------------------------------
Gross tax depreciation of investments (188,023) (27,747)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $6,006,467 $204,562
================================================================================
Net tax appreciation (depreciation)
of derivatives and translation
of assets and liabilities
in foreign currencies -- --
- --------------------------------------------------------------------------------
Net tax appreciation $6,006,467 $204,562
================================================================================
Undistributed ordinary income -- --
- -------------------------------------------------
Accumulated capital losses $(2,602,763) $(239,512)
- --------------------------------------------------------------------------------
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 accumulated capital losses listed above represent net capital loss
carryovers that may be used to offset future realized capital gains for federal
income tax purposes. The capital loss carryovers expire as follows:
- --------------------------------------------------------------------------------
2009 2010 2011
- --------------------------------------------------------------------------------
Ultra -- $(2,421,502) $(181,261)
- --------------------------------------------------------------------------------
Vista $(115,954) $(123,558) --
- --------------------------------------------------------------------------------
- ------
30
Ultra - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $26.01 $21.83 $25.09 $41.45 $38.97
- --------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment
Income (Loss)(1) (0.05) (0.02) 0.06 (0.06) (0.28)
- -------------------------
Net Realized and
Unrealized Gain (Loss) 1.21 4.26 (3.32) (11.89) 4.14
- --------------------------------------------------------------------------------
Total From
Investment Operations 1.16 4.24 (3.26) (11.95) 3.86
- --------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income -- (0.06) -- -- --
- -------------------------
From Net
Realized Gains -- -- -- (4.41) (1.38)
- --------------------------------------------------------------------------------
Total Distributions -- (0.06) -- (4.41) (1.38)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $27.17 $26.01 $21.83 $25.09 $41.45
================================================================================
TOTAL RETURN(2) 4.46% 19.50% (12.99)% (31.44)% 9.81%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.99% 1.00% 0.99% 0.98% 0.99%
- -------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets (0.20)% (0.09)% 0.24% (0.18)% (0.64)%
- -------------------------
Portfolio Turnover Rate 34% 82% 92% 86% 62%
- -------------------------
Net Assets, End
of Period (in millions) $20,708 $21,341 $18,616 $24,560 $38,461
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset value to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
31
Ultra - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $26.22 $22.02 $25.24 $41.65 $39.13
- --------------------------------------------------------------------------------
Income From
Investment
Operations
- --------------------
Net Investment
Income (Loss)(1) --(2) 0.02 0.11 0.01 (0.20)
- --------------------
Net Realized and
Unrealized
Gain (Loss) 1.22 4.29 (3.33) (11.94) 4.10
- --------------------------------------------------------------------------------
Total From
Investment
Operations 1.22 4.31 (3.22) (11.93) 3.90
- --------------------------------------------------------------------------------
Distributions
- --------------------
From Net
Investment Income -- (0.11) -- -- --
- --------------------
From Net
Realized Gains -- -- -- (4.48) (1.38)
- --------------------------------------------------------------------------------
Total Distributions -- (0.11) -- (4.48) (1.38)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $27.44 $26.22 $22.02 $25.24 $41.65
================================================================================
TOTAL RETURN(3) 4.65% 19.66% (12.76)% (31.25)% 9.87%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.79% 0.80% 0.79% 0.78% 0.79%
- --------------------
Ratio of Net
Investment
Income (Loss)
to Average
Net Assets 0.00% 0.11% 0.44% 0.02% (0.44)%
- --------------------
Portfolio
Turnover Rate 34% 82% 92% 86% 62%
- --------------------
Net Assets,
End of Period
(in thousands) $1,055,145 $822,333 $556,316 $593,436 $763,304
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset value to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
32
Ultra - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $25.77 $21.62 $24.92 $41.23 $38.80
- --------------------------------------------------------------------------------
Income From
Investment Operations
- --------------------------
Net Investment Loss(1) (0.12) (0.08) --(2) (0.13) (0.40)
- --------------------------
Net Realized and
Unrealized Gain (Loss) 1.20 4.24 (3.30) (11.87) 4.21
- --------------------------------------------------------------------------------
Total From
Investment Operations 1.08 4.16 (3.30) (12.00) 3.81
- --------------------------------------------------------------------------------
Distributions
- --------------------------
From Net
Investment Income -- (0.01) -- -- --
- --------------------------
From Net
Realized Gains -- -- -- (4.31) (1.38)
- --------------------------------------------------------------------------------
Total Distributions -- (0.01) -- (4.31) (1.38)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $26.85 $25.77 $21.62 $24.92 $41.23
================================================================================
TOTAL RETURN(3) 4.19% 19.24% (13.24)% (31.69)% 9.72%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.24% 1.25% 1.24% 1.23% 1.24%
- --------------------------
Ratio of Net
Investment Loss
to Average Net Assets (0.45)% (0.34)% (0.01)% (0.43)% (0.89)%
- --------------------------
Portfolio Turnover Rate 34% 82% 92% 86% 62%
- --------------------------
Net Assets, End
of Period (in thousands) $738,032 $643,144 $391,968 $437,024 $521,187
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset value to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
33
Ultra - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
C CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $25.57 $21.59 $25.09 $25.53
- --------------------------------------------------------------------------------
Income From
Investment Operations
- --------------------------------
Net Investment Loss(2) (0.32) (0.26) (0.19) --(3)
- --------------------------------
Net Realized and
Unrealized Gain (Loss) 1.19 4.24 (3.31) (0.44)
- --------------------------------------------------------------------------------
Total From
Investment Operations 0.87 3.98 (3.50) (0.44)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $26.44 $25.57 $21.59 $25.09
================================================================================
TOTAL RETURN(4) 3.40% 18.43% (13.95)% (1.72)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.99% 2.00% 1.99% 1.99%(5)
- --------------------------------
Ratio of Net
Investment Loss
to Average Net Assets (1.20)% (1.09)% (0.76)% (3.10)%(5)
- --------------------------------
Portfolio Turnover Rate 34% 82% 92% 86%(6)
- --------------------------------
Net Assets, End
of Period (in thousands) $4,836 $2,232 $502 $95
- --------------------------------------------------------------------------------
(1) October 29, 2001 (commencement of sale) through October 31, 2001.
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense differences
because of the impact of calculating the net asset value to two decimal
places. If net asset values were calculated to three decimal places, the
total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is
made in accordance with SEC guidelines and does not result in any gain or
loss of value between one class and another.
(5) Annualized.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2001.
See Notes to Financial Statements.
- ------
34
Ultra - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
R CLASS
- --------------------------------------------------------------------------------
2004 2003(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $25.99 $24.87
- --------------------------------------------------------------------------------
Income From Investment Operations
- ----------------------------------------------------
Net Investment Loss(2) (0.22) (0.04)
- ----------------------------------------------------
Net Realized and Unrealized Gain 1.24 1.16
- --------------------------------------------------------------------------------
Total From Investment Operations 1.02 1.12
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $27.01 $25.99
================================================================================
TOTAL RETURN(3) 3.92% 4.50%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 1.49% 1.50%(4)
- ----------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (0.70)% (0.81)%(4)
- ----------------------------------------------------
Portfolio Turnover Rate 34% 82%(5)
- ----------------------------------------------------
Net Assets, End of Period (in thousands) $4,545 $3
- --------------------------------------------------------------------------------
(1) August 29, 2003 (commencement of sale) through October 31, 2003.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
value to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2003.
See Notes to Financial Statements.
- ------
35
Vista - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.97 $9.25 $10.62 $24.37 $15.41
- --------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment Loss(1) (0.06) (0.06) (0.04) (0.04) (0.16)
- -------------------------
Net Realized and
Unrealized Gain (Loss) 1.23 2.78 (1.33) (7.38) 10.07
- --------------------------------------------------------------------------------
Total From
Investment Operations 1.17 2.72 (1.37) (7.42) 9.91
- --------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Realized Gains -- -- -- (6.33) (0.95)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $13.14 $11.97 $9.25 $10.62 $24.37
================================================================================
TOTAL RETURN(2) 9.77% 29.41% (12.90)% (37.48)% 66.16%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to
Average Net Assets 1.00% 1.00% 1.00% 1.00% 1.00%
- -------------------------
Ratio of Net
Investment Loss
to Average Net Assets (0.48)% (0.57)% (0.34)% (0.31)% (0.65)%
- -------------------------
Portfolio Turnover Rate 255% 280% 293% 290% 135%
- -------------------------
Net Assets, End
of Period (in millions) $1,418 $1,240 $966 $1,222 $2,345
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the
period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset value to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
36
Vista - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $12.11 $9.34 $10.70 $24.50 $15.51
- --------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment Loss(1) (0.04) (0.03) (0.02) (0.02) (0.11)
- -------------------------
Net Realized and
Unrealized Gain (Loss) 1.25 2.80 (1.34) (7.41) 10.09
- --------------------------------------------------------------------------------
Total From
Investment Operations 1.21 2.77 (1.36) (7.43) 9.98
- --------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Realized Gains -- -- -- (6.37) (0.99)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $13.32 $12.11 $9.34 $10.70 $24.50
================================================================================
TOTAL RETURN(2) 9.99% 29.66% (12.71)% (37.31)% 66.28%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.80% 0.80% 0.80% 0.80% 0.80%
- -------------------------
Ratio of Net
Investment Loss to
Average Net Assets (0.28)% (0.37)% (0.14)% (0.11)% (0.45)%
- -------------------------
Portfolio Turnover Rate 255% 280% 293% 290% 135%
- -------------------------
Net Assets, End
of Period (in thousands) $42,747 $34,177 $37,743 $46,069 $56,022
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset value to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
37
Vista - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.82 $9.15 $10.53 $24.24 $15.31
- --------------------------------------------------------------------------------
Income From
Investment Operations
- --------------------------
Net Investment Loss(1) (0.11) (0.08) (0.06) (0.08) (0.22)
- --------------------------
Net Realized and
Unrealized Gain (Loss) 1.24 2.75 (1.32) (7.35) 10.05
- --------------------------------------------------------------------------------
Total From
Investment Operations 1.13 2.67 (1.38) (7.43) 9.83
- --------------------------------------------------------------------------------
Distributions
- --------------------------
From Net
Realized Gains -- -- -- (6.28) (0.90)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $12.95 $11.82 $9.15 $10.53 $24.24
================================================================================
TOTAL RETURN(2) 9.56% 29.18% (13.11)% (37.76)% 65.98%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.25% 1.25% 1.25% 1.25% 1.25%
- --------------------------
Ratio of Net
Investment Loss to
Average Net Assets (0.73)% (0.82)% (0.59)% (0.56)% (0.90)%
- --------------------------
Portfolio Turnover Rate 255% 280% 293% 290% 135%
- --------------------------
Net Assets, End
of Period (in thousands) $106,750 $17,060 $11,333 $13,315 $22,077
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset value to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
38
Vista - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
C CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.71 $9.12 $10.59 $12.07
- --------------------------------------------------------------------------------
Income From
Investment Operations
- -----------------------------
Net Investment Loss(2) (0.19) (0.16) (0.15) (0.06)
- -----------------------------
Net Realized and
Unrealized Gain (Loss) 1.21 2.75 (1.32) (1.42)
- --------------------------------------------------------------------------------
Total From
Investment Operations 1.02 2.59 (1.47) (1.48)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $12.73 $11.71 $9.12 $10.59
================================================================================
TOTAL RETURN(3) 8.71% 28.40% (13.88)% (12.26)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 2.00% 2.00% 2.00% 2.00%(4)
- -----------------------------
Ratio of Net
Investment Loss to
Average Net Assets (1.48)% (1.57)% (1.34)% (1.77)%(4)
- -----------------------------
Portfolio Turnover Rate 255% 280% 293% 290%(5)
- -----------------------------
Net Assets, End
of Period (in thousands) $1,439 $333 $110 $4
- --------------------------------------------------------------------------------
(1) July 18, 2001 (commencement of sale) through October 31, 2001.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense differences
because of the impact of calculating the net asset value to two decimal
places. If net asset values were calculated to three decimal places, the
total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is
made in accordance with SEC guidelines and does not result in any gain or
loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2001.
See Notes to Financial Statements.
- ------
39
Report of Independent Registered
Public Accounting Firm
The Board of Directors and Shareholders
American Century Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Ultra Fund and Vista Fund, (collectively, the
"Funds"), two of the funds comprising American Century Mutual Funds, Inc., as of
October 31, 2004, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of Ultra
Fund and Vista Fund as of October 31, 2004, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended, and their financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 8, 2004
- ------
40
Management
The individuals listed below serve as directors or officers of the funds. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the funds' investment advisor, American
Century Investment Management, Inc. (ACIM); the funds' principal underwriter,
American Century Investment Services, Inc. (ACIS); and the funds' transfer
agent, American Century Services Corporation (ACSC).
The other directors (more than three-fourths of the total numbers) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned subsidiaries, including
ACIM, ACIS, and ACSC. The directors serve in this capacity for six registered
investment companies in the American Century family of funds.
All persons named as officers of the funds also serve in a similar capacity for
the other 13 investment companies advised by ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated for
his or her service as an officer of the funds. The listed officers are
interested persons of the funds and are appointed or re-appointed on an annual
basis.
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 23
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Strategic Account Implementation
Manager, Applied Industrial Technologies, Inc., a corporation engaged in the
sale of bearings and power transmission products
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, Midwest
Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Midwest Research Institute
- --------------------------------------------------------------------------------
D.D. (DEL) HOCK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1935
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 7
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Chairman, Public
Service Company of Colorado
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Allied Motion Technologies, Inc.
and J.D. Edwards & Company
- --------------------------------------------------------------------------------
(continued)
- ------
41
Management
INDEPENDENT DIRECTORS (CONTINUED)
- --------------------------------------------------------------------------------
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director, Vice Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Western Investments,
Inc.; Retired Chairman of the Board, Butler Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Atlas-Copco, North America Inc.
- --------------------------------------------------------------------------------
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive Officer,
and Founder, Sayers Computer Source
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Triad Hospitals, Inc.
- --------------------------------------------------------------------------------
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 9
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Chief
Integration Officer, Sprint Corporation (September 2003 to present); Senior Vice
President - Financial Services, Sprint Corporation (January 2003 to September
2003); Senior Vice President, Finance - Global Markets Group, Sprint Corporation
(November 1998 to January 2003)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.
- --------------------------------------------------------------------------------
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 2
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, American Italian Pasta Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JAMES E. STOWERS, JR.(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director, Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 45
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Director, and controlling
shareholder, ACC; Chairman, ACSC and other ACC subsidiaries; Director, ACIM,
ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
JAMES E. STOWERS III(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1959
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 13
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Co-Chairman, ACC (September 2000 to
present); Chief Executive Officer, ACC (June 1996 to September 2000); Director,
ACC, ACIM, ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
(1) James E. Stowers, Jr. is the father of James E. Stowers III.
(continued)
- ------
42
Management
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUND: President
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and
other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to
present); President, ACIM (September 2002 to present); President, ACIS (July
2003 to present); Chief Operating Officer, ACC (June 1996 to September 2000);
Also serves as: Executive Vice President, ACSC and other ACC subsidiaries
- --------------------------------------------------------------------------------
ROBERT T. JACKSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Executive Vice President
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC
(August 1997 to present); Chief Financial Officer, ACC (May 1995 to October
2002); President, ACSC (January 1999 to present); Executive Vice President, ACC
(May 1995 to present); Also serves as: Executive Vice President and Chief
Financial Officer, ACIM, ACIS and other ACC subsidiaries; and Treasurer, ACIM
- --------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer, and Chief
Accounting Officer
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President (April 1998
to present) and Assistant Treasurer, ACSC (September 1985 to present)
- --------------------------------------------------------------------------------
DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and General
Counsel, ACIM, ACIS, ACSC and other ACC subsidiaries (June 1998 to present);
Vice President and General Counsel, ACC (June 1998 to present)
- --------------------------------------------------------------------------------
DAVID H. REINMILLER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer
LENGTH OF TIME SERVED (YEARS): 3 and less than 1 year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACSC and
ACIM (March 2001 to present); Vice President, ACSC (March 2000 to present); Vice
President, ACIM (March 2002 to present); Vice President, ACIS (March 2003 to
present); Assistant General Counsel, ACSC (December 1996 to January 2001);
Associate General Counsel, ACSC (July 2001 to present)
- --------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Controller
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000
to present); Controller-Fund Accounting, ACSC (June 1997 to present)
- --------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC
(April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries
(April 1999 to present); President, American Century Employee Benefit Services,
Inc. (January 2000 to December 2000); Director, American Century Employee
Benefit Services, Inc. (February 2000 to December 2003); Treasurer, American
Century Employee Benefit Services, Inc. (December 2000 to December 2003);
Treasurer, American Century Ventures, Inc. (December 1999 to April 2001)
- --------------------------------------------------------------------------------
The SAI has additional information about the funds' directors and is available
without charge upon request by calling 1-800-345-2021.
- ------
43
Share Class Information
Five classes of shares are authorized for sale by Ultra: Investor Class,
Institutional Class, Advisor Class, C Class, and R Class. Four classes of shares
are authorized for sale by Vista: Investor Class, Institutional Class, Advisor
Class, and C Class. The total expense ratio of Institutional Class shares is
lower than that of Investor Class shares. The total expense ratios of Advisor,
C, and R Class shares are higher than that of Investor Class shares.
INVESTOR CLASS shares are available for purchase in two ways: 1) directly from
American Century without any commissions or other fees; or 2) through a
broker-dealer, which may require payment of a transaction fee to the broker.
INSTITUTIONAL CLASS shares are available to large investors such as endowments,
foundations, and retirement plans, and to financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million ($3 million
for endowments and foundations) in an American Century fund or at least $10
million in multiple funds. In recognition of the larger investments and account
balances and comparatively lower transaction costs, the total expense ratio of
Institutional Class shares is 0.20% less than the total expense ratio of
Investor Class shares.
ADVISOR CLASS shares are sold primarily through institutions such as investment
advisors, banks, broker-dealers, insurance companies, and financial advisors.
Advisor Class shares are subject to a 0.50% annual Rule 12b-1 service and
distribution fee. The total expense ratio of Advisor Class shares is 0.25%
higher than the total expense ratio of Investor Class shares.
C CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as investment advisors, banks, broker-dealers, and
insurance companies. C Class shares redeemed within 12 months of purchase are
subject to a contingent deferred sales charge (CDSC) of 1.00%. There is no CDSC
on shares acquired through reinvestment of dividends or capital gains. C Class
shares also are subject to a Rule 12b-1 service and distribution fee of 1.00%.
R CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as investment advisors, banks, broker-dealers, and
insurance companies. R Class shares are subject to a 0.50% annual Rule 12b-1
service and distribution fee.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
- ------
44
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b),
457 and qualified plans [those not eligible for rollover to an IRA or to another
qualified plan] 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. Even if you plan to roll over the amount you
withdraw to another tax-deferred account, the withholding rate still applies to
the withdrawn amount unless we have received notice not to withhold federal
income tax prior to the withdrawal. 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.
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 funds' investment manager, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the funds. A description of the policies and procedures
the manager uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-345-2021. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
manager 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 funds file their 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 funds' Forms N-Q are available on the SEC's Web site 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 funds also make their complete schedule
of portfolio holdings for the most recent quarter of their fiscal year available
on their Web site at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
45
Index Definitions
The following indices are used to illustrate investment market, sector, or style
performance or to serve as fund performance comparisons. They are not investment
products available for purchase.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500 publicly
traded U.S. companies chosen for market size, liquidity, and industry group
representation that are considered to be leading firms in dominant industries.
Each stock's weight in the index is proportionate to its market value. Created
by Standard & Poor's, it is considered to be a broad measure of U.S. stock
market performance.
The RUSSELL MIDCAP GROWTH INDEX measures the performance of those Russell Midcap
Index companies (the 800 smallest of the 1,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 1000 GROWTH INDEX measures the performance of those Russell 1000
companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth rates.
- ------
46
Notes
- ------
47
Notes
- ------
48
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR RELATIONS:
1-800-345-2021 or 816-531-5575
BUSINESS, NOT-FOR-PROFIT,
EMPLOYER-SPONSORED RETIREMENT PLANS:
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER:
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.
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
COMPANIES
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Services Corporation.
0412 American Century Investment Services, Inc.
SH-ANN-40954S (c)2004 American Century Services Corporation
[front cover]
OCTOBER 31, 2004
American Century Investments
Annual Report
[photo of market line chart]
[photo of starfish]
[photo of bridge]
Heritage Fund
Growth Fund
Prospectus Supplement Enclosed
[american century investments logo and text logo]
[inside front cover]
Table of Contents
Our Message to You......................................................... 1
HERITAGE
Performance................................................................ 2
Portfolio Commentary....................................................... 4
Top Ten Holdings........................................................ 4
Top Five Industries..................................................... 5
Types of Investments in Portfolio....................................... 5
Schedule of Investments.................................................... 6
GROWTH
Performance................................................................ 9
Portfolio Commentary....................................................... 11
Top Ten Holdings........................................................ 11
Top Five Industries..................................................... 12
Types of Investments in Portfolio....................................... 12
Schedule of Investments.................................................... 13
Shareholder Fee Examples................................................... 16
FINANCIAL STATEMENTS
Statement of Assets and Liabilities........................................ 18
Statement of Operations.................................................... 20
Statement of Changes in Net Assets......................................... 21
Notes to Financial Statements.............................................. 22
Financial Highlights....................................................... 28
Report of Independent Registered Public Accounting Firm.................... 37
OTHER INFORMATION
Management................................................................. 38
Share Class Information.................................................... 41
Additional Information..................................................... 42
Index Definitions.......................................................... 43
The opinions expressed in each of the Portfolio Commentaries reflect those of
the portfolio management team as of the date of the report, and do not
necessarily represent the opinions of American Century or any other person in
the American Century organization. Any such opinions are subject to change at
any time based upon market or other conditions and American Century 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 funds are based on numerous factors, may not be relied upon as an
indication of trading intent on behalf of any American Century 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 by third
party vendors. To the best of American Century's knowledge, such information is
accurate at the time of printing.
Our Message to You
[photo of James E. Stowers III and James E. Stowers, Jr.]
James E. Stowers III with James E. Stowers, Jr.
We are pleased to provide you with the annual report for the Heritage and
Growth funds for the year ended October 31, 2004.
The report includes comparative performance figures, portfolio and market
commentary, summary tables, a full list of portfolio holdings, and financial
statements and highlights. We hope you find this information helpful in
monitoring your investment.
Through our Web site, americancentury.com, we provide quarterly commentaries on
all American Century portfolios, the views of our senior investment officers,
and other communications about investments, portfolio strategy, and the markets.
Your next shareholder report for these funds will be the semiannual report dated
April 30, 2005, available in approximately six months.
As always, we deeply appreciate your investment with American Century
Investments.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER AND CHAIRMAN
/s/James E. Stowers III
James E. Stowers III
CO-CHAIRMAN OF THE BOARD
- ------
1
Heritage - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
-----------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS -0.09% 2.96% 8.22% 11.18% 11/10/87
- --------------------------------------------------------------------------------
RUSSELL MIDCAP INDEX 15.09% 7.85% 12.99% 13.70%(1) --
- --------------------------------------------------------------------------------
Institutional Class 0.09% 3.19% -- 4.80% 6/16/97
- --------------------------------------------------------------------------------
Advisor Class -0.37% 2.68% -- 3.70% 7/11/97
- --------------------------------------------------------------------------------
C Class -1.23% -- -- -5.16% 6/26/01
- --------------------------------------------------------------------------------
(1) Since 10/31/87, the date nearest the Investor Class's inception for which
data are available.
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.
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.
(continued)
- ------
2
Heritage - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made October 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended October 31
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
Investor Class 21.04% 10.44% 29.56% -15.87% 30.71%
- --------------------------------------------------------------------------------
Russell Midcap Index 23.31% 19.65% 28.77% 4.46% 17.12%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------
Investor Class 62.61% -33.08% -10.07% 18.33% -0.09%
- --------------------------------------------------------------------------------
Russell Midcap Index 23.73% -18.02% -8.02% 35.88% 15.09%
- --------------------------------------------------------------------------------
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.
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.
- ------
3
Heritage - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE HERITAGE INVESTMENT TEAM: KURT STALZER AND DAVID ROSE.
Heritage fell 0.09%* in the twelve months ended October 31, 2004. The Russell
Midcap Index rose 15.09%, while the average return of its mid-cap growth peers
tracked by Morningstar was 5.68%.
During the year, Heritage's management team changed. Portfolio manager Linda
Peterson left American Century in March. David Rose, who has been a portfolio
manager with American Century since 2001, now co-manages Heritage with Kurt
Stalzer.
The change in the management team brought about changes in the holdings in the
portfolio. For example, NII Holdings was added to the portfolio in March and
ended the period as the top contributor to performance. The Virginia-based
company raised its growth forecast for wireless subscribers in Latin America on
the heels of a healthy second-quarter report. Former top-ten holding Navistar
International was eliminated from the portfolio at a profit. The portfolio
managers were concerned that this producer of commercial truck, school bus and
mid-range diesel engines was losing market share and that the company would be
negatively impacted by higher interest rates.
These changes occurred as the market fought a number of headwinds. The stock
market started the year with the wind at its back as the upswing in economic
growth and stock returns in the last months of 2003 carried into the new year.
But stock market gains eroded over the summer as the price of crude oil surged,
short-term interest rates climbed on the back of three interest rate hikes and
the economy moved through a softer period of growth.
Against this backdrop, Heritage's underperformance relative to the benchmark was
largely attributable to stock selection in the industrials, financials and
information technology sectors.
In the industrials sector, the portfolio was hurt by its investments in the
commercial services industry. Corinthian Colleges was the top detractor during
the period. Shares of this for-profit, post-secondary
TOP TEN HOLDINGS
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
NII Holdings Inc. Cl B 4.6% 0.7%
- --------------------------------------------------------------------------------
Royal Caribbean
Cruises Ltd. 3.9% 1.0%
- --------------------------------------------------------------------------------
Bard (C.R.), Inc. 3.1% 2.0%
- --------------------------------------------------------------------------------
National-Oilwell, Inc. 2.9% --
- --------------------------------------------------------------------------------
Capital One
Financial Corp. 2.7% 2.0%
- --------------------------------------------------------------------------------
Expeditors International
of Washington, Inc. 2.5% 1.4%
- --------------------------------------------------------------------------------
Aetna Inc. 2.3% --
- --------------------------------------------------------------------------------
BJ Services Co. 1.9% 1.2%
- --------------------------------------------------------------------------------
XTO Energy Inc. 1.9% 0.8%
- --------------------------------------------------------------------------------
Smith International, Inc. 1.8% 0.7%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Investor Class shares.
(continued)
- ------
4
Heritage - Portfolio Commentary
education school declined when Corinthian lowered earnings and revenue targets
and confirmed a government probe into its student loan applications.
The specter of rising interest rates loomed over financial stocks early in the
calendar year, and Heritage's financial stake detracted from performance
compared to the benchmark. New York Community Bank was one setback. The banking
company narrowly missed earnings expectations, and analysts cited heavy
investments in mortgage-backed securities as the culprit.
Information technology stocks also weighed on returns. Detractors included
wireless-product manufacturer Sierra Wireless and anti-virus software developer
McAfee (formerly known as Network Associates).
Despite the overall negative performance of information technology stocks, the
Heritage team found some pockets of success. For example, Zebra Technologies was
a leading contributor. Already a market leader in the barcode-printer market,
Zebra gained market share with its radio frequency identification technology for
inventory management.
Within Heritage's health care stake, C.R. Bard generated positive returns. The
medical device maker reported that a sale of a company division, a number of new
products, and an expanded sales organization contributed to a surge in profit.
The best performing group in the market was the energy sector as tight supplies
and strong demand fueled high oil prices. XTO Energy and BJ Services made
substantial contributions to returns.
OUR COMMITMENT
The new Heritage team remains committed to American Century's growth investment
approach that has been in place for more than thirty years. They will continue
to look for mid-sized and smaller companies with earnings, revenues and other
key business fundamentals that are growing at an accelerating rate.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Energy Equipment
& Services 12.8% 3.0%
- --------------------------------------------------------------------------------
Hotels, Restaurants
& Leisure 10.0% 4.6%
- --------------------------------------------------------------------------------
Household Durables 5.9% 4.6%
- --------------------------------------------------------------------------------
Health Care Equipment
& Supplies 5.5% 4.9%
- --------------------------------------------------------------------------------
Wireless Telecommunication
Services 5.5% 1.3%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 99.8% 97.2%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 1.0% 2.7%
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES 100.8% 99.9%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities (0.8)% 0.1%
- --------------------------------------------------------------------------------
- ------
5
Heritage - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 99.8%
AEROSPACE & DEFENSE -- 1.0%
- --------------------------------------------------------------------------------
192,400 L-3 Communications
Holdings, Inc. $ 12,685
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 2.5%
- --------------------------------------------------------------------------------
543,200 Expeditors International
of Washington, Inc. 31,017
- --------------------------------------------------------------------------------
AUTOMOBILES -- 0.5%
- --------------------------------------------------------------------------------
105,100 Harley-Davidson, Inc. 6,051
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 2.8%
- --------------------------------------------------------------------------------
452,300 Charles River Laboratories(1) 21,163
- --------------------------------------------------------------------------------
360,900 Gilead Sciences, Inc.(1) 12,498
- --------------------------------------------------------------------------------
33,661
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 3.3%
- --------------------------------------------------------------------------------
528,148 Investors Financial
Services Corporation 20,328
- --------------------------------------------------------------------------------
365,468 T. Rowe Price Group Inc. 20,383
- --------------------------------------------------------------------------------
40,711
- --------------------------------------------------------------------------------
CHEMICALS -- 1.7%
- --------------------------------------------------------------------------------
729,331 Agrium Inc. 12,100
- --------------------------------------------------------------------------------
29,600 Monsanto Co. 1,265
- --------------------------------------------------------------------------------
117,700 Potash Corp. of Saskatchewan 7,861
- --------------------------------------------------------------------------------
21,226
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 3.8%
- --------------------------------------------------------------------------------
258,600 Cullen/Frost Bankers, Inc. 12,671
- --------------------------------------------------------------------------------
278,240 East West BanCorp, Inc. 11,141
- --------------------------------------------------------------------------------
422,600 North Fork Bancorporation, Inc. 18,637
- --------------------------------------------------------------------------------
101,400 UCBH Holdings Inc. 4,369
- --------------------------------------------------------------------------------
46,818
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 2.0%
- --------------------------------------------------------------------------------
244,600 Monster Worldwide Inc.(1) 6,861
- --------------------------------------------------------------------------------
671,100 Robert Half International Inc. 17,804
- --------------------------------------------------------------------------------
24,665
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 1.7%
- --------------------------------------------------------------------------------
296,132 Apple Computer, Inc.(1) 15,556
- --------------------------------------------------------------------------------
768,900 Brocade Communications
System(1) 5,221
- --------------------------------------------------------------------------------
20,777
- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS -- 0.3%
- --------------------------------------------------------------------------------
105,600 Cemex SA de CV ADR 3,060
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 4.5%
- --------------------------------------------------------------------------------
444,200 Capital One Financial Corp. 32,764
- --------------------------------------------------------------------------------
1,408,400 Providian Financial Corp.(1) 21,901
- --------------------------------------------------------------------------------
54,665
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.3%
- --------------------------------------------------------------------------------
20,100 Chicago Mercantile Exchange
Holdings Inc. 3,532
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.8%
- --------------------------------------------------------------------------------
450,200 Sprint Corp. $9,432
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.5%
- --------------------------------------------------------------------------------
203,900 Ametek Inc. 6,712
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.9%
- --------------------------------------------------------------------------------
361,395 Benchmark Electronics Inc.(1) 12,277
- --------------------------------------------------------------------------------
134,700 Flir Systems Inc.(1) 7,167
- --------------------------------------------------------------------------------
166,849 Paxar Corp.(1) 3,679
- --------------------------------------------------------------------------------
23,123
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 12.8%
- --------------------------------------------------------------------------------
464,900 BJ Services Co. 23,710
- --------------------------------------------------------------------------------
655,400 Global SantaFe Corp. 19,334
- --------------------------------------------------------------------------------
1,044,654 National-Oilwell, Inc.(1) 35,216
- --------------------------------------------------------------------------------
266,200 Noble Corp.(1) 12,160
- --------------------------------------------------------------------------------
741,900 Patterson-UTI Energy Inc. 14,267
- --------------------------------------------------------------------------------
422,700 Rowan Companies, Inc.(1) 10,792
- --------------------------------------------------------------------------------
388,400 Smith International, Inc.(1) 22,558
- --------------------------------------------------------------------------------
271,171 Todco(1) 4,602
- --------------------------------------------------------------------------------
275,600 Transocean Inc.(1) 9,715
- --------------------------------------------------------------------------------
44,700 Weatherford International Ltd.(1) 2,336
- --------------------------------------------------------------------------------
154,690
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 0.5%
- --------------------------------------------------------------------------------
1,817,500 Wal-Mart de Mexico
SA de CV, Series V ORD 5,950
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 5.5%
- --------------------------------------------------------------------------------
661,600 Bard (C.R.), Inc. 37,579
- --------------------------------------------------------------------------------
306,013 Fisher Scientific International(1) 17,553
- --------------------------------------------------------------------------------
91,900 Guidant Corp. 6,122
- --------------------------------------------------------------------------------
169,600 Varian Inc.(1) 6,187
- --------------------------------------------------------------------------------
67,441
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 3.8%
- --------------------------------------------------------------------------------
294,768 Aetna Inc. 28,003
- --------------------------------------------------------------------------------
374,900 Covance Inc.(1) 14,891
- --------------------------------------------------------------------------------
83,437 Coventry Health Care Inc.(1) 3,413
- --------------------------------------------------------------------------------
46,307
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 10.0%
- --------------------------------------------------------------------------------
312,891 Harrah's Entertainment, Inc. 18,310
- --------------------------------------------------------------------------------
1,132,959 Hilton Hotels Corporation 22,546
- --------------------------------------------------------------------------------
121,276 International Speedway Corp. 5,705
- --------------------------------------------------------------------------------
1,026,070 Royal Caribbean Cruises Ltd. 47,816
- --------------------------------------------------------------------------------
127,664 Starwood Hotels & Resorts
Worldwide, Inc. 6,093
- --------------------------------------------------------------------------------
125,400 Station Casinos Inc. 6,389
- --------------------------------------------------------------------------------
507,703 WMS Industries Inc.(1) 14,850
- --------------------------------------------------------------------------------
121,709
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
6
Heritage - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 5.9%
- --------------------------------------------------------------------------------
211,000 Black & Decker Corporation $ 16,939
- --------------------------------------------------------------------------------
301,400 Garmin Ltd. 15,070
- --------------------------------------------------------------------------------
57,200 Harman International Industries Inc. 6,874
- --------------------------------------------------------------------------------
116,200 Hovnanian Enterprises Inc.(1) 4,362
- --------------------------------------------------------------------------------
158,200 KB HOME 13,012
- --------------------------------------------------------------------------------
338,700 Toll Brothers Inc.(1) 15,699
- --------------------------------------------------------------------------------
71,956
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 1.1%
- --------------------------------------------------------------------------------
191,400 Textron Inc. 13,044
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 1.9%
- --------------------------------------------------------------------------------
260,119 Websense Inc.(1) 10,553
- --------------------------------------------------------------------------------
353,600 Yahoo! Inc.(1) 12,797
- --------------------------------------------------------------------------------
23,350
- --------------------------------------------------------------------------------
IT SERVICES -- 2.6%
- --------------------------------------------------------------------------------
225,600 CACI International Inc.(1) 13,755
- --------------------------------------------------------------------------------
222,900 Computer Sciences Corp.(1) 11,071
- --------------------------------------------------------------------------------
129,800 Global Payments Inc. 7,108
- --------------------------------------------------------------------------------
31,934
- --------------------------------------------------------------------------------
MACHINERY -- 0.1%
- --------------------------------------------------------------------------------
60,200 Flowserve Corp.(1) 1,299
- --------------------------------------------------------------------------------
MEDIA -- 1.0%
- --------------------------------------------------------------------------------
12,139 DreamWorks
Animation SKG Inc.(1) 474
- --------------------------------------------------------------------------------
385,000 EchoStar Communications
Corp. Cl A(1) 12,174
- --------------------------------------------------------------------------------
12,648
- --------------------------------------------------------------------------------
METALS & MINING -- 0.7%
- --------------------------------------------------------------------------------
842,282 Coeur d'Alene Mines
Corporation(1) 4,169
- --------------------------------------------------------------------------------
131,900 Freeport-McMoRan
Copper & Gold, Inc. Cl B 4,778
- --------------------------------------------------------------------------------
8,947
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER -- 1.2%
- --------------------------------------------------------------------------------
310,300 Questar Corp. 14,894
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.4%
- --------------------------------------------------------------------------------
349,200 Kohl's Corp.(1) 17,725
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 1.1%
- --------------------------------------------------------------------------------
256,321 Zebra Technologies
Corp. Cl A(1) 13,582
- --------------------------------------------------------------------------------
OIL & GAS -- 4.0%
- --------------------------------------------------------------------------------
77,800 Forest Oil Corporation(1) 2,373
- --------------------------------------------------------------------------------
383,200 PetroKazakhstan Inc. Cl A 14,140
- --------------------------------------------------------------------------------
333,726 Western Gas Resources Inc. 9,775
- --------------------------------------------------------------------------------
684,532 XTO Energy Inc. 22,849
- --------------------------------------------------------------------------------
49,137
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 0.5%
- --------------------------------------------------------------------------------
140,400 Alberto-Culver Company Cl B 6,298
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 1.8%
- --------------------------------------------------------------------------------
224,800 Elan Corp. plc ADR(1) $ 5,800
- --------------------------------------------------------------------------------
143,200 Endo Pharmaceuticals
Holdings Inc.(1) 3,122
- --------------------------------------------------------------------------------
309,232 Medicis Pharmaceutical Corp. Cl A 12,576
- --------------------------------------------------------------------------------
21,498
- --------------------------------------------------------------------------------
ROAD & RAIL -- 1.0%
- --------------------------------------------------------------------------------
210,500 Burlington Northern
Santa Fe Corp. 8,801
- --------------------------------------------------------------------------------
86,500 J.B. Hunt Transport
Services, Inc. 3,534
- --------------------------------------------------------------------------------
12,335
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 0.5%
- --------------------------------------------------------------------------------
4,982 NVIDIA Corp.(1) 72
- --------------------------------------------------------------------------------
200,079 Tessera Technologies Inc.(1) 5,588
- --------------------------------------------------------------------------------
5,660
- --------------------------------------------------------------------------------
SOFTWARE -- 4.9%
- --------------------------------------------------------------------------------
131,300 Autodesk, Inc. 6,926
- --------------------------------------------------------------------------------
291,000 Citrix Systems, Inc.(1) 7,022
- --------------------------------------------------------------------------------
135,300 Hyperion Solutions Corp.(1) 5,430
- --------------------------------------------------------------------------------
258,917 Kronos Inc.(1) 12,700
- --------------------------------------------------------------------------------
134,608 Macromedia, Inc.(1) 3,653
- --------------------------------------------------------------------------------
383,794 Parametric Technology Corp.(1) 1,992
- --------------------------------------------------------------------------------
203,512 RSA Security Inc.(1) 4,164
- --------------------------------------------------------------------------------
316,200 Symantec Corp.(1) 18,004
- --------------------------------------------------------------------------------
59,891
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.2%
- --------------------------------------------------------------------------------
190,400 Bebe Stores Inc. 5,878
- --------------------------------------------------------------------------------
217,900 Chico's FAS, Inc.(1) 8,723
- --------------------------------------------------------------------------------
13,100 Too Inc.(1) 288
- --------------------------------------------------------------------------------
14,889
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 1.5%
- --------------------------------------------------------------------------------
159,500 NIKE, Inc. Cl B 12,969
- --------------------------------------------------------------------------------
158,200 Polo Ralph Lauren Corp. 5,842
- --------------------------------------------------------------------------------
18,811
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 1.7%
- --------------------------------------------------------------------------------
302,700 Doral Financial Corp. 12,707
- --------------------------------------------------------------------------------
421,912 W Holding Company, Inc. 8,434
- --------------------------------------------------------------------------------
21,141
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 5.5%
- --------------------------------------------------------------------------------
85,700 America Movil SA
de CV Series L ADR 3,771
- --------------------------------------------------------------------------------
424,423 Nextel Partners, Inc. Cl A(1) 7,147
- --------------------------------------------------------------------------------
1,266,293 NII Holdings Inc. Cl B(1) 56,059
- --------------------------------------------------------------------------------
66,977
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,077,273) 1,220,248
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
7
Heritage - Schedule of Investments
OCTOBER 31, 2004
($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 1.0%
Repurchase Agreement, Credit Suisse First Boston
Corp., (collateralized by various U.S. Treasury
obligations, 5.50%-7.125%, 2/15/23-8/15/28,
valued at $12,739), in a joint trading account
at 1.73%, dated 10/29/04, due 11/1/04
(Delivery value $12,502)
(Cost $12,500) $ 12,500
- --------------------------------------------------------------------------------
($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.8%
(Cost $1,089,773) $1,232,748
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.8)% (10,160)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $1,222,588
================================================================================
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
($ IN THOUSANDS)
Contracts to Sell Settlement Date Value Unrealized Gain
- --------------------------------------------------------------------------------
17,089,043 MXN for USD 11/30/04 $ 1,475 $1
====================================
(Value on Settlement Date $1,476)
*FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the fund to
exchange a foreign currency for U.S. dollars on a specific date in the future -
and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
MXN = Mexican Nuevo Peso
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
- ------
8
Growth - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
--------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 6.78% -5.39% 7.56% 15.05% 6/30/71(1)
- --------------------------------------------------------------------------------
RUSSELL 1000
GROWTH INDEX 3.38% -7.85% 8.63% N/A(2) --
- --------------------------------------------------------------------------------
Institutional Class 6.96% -5.18% -- 4.12% 6/16/97
- --------------------------------------------------------------------------------
Advisor Class 6.49% -5.65% -- 4.38% 6/4/97
- --------------------------------------------------------------------------------
C Class 5.66% -- -- -2.66% 11/28/01
- --------------------------------------------------------------------------------
R Class 6.20% -- -- 9.00% 8/29/03
- --------------------------------------------------------------------------------
(1) Although the fund's actual inception date was 10/31/58, this inception date
corresponds with the management company's implementation of its current
investment philosophy and practices.
(2) Benchmark began 12/29/78.
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.
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.
(continued)
- ------
9
Growth - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made October 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended October 31
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
Investor Class 22.31% 8.18% 27.85% 18.53% 36.31%
- --------------------------------------------------------------------------------
Russell 1000
Growth Index 29.21% 22.05% 30.47% 24.64% 34.25%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------
Investor Class 11.49% -34.14% -17.09% 16.62% 6.78%
- --------------------------------------------------------------------------------
Russell 1000
Growth Index 9.33% -39.95% -19.62% 21.81% 3.38%
- --------------------------------------------------------------------------------
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.
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.
- ------
10
Growth - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE GROWTH INVESTMENT TEAM: PRESCOTT LEGARD, GREG
WOODHAMS, AND TIM REYNOLDS.
Growth gained 6.78%* during the year ended October 31, 2004, outperforming the
3.38% rise of its benchmark, the Russell 1000 Growth Index. Growth also
surpassed the 3.15% average return of its Morningstar Large Growth peer group.
Corporate earnings reached 10-year highs in the fourth quarter of 2003 amid
strong economic growth and low inflation. Against this backdrop, the broad
market, as measured by the S&P 500 Index, jumped 8% in the first three months of
the period covered by this report. But stock market gains eroded over the
summer. The price of crude oil jumped 78% to $51.78 a barrel, short-term
interest rates climbed on the back of three interest rate hikes, and the annual
real rate of economic growth decelerated from its 7.4% rate in the third quarter
of 2003 to 3.9% by the third quarter of 2004.
Growth's advance over its benchmark during its fiscal year was largely
attributable to effective stock selection. For instance, security selection in
the health care sector added more than 300 basis points of performance relative
to the benchmark, helping to make this area the top contributor to returns. The
biggest lift came from manufacturers of health care equipment and supplies,
such as C.R. Bard. Pharmaceutical holdings were also a source of strength in
the portfolio.
Investments in companies that make and sell discretionary consumer products and
services also boosted the portfolio's performance. Carnival was the top
contributor in this area. The world's largest cruise company said higher ticket
prices and onboard sales helped boost earnings.
In contrast, holdings in the consumer staples sector hindered performance.
Retail giant Wal-Mart Stores dealt with a drop in shoppers. Additionally, an
underweight position in PepsiCo early in the calendar year when the company
reported better-than-expected earnings dragged on results.
TOP TEN HOLDINGS
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Microsoft Corporation 3.5% 0.7%
- --------------------------------------------------------------------------------
Procter &
Gamble Co. (The) 3.3% 3.7%
- --------------------------------------------------------------------------------
General Electric Co. 3.3% 4.6%
- --------------------------------------------------------------------------------
Intel Corp. 3.2% --
- --------------------------------------------------------------------------------
Cisco Systems Inc. 3.2% 4.0%
- --------------------------------------------------------------------------------
Johnson & Johnson 2.9% --
- --------------------------------------------------------------------------------
Medtronic, Inc. 2.7% 3.2%
- --------------------------------------------------------------------------------
PepsiCo, Inc. 2.4% 1.9%
- --------------------------------------------------------------------------------
Dell Inc. 2.4% --
- --------------------------------------------------------------------------------
Monsanto Co. 2.3% 2.0%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Investor Class shares.
(continued)
- ------
11
Growth - Portfolio Commentary
The industrials sector generated solid returns in the portfolio. Investments in
industrial conglomerates were the primary contributors. Elsewhere in the
portfolio, Occidental Petroleum led a rise in the portfolio's energy stake.
Effective stock selection helped Growth avoid much of the decline in the
information technology sector, the worst performing area in the market. For
instance, excess inventories battered semiconductor stocks, which led many chip
makers to cut sales and revenue estimates. Industry leader Intel didn't escape
this fate, although Growth's underweight position helped mitigate the damage.
Additionally, a comment by Cisco Systems' influential CEO that corporate
executives were becoming more cautious on spending knocked down sentiment.
Cisco's shares took a hit during the period, and detracted from Growth's
performance. However, the portfolio management team remains confident that the
network equipment maker will benefit from new product releases.
On the positive side in information technology, companies that manufacture
communications equipment boosted the portfolio's results. In fact, the
portfolio's top individual contributor was QUALCOMM, which saw demand for its
proprietary technology rise as wireless telephone users took advantage of new
data communications capabilities. The Internet software and services industry
was another bright spot in the information technology sector. Yahoo! was a
leading contributor during the period, bolstered by steadily rising profits.
OUR COMMITMENT
The Growth management team remains committed to their investment strategy of
identifying larger-sized companies that appear best able to sustain their
accelerating growth.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Pharmaceuticals 9.3% 7.1%
- --------------------------------------------------------------------------------
Health Care
Equipment & Supplies 9.1% 12.5%
- --------------------------------------------------------------------------------
Semiconductors &
Semiconductor Equipment 7.2% 1.0%
- --------------------------------------------------------------------------------
Software 6.1% 6.8%
- --------------------------------------------------------------------------------
Communications
Equipment 6.0% 9.2%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 99.1% 97.7%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 1.7% 2.0%
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES 100.8% 99.7%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities (0.8)% 0.3%
- --------------------------------------------------------------------------------
- ------
12
Growth - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 99.1%
AEROSPACE & DEFENSE -- 2.7%
- --------------------------------------------------------------------------------
1,738,400 Rockwell Collins $ 61,661
- --------------------------------------------------------------------------------
774,800 United Technologies Corp. 71,917
- --------------------------------------------------------------------------------
133,578
- --------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.7%
- --------------------------------------------------------------------------------
801,000 Autoliv, Inc. 34,243
- --------------------------------------------------------------------------------
AUTOMOBILES -- 1.5%
- --------------------------------------------------------------------------------
1,267,400 Harley-Davidson, Inc. 72,964
- --------------------------------------------------------------------------------
BEVERAGES -- 2.4%
- --------------------------------------------------------------------------------
2,379,100 PepsiCo, Inc. 117,956
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 3.7%
- --------------------------------------------------------------------------------
977,800 Amgen Inc.(1) 55,539
- --------------------------------------------------------------------------------
422,400 Biogen Idec Inc.(1) 24,567
- --------------------------------------------------------------------------------
1,123,400 Celgene Corp.(1) 33,275
- --------------------------------------------------------------------------------
591,500 Invitrogen Corp.(1) 34,248
- --------------------------------------------------------------------------------
726,700 Neurocrine Biosciences Inc.(1) 33,828
- --------------------------------------------------------------------------------
181,457
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 2.8%
- --------------------------------------------------------------------------------
617,500 Goldman Sachs Group, Inc. (The) 60,750
- --------------------------------------------------------------------------------
1,799,600 Northern Trust Corp. 76,555
- --------------------------------------------------------------------------------
137,305
- --------------------------------------------------------------------------------
CHEMICALS -- 2.3%
- --------------------------------------------------------------------------------
2,614,000 Monsanto Co. 111,749
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 0.9%
- --------------------------------------------------------------------------------
1,531,100 Monster Worldwide Inc.(1) 42,947
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 6.0%
- --------------------------------------------------------------------------------
8,106,400 Cisco Systems Inc.(1) 155,723
- --------------------------------------------------------------------------------
993,300 Juniper Networks, Inc.(1) 26,432
- --------------------------------------------------------------------------------
2,606,000 Motorola, Inc. 44,980
- --------------------------------------------------------------------------------
1,693,700 QUALCOMM Inc. 70,814
- --------------------------------------------------------------------------------
297,949
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 3.5%
- --------------------------------------------------------------------------------
3,352,900 Dell Inc.(1) 117,552
- --------------------------------------------------------------------------------
4,208,200 EMC Corp.(1) 54,160
- --------------------------------------------------------------------------------
171,712
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 1.7%
- --------------------------------------------------------------------------------
1,616,200 American Express Co. 85,772
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 1.2%
- --------------------------------------------------------------------------------
1,547,000 J.P. Morgan Chase & Co. 59,714
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.5%
- --------------------------------------------------------------------------------
3,600,500 Sprint Corp. 75,430
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 3.1%
- --------------------------------------------------------------------------------
1,268,700 CVS Corp. 55,138
- --------------------------------------------------------------------------------
1,807,100 Wal-Mart Stores, Inc. 97,439
- --------------------------------------------------------------------------------
152,577
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.7%
- --------------------------------------------------------------------------------
912,900 McCormick & Company, Inc. $ 32,344
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 9.1%
- --------------------------------------------------------------------------------
1,426,200 Bard (C.R.), Inc. 81,008
- --------------------------------------------------------------------------------
494,700 Baxter International, Inc. 15,217
- --------------------------------------------------------------------------------
284,500 Cooper Companies, Inc. (The) 20,015
- --------------------------------------------------------------------------------
860,700 Fisher Scientific International(1) 49,370
- --------------------------------------------------------------------------------
971,500 Guidant Corp. 64,721
- --------------------------------------------------------------------------------
2,765,000 Hospira Inc.(1) 88,231
- --------------------------------------------------------------------------------
2,635,200 Medtronic, Inc. 134,685
- --------------------------------------------------------------------------------
453,247
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 1.8%
- --------------------------------------------------------------------------------
1,749,000 Carnival Corporation 88,429
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 4.5%
- --------------------------------------------------------------------------------
975,400 Kimberly-Clark Corp. 58,202
- --------------------------------------------------------------------------------
3,222,900 Procter & Gamble Co. (The) 164,948
- --------------------------------------------------------------------------------
223,150
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 5.3%
- --------------------------------------------------------------------------------
281,000 3M Co. 21,797
- --------------------------------------------------------------------------------
4,775,100 General Electric Co. 162,927
- --------------------------------------------------------------------------------
1,104,700 Textron Inc. 75,285
- --------------------------------------------------------------------------------
260,009
- --------------------------------------------------------------------------------
INSURANCE -- 1.0%
- --------------------------------------------------------------------------------
807,700 American International Group, Inc. 49,035
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 1.2%
- --------------------------------------------------------------------------------
609,300 eBay Inc.(1) 59,474
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 2.6%
- --------------------------------------------------------------------------------
1,009,400 VeriSign, Inc.(1) 27,082
- --------------------------------------------------------------------------------
2,735,800 Yahoo! Inc.(1) 99,009
- --------------------------------------------------------------------------------
126,091
- --------------------------------------------------------------------------------
IT SERVICES -- 1.3%
- --------------------------------------------------------------------------------
1,518,000 First Data Corp. 62,663
- --------------------------------------------------------------------------------
MEDIA -- 2.1%
- --------------------------------------------------------------------------------
48,394 DreamWorks
Animation SKG Inc.(1) 1,890
- --------------------------------------------------------------------------------
2,402,100 Univision
Communications Inc. Cl A(1) 74,369
- --------------------------------------------------------------------------------
909,900 XM Satellite Radio
Holdings Inc. Cl A(1) 29,408
- --------------------------------------------------------------------------------
105,667
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 3.6%
- --------------------------------------------------------------------------------
1,633,400 Kohl's Corp.(1) 82,911
- --------------------------------------------------------------------------------
1,853,600 Target Corporation 92,717
- --------------------------------------------------------------------------------
175,628
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.2%
- --------------------------------------------------------------------------------
141,562 Zebra Technologies
Corp. Cl A(1) 7,501
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
13
Growth - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
OIL & GAS -- 3.1%
- --------------------------------------------------------------------------------
1,508,100 Apache Corp. $ 76,461
- --------------------------------------------------------------------------------
1,334,500 Occidental Petroleum Corp. 74,505
- --------------------------------------------------------------------------------
150,966
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 2.4%
- --------------------------------------------------------------------------------
693,183 Alberto-Culver Company Cl B 31,096
- --------------------------------------------------------------------------------
2,065,600 Gillette Company 85,681
- --------------------------------------------------------------------------------
116,777
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 9.3%
- --------------------------------------------------------------------------------
786,900 Eli Lilly and Company 43,209
- --------------------------------------------------------------------------------
2,482,800 Johnson & Johnson 144,946
- --------------------------------------------------------------------------------
1,065,100 Novartis AG ORD 50,857
- --------------------------------------------------------------------------------
600,400 Novo Nordisk A/S Cl B ORD 29,904
- --------------------------------------------------------------------------------
3,134,200 Pfizer, Inc. 90,735
- --------------------------------------------------------------------------------
1,002,900 Roche Holding AG ORD 102,651
- --------------------------------------------------------------------------------
462,302
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 7.2%
- --------------------------------------------------------------------------------
2,408,400 Altera Corp.(1) 54,743
- --------------------------------------------------------------------------------
2,173,200 Applied Materials, Inc.(1) 34,989
- --------------------------------------------------------------------------------
800,700 Broadcom Corp.(1) 21,659
- --------------------------------------------------------------------------------
7,112,000 Intel Corp. 158,313
- --------------------------------------------------------------------------------
1,607,900 Linear Technology Corp. 60,907
- --------------------------------------------------------------------------------
1,716,600 Teradyne, Inc.(1) 28,427
- --------------------------------------------------------------------------------
359,038
- --------------------------------------------------------------------------------
SOFTWARE -- 6.1%
- --------------------------------------------------------------------------------
6,216,200 Microsoft Corporation 173,990
- --------------------------------------------------------------------------------
2,511,900 Novell, Inc.(1) 18,061
- --------------------------------------------------------------------------------
943,100 Oracle Corp.(1) 11,940
- --------------------------------------------------------------------------------
1,433,800 SAP AG ADR 61,152
- --------------------------------------------------------------------------------
1,833,800 Veritas Software Corp.(1) 40,124
- --------------------------------------------------------------------------------
305,267
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.5%
- --------------------------------------------------------------------------------
1,210,500 Home Depot, Inc. $ 49,727
- --------------------------------------------------------------------------------
990,100 Ross Stores, Inc. 26,010
- --------------------------------------------------------------------------------
75,737
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.9%
- --------------------------------------------------------------------------------
516,400 NIKE, Inc. Cl B 41,988
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 1.2%
- --------------------------------------------------------------------------------
948,800 MGIC Investment Corp. 61,017
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $4,246,523) 4,891,683
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 1.7%
Repurchase Agreement, Credit Suisse First
Boston Corp., (collateralized by various
U.S. Treasury obligations, 5.50%-7.125%,
2/15/23-8/15/28, valued at $55,033), in a joint
trading account at 1.73%, dated 10/29/04,
due 11/1/04 (Delivery value $54,008) 54,000
- --------------------------------------------------------------------------------
Repurchase Agreement, Goldman Sachs & Co.,
(collateralized by various U.S. Treasury obligations
5.25%, 2/15/29, valued at $30,997), in a joint
trading account at 1.73%, dated 10/29/04,
due 11/1/04 (Delivery value $30,404) 30,400
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $84,400) 84,400
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.8%
(Cost $4,330,923) 4,976,083
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.8)% (37,880)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $4,938,203
================================================================================
See Notes to Financial Statements. (continued)
- ------
14
Growth - Schedule of Investments
OCTOBER 31, 2004
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
($ IN THOUSANDS)
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
- -------------------------------------------------------------------------------
126,578,914 CHF for USD 11/30/04 $105,961 $(179)
- -------------------------------------------------------------------------------
114,781,275 DKK for USD 11/30/04 19,745 (14)
- -------------------------------------------------------------------------------
8,380,051 Euro for USD 11/30/04 10,712 5
- -------------------------------------------------------------------------------
9,520,017 Euro for USD 11/30/04 12,169 (1)
- -------------------------------------------------------------------------------
14,781,080 Euro for USD 11/30/04 18,895 (7)
- -------------------------------------------------------------------------------
$167,482 $(196)
==================================
(Value on Settlement Date $167,286)
*FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the fund to
exchange a foreign currency for U.S. dollars on a specific date in the future -
and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
CHF = Swiss Franc
DKK = Danish Krone
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
- ------
15
Shareholder Fee Examples (Unaudited)
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 May 1, 2004 to October 31, 2004.
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 fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century 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 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
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.
(continued)
- ------
16
Shareholder Fee Examples (Unaudited)
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.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 5/1/04 - EXPENSE
5/1/04 10/31/04 10/31/04 RATIO*
HERITAGE SHAREHOLDER FEE EXAMPLE
- -------------------------------------------------------------------------------
ACTUAL
- -------------------------------------------------------------------------------
Investor Class $1,000 $993.50 $5.01 1.00%
- -------------------------------------------------------------------------------
Institutional Class $1,000 $994.50 $4.01 0.80%
- -------------------------------------------------------------------------------
Advisor Class $1,000 $991.60 $6.26 1.25%
- -------------------------------------------------------------------------------
C Class $1,000 $987.70 $9.99 2.00%
- -------------------------------------------------------------------------------
HYPOTHETICAL
- -------------------------------------------------------------------------------
Investor Class $1,000 $1,020.11 $5.08 1.00%
- -------------------------------------------------------------------------------
Institutional Class $1,000 $1,021.11 $4.06 0.80%
- -------------------------------------------------------------------------------
Advisor Class $1,000 $1,018.85 $6.34 1.25%
- -------------------------------------------------------------------------------
C Class $1,000 $1,015.08 $10.13 2.00%
- -------------------------------------------------------------------------------
GROWTH SHAREHOLDER FEE EXAMPLE
- -------------------------------------------------------------------------------
ACTUAL
- -------------------------------------------------------------------------------
Investor Class $1,000 $1,036.00 $5.12 1.00%
- -------------------------------------------------------------------------------
Institutional Class $1,000 $1,036.80 $4.10 0.80%
- -------------------------------------------------------------------------------
Advisor Class $1,000 $1,034.60 $6.39 1.25%
- -------------------------------------------------------------------------------
C Class $1,000 $1,030.50 $10.21 2.00%
- -------------------------------------------------------------------------------
R Class $1,000 $1,033.30 $7.67 1.50%
- -------------------------------------------------------------------------------
HYPOTHETICAL
- -------------------------------------------------------------------------------
Investor Class $1,000 $1,020.11 $5.08 1.00%
- -------------------------------------------------------------------------------
Institutional Class $1,000 $1,021.11 $4.06 0.80%
- -------------------------------------------------------------------------------
Advisor Class $1,000 $1,018.85 $6.34 1.25%
- -------------------------------------------------------------------------------
C Class $1,000 $1,015.08 $10.13 2.00%
- -------------------------------------------------------------------------------
R Class $1,000 $1,017.60 $7.61 1.50%
- -------------------------------------------------------------------------------
*Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
184, the number of days in the most recent fiscal half-year, divided by 366, to
reflect the one-half year period.
- ------
17
Statement of Assets and Liabilities
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) HERITAGE GROWTH
ASSETS
- --------------------------------------------
Investment securities, at value (cost of
$1,089,773 and $4,330,923, respectively) $1,232,748 $4,976,083
- --------------------------------------------
Receivable for investments sold 32,848 55,377
- --------------------------------------------
Receivable for forward foreign currency
exchange contracts 1 5
- --------------------------------------------
Receivable for capital shares sold 27 127
- --------------------------------------------
Dividends and interest receivable 397 3,275
- --------------------------------------------------------------------------------
1,266,021 5,034,867
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------
Disbursements in excess of demand
deposit cash 1,228 9,816
- --------------------------------------------
Payable for investments purchased 41,181 82,614
- --------------------------------------------
Payable for forward foreign currency
exchange contracts -- 201
- --------------------------------------------
Accrued management fees 1,017 4,000
- --------------------------------------------
Distribution fees payable 4 17
- --------------------------------------------
Service fees (and distribution
fees - R Class) payable 3 16
- --------------------------------------------------------------------------------
43,433 96,664
- --------------------------------------------------------------------------------
NET ASSETS $1,222,588 $4,938,203
================================================================================
See Notes to Financial Statements. (continued)
- ------
18
Statement of Assets and Liabilities
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) HERITAGE GROWTH
NET ASSETS CONSIST OF:
- --------------------------------------------
Capital (par value and paid-in surplus) $1,301,357 $5,863,227
- --------------------------------------------
Undistributed net investment income -- 182
- --------------------------------------------
Accumulated net realized loss on investment
and foreign currency transactions (221,772) (1,570,221)
- --------------------------------------------
Net unrealized appreciation on investments
and translation of assets
and liabilities in foreign currencies 143,003 645,015
- --------------------------------------------------------------------------------
$1,222,588 $4,938,203
================================================================================
INVESTOR CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $1,147,817,298 $4,175,506,860
- --------------------------------------------
Shares outstanding 106,629,527 226,615,546
- --------------------------------------------
Net asset value per share $10.76 $18.43
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $58,259,031 $685,089,821
- --------------------------------------------
Shares outstanding 5,361,069 36,855,393
- --------------------------------------------
Net asset value per share $10.87 $18.59
- --------------------------------------------------------------------------------
ADVISOR CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $15,622,583 $76,961,500
- --------------------------------------------
Shares outstanding 1,468,436 4,224,514
- --------------------------------------------
Net asset value per share $10.64 $18.22
- --------------------------------------------------------------------------------
C CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $889,100 $632,011
- --------------------------------------------
Shares outstanding 85,378 35,280
- --------------------------------------------
Net asset value per share $10.41 $17.91
- --------------------------------------------------------------------------------
R CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets N/A $12,368
- --------------------------------------------
Shares outstanding N/A 675
- --------------------------------------------
Net asset value per share N/A $18.32
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
19
Statement of Operations
YEAR ENDED OCTOBER 31, 2004
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) HERITAGE GROWTH
INVESTMENT LOSS
INCOME:
- --------------------------------------------
Dividends (net of foreign taxes withheld
of $14 and $529, respectively) $ 6,918 $ 46,285
- --------------------------------------------
Interest 381 622
- --------------------------------------------------------------------------------
7,299 46,907
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------
Management fees 12,821 48,430
- --------------------------------------------
Distribution fees:
- --------------------------------------------
Advisor Class 38 170
- --------------------------------------------
C Class 7 5
- --------------------------------------------
Service fees:
- --------------------------------------------
Advisor Class 38 170
- --------------------------------------------
C Class 2 2
- --------------------------------------------
Service and distribution fees -- R Class -- --
- --------------------------------------------
Directors' fees and expenses 19 74
- --------------------------------------------
Other expenses 9 32
- --------------------------------------------------------------------------------
12,934 48,883
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (5,635) (1,976)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------
NET REALIZED GAIN (LOSS) ON:
- --------------------------------------------
Investment transactions 103,707 550,690
- --------------------------------------------
Foreign currency transactions 48 (11,812)
- --------------------------------------------------------------------------------
103,755 538,878
- --------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
- --------------------------------------------
Investments (101,524) (204,619)
- --------------------------------------------
Translation of assets and liabilities
in foreign currencies 27 (622)
- --------------------------------------------------------------------------------
(101,497) (205,241)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 2,258 333,637
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (3,377) $ 331,661
================================================================================
See Notes to Financial Statements.
- ------
20
Statement of Changes in Net Assets
YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
- -------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) HERITAGE GROWTH
- -------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2004 2003 2004 2003
OPERATIONS
Net investment income (loss) $ (5,635) $ (4,418) $ (1,976) $ 3,234
- ---------------------------------
Net realized gain 103,755 3,127 538,878 137,796
- ---------------------------------
Change in net
unrealized appreciation (101,497) 209,415 (205,241) 586,444
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations (3,377) 208,124 331,661 727,474
- -------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets
from capital share transactions (89,270) (59,094) (417,621) (143,282)
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS (92,647) 149,030 (85,960) 584,192
NET ASSETS
Beginning of period 1,315,235 1,166,205 5,024,163 4,439,971
- -------------------------------------------------------------------------------------------------------------
End of period $1,222,588 $1,315,235 $4,938,203 $5,024,163
=============================================================================================================
Accumulated undistributed
net investment income (loss) -- -- $182 $(474)
=============================================================================================================
See Notes to Financial Statements.
- ------
21
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Heritage Fund (Heritage) and Growth Fund
(Growth) (collectively, the funds) are two funds in a series issued by the
corporation. The funds are diversified under the 1940 Act. The funds' investment
objective is to seek long-term capital growth. The funds pursue this objective
by investing primarily in equity securities. Heritage generally invests in
companies that are medium-sized and smaller at the time of purchase, but may
invest in companies of any size. Growth generally invests in larger companies,
but may purchase companies of any size. The following is a summary of the funds'
significant accounting policies.
MULTIPLE CLASS -- Heritage is authorized to issue the Investor Class, the
Institutional Class, the Advisor Class and the C Class. Growth is authorized to
issue the Investor Class, the Institutional Class, the Advisor Class, the C
Class and the R Class. The C Class may be subject to a contingent deferred sales
charge. The share classes differ principally in their respective sales charges
and shareholder servicing and distribution expenses and arrangements. All shares
of each fund represent an equal pro rata interest in the 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 funds are allocated to each class of shares
based on their relative net assets. Sale of the R Class for Growth commenced on
August 29, 2003.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. 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 close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
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.
FUTURES CONTRACTS -- The funds may enter into futures contracts in order to
manage the funds' exposure to changes in market conditions. 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. Upon entering into a futures contract, the funds are required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the funds. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The funds recognize a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially expressed
in foreign currencies are translated into U.S. dollars at prevailing exchange
rates at period end. Purchases and sales of investment securities, dividend and
interest income, and certain expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions. For assets and
liabilities, other than investments in securities, net realized and unrealized
gains and losses from foreign currency translations arise from changes in
currency exchange rates.
(continued)
- ------
22
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of investment securities are a component of realized
gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose taxes
on the contract amount of purchases and sales of foreign currency contracts in
their currency. The funds record the foreign tax expense, if any, as a reduction
to the net realized gain (loss) on foreign currency transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The funds may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the funds' exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the funds and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The funds bear the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that ACIM has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. Each fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable each 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 each fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, each fund, along with other registered investment
companies having management agreements with ACIM, 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.
WHEN-ISSUED AND FORWARD COMMITMENTS -- The funds may engage in securities
transactions on a when-issued or forward commitment 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 funds will
segregate cash, cash equivalents or other appropriate liquid securities on their
records in amounts sufficient to meet the purchase price.
INCOME TAX STATUS -- It is each 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. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
USE OF ESTIMATES -- 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.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement with
ACIM, under which ACIM provides the funds 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 the funds, except
brokerage commissions, taxes, interest, fees and expenses of those directors who
are not considered "interested persons" as defined in the 1940 Act (including
counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is
computed and accrued daily based on the daily net assets of the specific class
of shares of each fund and paid monthly in arrears. For funds with a stepped fee
schedule, the rate of the fee is determined by applying a fee rate calculation
formula. This formula takes into account all of the investment manager's assets
under management in each fund's investment strategy (strategy assets) to
calculate the appropriate fee rate for each fund. The strategy assets include
each fund's assets and the assets of other clients of the investment manager
that are not in the American Century family of funds, but that have the same
investment team and investment strategy. The annual management fee for Heritage
is 1.00%, 0.80%, 0.75% and 1.00%, for the Investor Class, Institutional Class,
Advisor Class, and C Class, respectively.
(continued)
- ------
23
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The annual management fee schedule for each class of Growth is as follows:
INVESTOR, C & R INSTITUTIONAL ADVISOR
- -------------------------------------------------------------------------------
STRATEGY ASSETS
- -------------------------------------------------------------------------------
First $20 billion 1.000% 0.800% 0.750%
- -------------------------------------------------------------------------------
Next $10 billion 0.950% 0.750% 0.700%
- -------------------------------------------------------------------------------
Next $10 billion 0.925% 0.725% 0.675%
- -------------------------------------------------------------------------------
Next $10 billion 0.900% 0.700% 0.650%
- -------------------------------------------------------------------------------
Over $50 billion 0.875% 0.675% 0.625%
- -------------------------------------------------------------------------------
The effective annual management fee for each class of Growth for the year ended
October 31, 2004 was 1.00%, 0.80%, 0.75%, 1.00% and 1.00% for the Investor
Class, Institutional Class, Advisor Class, C Class and R Class, respectively.
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a Master
Distribution and Shareholder Services Plan for the Advisor Class (the Advisor
Class plan) and a separate Master Distribution and Individual Shareholder
Services Plan for each of the C Class and R Class (collectively with the Advisor
Class Plan, the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans
provide that the Advisor Class and C Class will pay American Century Investment
Services, Inc. (ACIS) the following annual distribution and service fees:
- --------------------------------------------------------------------------------
ADVISOR C
- --------------------------------------------------------------------------------
Distribution Fee 0.25% 0.75%
- --------------------------------------------------------------------------------
Service Fee 0.25% 0.25%
- --------------------------------------------------------------------------------
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 distribution fee
provides compensation for expenses incurred in connection with distributing
shares of the classes including, but not limited to, payments to brokers,
dealers, and financial institutions that have entered into sales agreements with
respect to shares of the funds. The service fee provides compensation for
shareholder and administrative services rendered by ACIS, its affiliates or
independent third party providers for Advisor Class shares and for individual
shareholder services rendered by broker/dealers or other independent financial
intermediaries for C Class and R Class shares. Fees incurred under the plans
during the year ended October 31, 2004, are detailed in the Statement of
Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
manager, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services Corporation.
During the year ended October 31, 2004, the funds invested in a money market
fund for temporary purposes, which was managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC. The funds have a bank line
of credit agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a custodian of
the funds and a wholly owned subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year ended
October 31, 2004, were as follows:
- --------------------------------------------------------------------------------
HERITAGE GROWTH
- --------------------------------------------------------------------------------
Purchases $3,337,104 $6,480,349
- --------------------------------------------------------------------------------
Proceeds from sales $3,379,810 $6,768,755
- --------------------------------------------------------------------------------
(continued)
- ------
24
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows:
HERITAGE GROWTH
- ---------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------
INVESTOR CLASS
- ---------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 400,000 800,000
=======================================================================================
Sold 18,155 $ 199,799 13,385 $ 241,728
- ------------------------------
Redeemed (25,325) (275,696) (38,762) (700,700)
- ---------------------------------------------------------------------------------------
Net decrease (7,170) $ (75,897) (25,377) $ (458,972)
=======================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 400,000 800,000
=======================================================================================
Sold 28,648 $ 268,539 22,332 $ 339,445
- ------------------------------
Redeemed (25,669) (240,926) (37,389) (575,738)
- ---------------------------------------------------------------------------------------
Net increase (decrease) 2,979 $ 27,613 (15,057) $ (236,293)
=======================================================================================
INSTITUTIONAL CLASS
- ---------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 40,000 100,000
=======================================================================================
Sold 467 $ 5,131 7,170 $ 130,918
- ------------------------------
Redeemed (1,894) (20,717) (5,902) (107,320)
- ---------------------------------------------------------------------------------------
Net increase (decrease) (1,427) $(15,586) 1,268 $ 23,598
=======================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 40,000 80,000
=======================================================================================
Sold 3,262 $ 30,046 9,165 $142,960
- ------------------------------
Redeemed (13,083) (125,319) (4,228) (65,226)
- ---------------------------------------------------------------------------------------
Net increase (decrease) (9,821) $ (95,273) 4,937 $ 77,734
=======================================================================================
ADVISOR CLASS
- ---------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 100,000 210,000
=======================================================================================
Sold 877 $ 9,697 2,568 $ 45,622
- ------------------------------
Redeemed (688) (7,510) (1,558) (27,851)
- ---------------------------------------------------------------------------------------
Net increase 189 $ 2,187 1,010 $ 17,771
=======================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 100,000 210,000
=======================================================================================
Sold 1,288 $11,993 1,900 $ 29,049
- ------------------------------
Redeemed (422) (4,042) (898) (13,838)
- ---------------------------------------------------------------------------------------
Net increase 866 $ 7,951 1,002 $ 15,211
=======================================================================================
(continued)
- ------
25
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
HERITAGE GROWTH
- ---------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------
C CLASS
- ---------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 100,000 100,000
=======================================================================================
Sold 28 $ 307 9 $ 163
- ------------------------------
Redeemed (26) (281) (11) (190)
- ---------------------------------------------------------------------------------------
Net increase (decrease) 2 $ 26 (2) $ (27)
=======================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 100,000 100,000
=======================================================================================
Sold 72 $669 6 $ 92
- ------------------------------
Redeemed (5) (54) (2) (29)
- ---------------------------------------------------------------------------------------
Net increase 67 $615 4 $ 63
=======================================================================================
R CLASS
- ---------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED N/A 50,000
=======================================================================================
Sold 1 $9
=======================================================================================
PERIOD ENDED OCTOBER 31, 2003(
SHARES AUTHORIZED N/A 50,000
=======================================================================================
Sold -- $3
=======================================================================================
(1) August 29, 2003 (commencement of sale) through October 31, 2003 for Growth.
5. BANK LINE OF CREDIT
The funds, along with certain other funds managed by ACIM, have a $650 million
unsecured bank line of credit agreement with JPMCB. The funds may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The
funds did not borrow from the line during the year ended October 31, 2004.
(continued)
- ------
26
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
6. FEDERAL TAX INFORMATION
The 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. There were no distributions paid
by the funds during the years ended October 31, 2004 and October 31, 2003.
As of October 31, 2004, the components of distributable earnings on a tax-basis
and the federal tax cost of investments were as follows:
- --------------------------------------------------------------------------------
HERITAGE GROWTH
- --------------------------------------------------------------------------------
COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST
- --------------------------------------------------------------------------------
Federal tax cost of investments $1,093,327 $4,338,265
================================================================================
Gross tax appreciation of investments $144,283 $745,298
- ---------------------------------------------------
Gross tax depreciation of investments (4,862) (107,480)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $139,421 $637,818
================================================================================
Net tax appreciation (depreciation) of
derivatives and translation of assets
and liabilities in foreign currencies $ (1) $ 37
- --------------------------------------------------------------------------------
Net tax appreciation $139,420 $637,855
================================================================================
Undistributed ordinary income -- --
- ---------------------------------------------------
Accumulated capital losses $(218,189) $(1,562,879)
- --------------------------------------------------------------------------------
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 and the realization for tax purposes of unrealized gains on certain
forward foreign currency contracts.
The accumulated capital losses listed above represent net capital loss
carryovers that may be used to offset future realized capital gains for federal
income tax purposes. The capital loss carryovers expire as follows:
- --------------------------------------------------------------------------------
2009 2010 2011
- --------------------------------------------------------------------------------
Heritage $(105,079) $(108,653) $(4,457)
- --------------------------------------------------------------------------------
Growth -- $(529,714) $(1,033,165)
- --------------------------------------------------------------------------------
- ------
27
Heritage - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
PER-SHARE DATA
Net Asset Value,
Beginning of Period $10.78 $9.11 $10.13 $19.10 $13.02
- --------------------------------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------------
Net Investment Loss(1) (0.05) (0.04) (0.04) --(2) (0.03)
- ---------------------------------
Net Realized and
Unrealized Gain (Loss) 0.03 1.71 (0.98) (5.33) 7.63
- --------------------------------------------------------------------------------------------------------
Total From
Investment Operations (0.02) 1.67 (1.02) (5.33) 7.60
- --------------------------------------------------------------------------------------------------------
Distributions
- ---------------------------------
From Net Investment Income -- -- -- -- (0.04)
- ---------------------------------
From Net Realized Gains -- -- -- (3.64) (1.48)
- --------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (3.64) (1.52)
- --------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.76 $10.78 $9.11 $10.13 $19.10
========================================================================================================
TOTAL RETURN(3) (0.09)% 18.33% (10.07)% (33.08)% 62.61%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.00% 1.00% 1.00% 1.00% 1.00%
- ---------------------------------
Ratio of Net Investment Loss
to Average Net Assets (0.44)% (0.39)% (0.37)% (0.02)% (0.17)%
- ---------------------------------
Portfolio Turnover Rate 264% 129% 128% 152% 119%
- ---------------------------------
Net Assets, End of Period
(in millions) $1,148 $1,227 $1,010 $1,206 $1,975
- --------------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
28
Heritage - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- -------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- -------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
PER-SHARE DATA
Net Asset Value,
Beginning of Period $10.86 $9.17 $10.17 $19.14 $13.04
- -------------------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------------
Net Investment
Income (Loss)(1) (0.03) (0.01) (0.02) --(2) --(2)
- --------------------------------
Net Realized and
Unrealized Gain (Loss) 0.04 1.70 (0.98) (5.30) 7.65
- -------------------------------------------------------------------------------------------------------
Total From
Investment Operations 0.01 1.69 (1.00) (5.30) 7.65
- -------------------------------------------------------------------------------------------------------
Distributions
- -------------------------------
From Net Investment Income -- -- -- -- (0.07)
- -------------------------------
From Net Realized Gains -- -- -- (3.67) (1.48)
- -------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (3.67) (1.55)
- -------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.87 $10.86 $9.17 $10.17 $19.14
=======================================================================================================
TOTAL RETURN(3) 0.09% 18.43% (9.83)% (32.84)% 63.00%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 0.80% 0.80% 0.80% 0.80% 0.80%
- -------------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets (0.24)% (0.19)% (0.17)% 0.18% 0.03%
- -------------------------------
Portfolio Turnover Rate 264% 129% 128% 152% 119%
- -------------------------------
Net Assets, End of Period
(in thousands) $58,259 $73,735 $152,256 $79,882 $8,302
- -------------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
29
Heritage - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
PER-SHARE DATA
Net Asset Value,
Beginning of Period $10.68 $9.05 $10.09 $19.05 $12.98
- --------------------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------------
Net Investment Loss(1) (0.07) (0.06) (0.06) (0.04) (0.07)
- --------------------------------
Net Realized and
Unrealized Gain (Loss) 0.03 1.69 (0.98) (5.32) 7.62
- --------------------------------------------------------------------------------------------------------
Total From
Investment Operations (0.04) 1.63 (1.04) (5.36) 7.55
- --------------------------------------------------------------------------------------------------------
Distributions
- -------------------------------
From Net Investment Income -- -- -- -- --(2)
- --------------------------------
From Net Realized Gains -- -- -- (3.60) (1.48)
- --------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (3.60) (1.48)
- --------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.64 $10.68 $9.05 $10.09 $19.05
========================================================================================================
TOTAL RETURN(3) (0.37)% 18.01% (10.31)% (33.30)% 62.26%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.25% 1.25% 1.25% 1.25% 1.25%
- --------------------------------
Ratio of Net Investment Loss
to Average Net Assets (0.69)% (0.64)% (0.62)% (0.27)% (0.42)%
- --------------------------------
Portfolio Turnover Rate 264% 129% 128% 152% 119%
- --------------------------------
Net Assets, End of Period
(in thousands) $15,623 $13,668 $3,737 $2,146 $2,127
- --------------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
30
Heritage - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- -----------------------------------------------------------------------------------------
C CLASS
- -----------------------------------------------------------------------------------------
2004 2003 2002 2001(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $10.54 $8.99 $10.10 $12.43
- -----------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------------
Net Investment Loss(2) (0.15) (0.13) (0.13) (0.06)
- -------------------------------
Net Realized and
Unrealized Gain (Loss) 0.02 1.68 (0.98) (2.27)
- -----------------------------------------------------------------------------------------
Total From
Investment Operations (0.13) 1.55 (1.11) (2.33)
- -----------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.41 $10.54 $8.99 $10.10
=========================================================================================
TOTAL RETURN(3) (1.23)% 17.24% (10.99)% (18.74)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 2.00% 2.00% 2.00% 2.00%(4)
- --------------------------------
Ratio of Net Investment Loss
to Average Net Assets (1.44)% (1.39)% (1.37)% (1.50)%(4)
- --------------------------------
Portfolio Turnover Rate 264% 129% 128% 152%(5)
- --------------------------------
Net Assets, End of Period
(in thousands) $889 $872 $146 $3
- -----------------------------------------------------------------------------------------
(1) June 26, 2001 (commencement of sale) through October 31, 2001.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense differences
because of the impact of calculating the net asset values to two decimal
places. If net asset values were calculated to three decimal places, the
total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is
made in accordance with SEC guidelines and does not result in any gain or
loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2001.
See Notes to Financial Statements.
- ------
31
Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
PER-SHARE DATA
Net Asset Value,
Beginning of Period $17.26 $14.80 $17.85 $31.09 $31.60
- --------------------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------------
Net Investment
Income (Loss)(1) (0.01) 0.01 (0.01) --(2) (0.10)
- -------------------------------
Net Realized and
Unrealized Gain (Loss) 1.18 2.45 (3.04) (9.66) 3.73
- --------------------------------------------------------------------------------------------------------
Total From
Investment Operations 1.17 2.46 (3.05) (9.66) 3.63
- --------------------------------------------------------------------------------------------------------
Distributions
- -------------------------------
From Net Realized Gains -- -- -- (3.58) (4.14)
- --------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $18.43 $17.26 $14.80 $17.85 $31.09
========================================================================================================
TOTAL RETURN(3) 6.78% 16.62% (17.09)% (34.14)% 11.49%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.00% 1.00% 1.00% 1.00% 1.00%
- -------------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets (0.07)% 0.05% (0.04)% (0.01)% (0.30)%
- -------------------------------
Portfolio Turnover Rate 131% 159% 135% 114% 102%
- -------------------------------
Net Assets, End of Period
(in millions) $4,176 $4,350 $3,951 $5,715 $9,557
- --------------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
32
Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
PER-SHARE DATA
Net Asset Value,
Beginning of Period $17.38 $14.87 $17.90 $31.15 $31.66
- --------------------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------------
Net Investment
Income (Loss)(1) 0.02 0.04 0.02 0.04 (0.03)
- -------------------------------
Net Realized and
Unrealized Gain (Loss) 1.19 2.47 (3.05) (9.65) 3.72
- --------------------------------------------------------------------------------------------------------
Total From
Investment Operations 1.21 2.51 (3.03) (9.61) 3.69
- --------------------------------------------------------------------------------------------------------
Distributions
- -------------------------------
From Net Realized Gains -- -- -- (3.64) (4.20)
- --------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $18.59 $17.38 $14.87 $17.90 $31.15
========================================================================================================
TOTAL RETURN(2) 6.96% 16.88% (16.93)% (33.94)% 11.70%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 0.80% 0.80% 0.80% 0.80% 0.80%
- --------------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets 0.13% 0.25% 0.16% 0.19% (0.10)%
- --------------------------------
Portfolio Turnover Rate 131% 159% 135% 114% 102%
- --------------------------------
Net Assets, End of Period
(in thousands) $685,090 $618,569 $455,807 $84,189 $98,239
- --------------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
33
Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
PER-SHARE DATA
Net Asset Value,
Beginning of Period $17.11 $14.70 $17.78 $31.01 $31.52
- --------------------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------------
Net Investment Loss(1) (0.06) (0.03) (0.05) (0.06) (0.19)
- -------------------------------
Net Realized and
Unrealized Gain (Loss) 1.17 2.44 (3.03) (9.66) 3.73
- --------------------------------------------------------------------------------------------------------
Total From
Investment Operations 1.11 2.41 (3.08) (9.72) 3.54
- --------------------------------------------------------------------------------------------------------
Distributions
- -------------------------------
From Net Realized Gains -- -- -- (3.51) (4.05)
- --------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $18.22 $17.11 $14.70 $17.78 $31.01
========================================================================================================
TOTAL RETURN(2) 6.49% 16.39% (17.32)% (34.40)% 11.23%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.25% 1.25% 1.25% 1.25% 1.25%
- --------------------------------
Ratio of Net Investment Loss
to Average Net Assets (0.32)% (0.20)% (0.29)% (0.26)% (0.55)%
- --------------------------------
Portfolio Turnover Rate 131% 159% 135% 114% 102%
- --------------------------------
Net Assets, End of Period
(in thousands) $76,962 $55,010 $32,530 $25,272 $24,750
- --------------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
34
Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
C CLASS
- --------------------------------------------------------------------------------
2004 2003 2002(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $16.95 $14.66 $19.38
- --------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------------
Net Investment Loss(2) (0.19) (0.15) (0.16)
- -------------------------------
Net Realized and
Unrealized Gain (Loss) 1.15 2.44 (4.56)
- --------------------------------------------------------------------------------
Total From
Investment Operations 0.96 2.29 (4.72)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $17.91 $16.95 $14.66
================================================================================
TOTAL RETURN(3) 5.66% 15.62% (24.36)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 2.00% 2.00% 2.00%(4)
- -------------------------------
Ratio of Net Investment Loss
to Average Net Assets (1.07)% (0.95)% (0.99)%(4)
- -------------------------------
Portfolio Turnover Rate 131% 159% 135%(5)
- -------------------------------
Net Assets, End of Period
(in thousands) $632 $623 $482
- --------------------------------------------------------------------------------
(1) November 28, 2001 (commencement of sale) through October 31, 2002.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense differences
because of the impact of calculating the net asset values to two decimal
places. If net asset values were calculated to three decimal places, the
total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is
made in accordance with SEC guidelines and does not result in any gain or
loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2002.
See Notes to Financial Statements.
- ------
35
Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- -------------------------------------------------------------------------------
R CLASS
- -------------------------------------------------------------------------------
2004 2003(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $17.25 $16.56
- -------------------------------------------------------------------------------
Income From Investment Operations
- ----------------------------------------------------
Net Investment Loss(2) (0.13) (0.02)
- ----------------------------------------------------
Net Realized and Unrealized Gain 1.20 0.71
- -------------------------------------------------------------------------------
Total From Investment Operations 1.07 0.69
- -------------------------------------------------------------------------------
Net Asset Value, End of Period $18.32 $17.25
===============================================================================
TOTAL RETURN(3) 6.20% 4.17%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.50% 1.50%(4)
- ----------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (0.57)% (0.58)%(4)
- ----------------------------------------------------
Portfolio Turnover Rate 131% 159%(5)
- ----------------------------------------------------
Net Assets, End of Period (in thousands) $12 $3
- -------------------------------------------------------------------------------
(1) August 29, 2003 (commencement of sale) through October 31, 2003.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2003.
See Notes to Financial Statements.
- ------
36
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
American Century Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Heritage Fund and Growth Fund, (collectively,
the "Funds"), two of the funds comprising American Century Mutual Funds, Inc.,
as of October 31, 2004, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for the periods presented.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Heritage Fund and Growth Fund as of October 31, 2004, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and their financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 15, 2004
- ------
37
Management
The individuals listed below serve as directors or officers of the funds. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the funds' investment advisor, American
Century Investment Management, Inc. (ACIM); the funds' principal underwriter,
American Century Investment Services, Inc. (ACIS); and the funds' transfer
agent, American Century Services Corporation (ACSC).
The other directors (more than three-fourths of the total numbers) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned subsidiaries, including
ACIM, ACIS, and ACSC. The directors serve in this capacity for six registered
investment companies in the American Century family of funds.
All persons named as officers of the funds also serve in a similar capacity for
the other 13 investment companies advised by ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated for
his or her service as an officer of the funds. The listed officers are
interested persons of the funds and are appointed or re-appointed on an annual
basis.
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
THOMAS A. BROWN 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 23
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Strategic Account Implementation
Manager, Applied Industrial Technologies, Inc., a corporation engaged in the
sale of bearings and power transmission products
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
ANDREA C. HALL, PH.D. 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, Midwest
Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Midwest Research Institute
- --------------------------------------------------------------------------------
D.D. (DEL) HOCK 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1935
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 7
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Chairman,
Public Service Company of Colorado
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Allied Motion Technologies,
Inc. and J.D. Edwards & Company
- --------------------------------------------------------------------------------
(continued)
- ------
38
Management
- --------------------------------------------------------------------------------
DONALD H. PRATT 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director, Vice Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Western Investments,
Inc.; Retired Chairman of the Board, Butler Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Atlas-Copco, North America Inc.
- --------------------------------------------------------------------------------
GALE E. SAYERS 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer, and Founder, Sayers Computer Source
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Triad Hospitals, Inc.
- --------------------------------------------------------------------------------
M. JEANNINE STRANDJORD 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 9
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Chief
Integration Officer, Sprint Corporation (September 2003 to present); Senior Vice
President - Financial Services, Sprint Corporation (January 2003 to September
2003); Senior Vice President, Finance - Global Markets Group, Sprint Corporation
(November 1998 to January 2003)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.
- --------------------------------------------------------------------------------
TIMOTHY S. WEBSTER 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 2
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, American Italian Pasta Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JAMES E. STOWERS, JR.(1) 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director, Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 45
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Director, and
Controlling shareholder, ACC; Chairman, ACSC and other ACC subsidiaries;
Director, ACIM, ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
JAMES E. STOWERS III(1) 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1959
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 13
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Co-Chairman, ACC (September 2000
To present); Chief Executive Officer, ACC (June 1996 to September 2000);
Director, ACC, ACIM, ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
(1) James E. Stowers, Jr. is the father of James E. Stowers III.
(continued)
- ------
39
Management
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM M. LYONS 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUND: President
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and
other ACC subsidiaries (September 2000 to present); President, ACC (June 1997
to present); President, ACIM (September 2002 to present); President, ACIS (July
2003 to present); Chief Operating Officer, ACC (June 1996 to September 2000);
Also serves as: Executive Vice President, ACSC and other ACC subsidiaries
- --------------------------------------------------------------------------------
ROBERT T. JACKSON 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Executive Vice President
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC
(August 1997 to present); Chief Financial Officer, ACC (May 1995 to October
2002); President, ACSC (January 1999 to present); Executive Vice President, ACC
(May 1995 to present); Also serves as: Executive Vice President and Chief
Financial Officer, ACIM, ACIS and other ACC subsidiaries; and Treasurer, ACIM
- --------------------------------------------------------------------------------
MARYANNE ROEPKE 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer, and Chief
Accounting Officer
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President (April 1998
to present) and Assistant Treasurer, ACSC (September 1985 to present)
- --------------------------------------------------------------------------------
DAVID C. TUCKER 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and General
Counsel, ACIM, ACIS, ACSC and other ACC subsidiaries (June 1998 to present);
Vice President and General Counsel, ACC (June 1998 to present)
- --------------------------------------------------------------------------------
DAVID H. REINMILLER 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer
LENGTH OF TIME SERVED (YEARS): 3 and less than 1 year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACSC and
ACIM (March 2001 to present); Vice President, ACSC (March 2000 to present);
Vice President, ACIM (March 2002 to present); Vice President, ACIS (March 2003
to present); Assistant General Counsel, ACSC (December 1996 to January 2001);
Associate General Counsel, ACSC (July 2001 to present)
- --------------------------------------------------------------------------------
ROBERT LEACH 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Controller
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February
2000 to present); Controller-Fund Accounting, ACSC (June 1997 to present)
- --------------------------------------------------------------------------------
JON ZINDEL 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC
(April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries
(April 1999 to present); President, American Century Employee Benefit Services,
Inc. (January 2000 to December 2000); Director, American Century Employee
Benefit Services, Inc. (February 2000 to December 2003); Treasurer, American
Century Employee Benefit Services, Inc. (December 2000 to December 2003);
Treasurer, American Century Ventures, Inc. (December 1999 to April 2001)
- --------------------------------------------------------------------------------
The SAI has additional information about the funds' directors and is available
without charge upon request by calling 1-800-345-2021.
- ------
40
Share Class Information
Four classes of shares are authorized for sale by Heritage: Investor Class,
Institutional Class, Advisor Class, and C Class. Five classes of shares are
authorized by Growth: Investor Class, Institutional Class, Advisor Class, C
Class, and R Class. The total expense ratios of Advisor, C, and R Class shares
are higher than that of Investor Class shares; the total expense ratio of
Institutional Class shares is lower than that of Investor Class shares.
INVESTOR CLASS shares are available for purchase in two ways: 1) directly from
American Century without any commissions or other fees; or 2) through a
broker-dealer, which may require payment of a transaction fee to the broker.
INSTITUTIONAL CLASS shares are available to large investors such as endowments,
foundations, and retirement plans, and to financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million ($3 million
for endowments and foundations) in an American Century fund or at least $10
million in multiple funds. In recognition of the larger investments and account
balances and comparatively lower transaction costs, the total expense ratio of
Institutional Class shares is 0.20% less than the total expense ratio of
Investor Class shares.
ADVISOR CLASS shares are sold primarily through institutions such as investment
advisors, banks, broker-dealers, insurance companies, and financial advisors.
Advisor Class shares are subject to a 0.50% annual Rule 12b-1 service and
distribution fee. The total expense ratio of Advisor Class shares is 0.25%
higher than the total expense ratio of Investor Class shares.
C CLASS shares are sold primarily through employer sponsored retirement plans
and through institutions such as investment advisors, banks, broker-dealers, and
insurance companies. C Class shares redeemed within 12 months of purchase are
subject to a contingent deferred sales charge (CDSC) of 1.00%. There is no CDSC
on shares acquired through reinvestment of dividends or capital gains. C Class
shares also are subject to a Rule 12b-1 service and distribution fee of 1.00%.
R CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as investment advisors, banks, broker-dealers, and
insurance companies. R Class shares are subject to a 0.50% annual Rule 12b-1
service and distribution fee.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
- ------
41
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b),
457 and qualified plans [those not eligible for rollover to an IRA or to another
qualified plan] 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. Even if you plan to roll over the amount you
withdraw to another tax-deferred account, the withholding rate still applies to
the withdrawn amount unless we have received notice not to withhold federal
income tax prior to the withdrawal. 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.
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 funds' investment manager, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the funds. A description of the policies and procedures
the manager uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-345-2021. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
manager 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 funds file their 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 funds' Forms N-Q are available on the SEC's Web site 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 funds also make their complete schedule
of portfolio holdings for the most recent quarter of their fiscal year available
on their Web site at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
42
Index Definitions
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The RUSSELL MIDCAP INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 1000 GROWTH INDEX measures the performance of those Russell 1000
companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth rates.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500 publicly
traded U.S. companies chosen for market size, liquidity, and industry group
representation that are considered to be leading firms in dominant industries.
Each stock's weight in the index is proportionate to its market value. Created
by Standard & Poor's, it is considered to be a broad measure of U.S. stock
market performance.
- ------
43
Notes
- ------
44
[inside back cover -- blank]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR RELATIONS:
1-800-345-2021 or 816-531-5575
BUSINESS, NOT-FOR-PROFIT,
EMPLOYER-SPONSORED RETIREMENT PLANS:
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER:
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.
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
COMPANIES
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Services Corporation.
0412 American Century Investment Services, Inc.
SH-ANN-40955S (c)2004 American Century Services Corporation
[front cover]
OCTOBER 31, 2004
American Century Investments
Annual Report
[photo of market line chart]
[photo of starfish]
[photo of bridge]
Giftrust(reg.tm) Fund
[american century investments logo and text logo]
Table of Contents
Our Message to You....................................................... 1
GIFTRUST
Performance.............................................................. 2
Shareholder Fee Example.................................................. 3
Portfolio Commentary..................................................... 5
Top Ten Holdings...................................................... 5
Top Five Industries................................................... 6
Types of Investments in Portfolio..................................... 6
Schedule of Investments.................................................. 7
FINANCIAL STATEMENTS
Statement of Assets and Liabilities...................................... 10
Statement of Operations.................................................. 11
Statement of Changes in Net Assets....................................... 12
Notes to Financial Statements............................................ 13
Financial Highlights..................................................... 17
Report of Independent Registered Public Accounting Firm.................. 18
OTHER INFORMATION
Management............................................................... 19
Additional Information................................................... 22
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century 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
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century 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 by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
Our Message to You
[photo of James E. Stowers III and James E. Stowers, Jr.]
JAMES E. STOWERS III WITH JAMES E. STOWERS, JR.
We are pleased to provide you with the annual report for the Giftrust fund for
the year ended October 31, 2004.
The report includes comparative performance figures, portfolio and market
commentaries, summary tables, a full list of portfolio holdings, and financial
statements and highlights. We hope you find this information helpful in
monitoring your investment.
Through our Web site, americancentury.com, we provide quarterly commentaries on
all American Century portfolios, the views of our senior investment officers,
and other communications about investments, portfolio strategy, and the markets.
Your next shareholder report for this fund will be the semiannual report dated
April 30, 2005, available in approximately six months.
As always, we deeply appreciate your investment with American Century
Investments.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER AND CHAIRMAN
/s/James E. Stowers III
James E. Stowers III
CO-CHAIRMAN OF THE BOARD
- ------
1
Giftrust - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
--------------------------------
AVERAGE ANNUAL RETURNS
- -----------------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- -----------------------------------------------------------------------------------------
GIFTRUST(1) -1.64% -6.88% 1.23% 11.30% 11/25/1983
- -----------------------------------------------------------------------------------------
RUSSELL MIDCAP
GROWTH INDEX 8.77% -0.19% 9.81% N/A(2) --
- -----------------------------------------------------------------------------------------
(1) Returns would have been lower if management fees had not been waived from
2/1/04 to 7/31/04.
(2) Benchmark began 12/31/85.
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made October 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended October 31
- ----------------------------------------------------------------------------
1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------
Giftrust* 32.52% 9.72% 1.95% -31.55% 59.05%
- ----------------------------------------------------------------------------
Russell Midcap
Growth Index 24.24% 17.95% 24.61% 2.43% 37.66%
- ----------------------------------------------------------------------------
Periods ended October 31
- ----------------------------------------------------------------------------
2000 2001 2002 2003 2004
- ----------------------------------------------------------------------------
Giftrust* 63.10% -56.36% -15.38% 18.18% -1.64%
- ----------------------------------------------------------------------------
Russell Midcap
Growth Index 38.67% -42.78% -17.61% 39.30% 8.77%
- ---------------------------------------------------------------------------
*Returns would have been lower if management fees had not been waived from
2/1/04 to 7/31/04.
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.
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.
- ------
2
Shareholder Fee Example (Unaudited)
SHAREHOLDER FEE EXAMPLE
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 May 1, 2004 to October 31, 2004.
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 fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century 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 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
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.
FUND 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.
(continued)
- ------
3
Shareholder Fee Example (Unaudited)
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.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 5/1/04 - EXPENSE
5/1/04 10/31/04 10/31/04 RATIO*
GIFTRUST SHAREHOLDER FEE EXAMPLE
Actual (after waiver)(1) $1,000 $980.80 $2.39 0.48%
- --------------------------------------------------------------------------------------------------
Actual (before waiver) $1,000 $978.20 $4.97 1.00%
- --------------------------------------------------------------------------------------------------
Hypothetical (after waiver)(1) $1,000 $1,022.72 $2.44 0.48%
- --------------------------------------------------------------------------------------------------
Hypothetical (before waiver) $1,000 $1,020.11 $5.08 1.00%
- --------------------------------------------------------------------------------------------------
*Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
184, the number of days in the most recent fiscal half-year, divided by 366, to
reflect the one-half year period.
(1) During a portion of the year ended October 31, 2004, the manager voluntarily
agreed to waive its management fee. The waiver was in effect from February 1,
2004 to July 31, 2004. Had fees not been waived the annualized ratio of
operating expenses to average net assets would have been 1.00%.
- ------
4
Giftrust - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE GIFTRUST INVESTMENT TEAM: PORTFOLIO MANAGER KURT
STALZER AND PORTFOLIO MANAGER DAVID ROSE
Giftrust fell 1.64%* in the twelve months ended October 31, 2004, while the
Russell Midcap Growth Index rose 8.77%. The average return of its mid-cap growth
peers tracked by Morningstar was 5.68%.
During the year, Giftrust's management team changed. Portfolio manager Linda
Peterson left American Century in March. David Rose, who has been a portfolio
manager with American Century since 2001, now co-manages Giftrust with Kurt
Stalzer.
The change in the management team brought about changes in the holdings in the
portfolio. For example, NII Holdings was added to the portfolio in March and
ended the period as the top contributor to performance. The Virginia-based
company raised its growth forecast for wireless subscribers in Latin America on
the heels of a healthy second-quarter report. A stock that was eliminated from
the portfolio was Ross Stores. The portfolio managers became concerned about
this discount retailer when it reported disappointing February sales, and the
stock was sold at a profit before it experienced further deterioration in the
market.
These changes occurred as the market fought a number of headwinds. The stock
market started the year with the wind at its back as the upswing in economic
growth and stock returns in the last months of 2003 carried into the new year.
But stock market gains eroded over the summer as the price of crude oil surged,
short-term interest rates climbed on the back of three interest rate hikes and
the economy moved through a softer period of growth. In the end, the small-cap
stock indices outperformed the large-cap, and the value discipline significantly
outperformed growth.
Against this backdrop, Giftrust's underperformance relative to the benchmark was
largely attributable to stock selection in the industrials, financials and
information technology sectors.
In the industrials sector, the portfolio was hurt by its investments in the
commercial services industry. Corinthian Colleges was the top detractor during
the period.
TOP TEN HOLDINGS
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
NII Holdings Inc. Cl B 4.9% 0.7%
- --------------------------------------------------------------------------------
Royal Caribbean
Cruises Ltd. 3.9% 1.1%
- --------------------------------------------------------------------------------
Bard (C.R.), Inc. 3.3% 2.1%
- --------------------------------------------------------------------------------
National-Oilwell, Inc. 2.9% --
- --------------------------------------------------------------------------------
Capital One
Financial Corp. 2.5% 2.0%
- --------------------------------------------------------------------------------
Expeditors International
of Washington, Inc. 2.5% 1.2%
- --------------------------------------------------------------------------------
Aetna Inc. 2.3% --
- --------------------------------------------------------------------------------
Charles River Laboratories 2.1% 1.3%
- --------------------------------------------------------------------------------
BJ Services Co. 1.9% 1.2%
- --------------------------------------------------------------------------------
XTO Energy Inc. 1.9% 0.7%
- --------------------------------------------------------------------------------
* Returns would have been lower if management fees had not been waived
from 2/1/04 to 7/31/04.
(continued)
- ------
5
Giftrust - Portfolio Commentary
Shares of this for-profit, post-secondary education school declined when
Corinthian lowered earnings and revenue targets and confirmed a government probe
into its student loan applications.
The specter of rising interest rates loomed over financial stocks early in the
calender year, and Giftrust's financial stake detracted from performance
compared to the benchmark. New York Community Bank was one setback. The banking
company narrowly missed earnings expectations, and analysts cited heavy
investments in mortgage-backed securities as the culprit.
Information technology stocks also weighed on returns. Detractors included
wireless-product manufacturer Sierra Wireless and "supercomputer" maker Cray.
Despite the overall negative performance of technology stocks, the Giftrust team
found some pockets of success. For example, Zebra Technologies was a leading
contributor. Already a market leader in the barcode-printer market, Zebra gained
market share with its radio frequency identification technology for inventory
management.
Within Giftrust's health care stake, C.R. Bard generated positive returns. The
medical device maker reported that a sale of a company division, a number of new
products and an expanded sales organization contributed to a surge in profit.
The best performing group in the market was the energy sector as tight supplies
and strong demand fueled high oil prices. XTO Energy and BJ Services made
substantial contributions to returns.
OUR COMMITMENT
The new Giftrust team remains committed to American Century's growth investment
approach that has been in place for more than thirty years. They will continue
to look for mid-sized and smaller companies with earnings, revenues and other
key business fundamentals that are growing at an accelerating rate.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Energy Equipment &
Services 12.9% 3.2%
- --------------------------------------------------------------------------------
Hotels, Restaurants &
Leisure 9.5% 5.2%
- --------------------------------------------------------------------------------
Household Durables 5.9% 4.5%
- --------------------------------------------------------------------------------
Wireless Telecommunication
Services 5.8% 1.4%
- --------------------------------------------------------------------------------
Software 5.6% 6.2%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 99.6% 97.7%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 1.1% 2.8%
- --------------------------------------------------------------------------------
Collateral Received
for Securities Lending 21.3% 2.4%
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES 122.0% 102.9%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities (22.0)% (2.9)%
- --------------------------------------------------------------------------------
- ------
6
Giftrust - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.6%
AEROSPACE & DEFENSE - 1.0%
- ------------------------------------------------------------------------------
136,000 L-3 Communications
Holdings, Inc.(1) $ 8,966
- ------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS - 2.5%
- ------------------------------------------------------------------------------
377,000 Expeditors International
of Washington, Inc. 21,527
- ------------------------------------------------------------------------------
AUTOMOBILES - 0.5%
- ------------------------------------------------------------------------------
74,000 Harley-Davidson, Inc. 4,260
- ------------------------------------------------------------------------------
BIOTECHNOLOGY - 3.7%
- ------------------------------------------------------------------------------
389,000 Charles River Laboratories(1)(2) 18,201
- ------------------------------------------------------------------------------
280,000 Gilead Sciences, Inc.(1)(2) 9,696
- ------------------------------------------------------------------------------
133,000 United Therapeutics Corp.(1)(2) 4,158
- ------------------------------------------------------------------------------
32,055
- ------------------------------------------------------------------------------
CAPITAL MARKETS - 3.2%
- ------------------------------------------------------------------------------
360,891 Investors Financial
Services Corporation(1) 13,891
- ------------------------------------------------------------------------------
251,949 T. Rowe Price Group Inc. 14,051
- ------------------------------------------------------------------------------
27,942
- ------------------------------------------------------------------------------
CHEMICALS - 1.7%
- ------------------------------------------------------------------------------
507,077 Agrium Inc. 8,412
- ------------------------------------------------------------------------------
21,000 Monsanto Co. 898
- ------------------------------------------------------------------------------
83,000 Potash Corp. of Saskatchewan 5,544
- ------------------------------------------------------------------------------
14,854
- ------------------------------------------------------------------------------
COMMERCIAL BANKS - 1.4%
- ------------------------------------------------------------------------------
97,780 East West BanCorp, Inc. 3,915
- ------------------------------------------------------------------------------
189,000 North Fork
Bancorporation, Inc. 8,335
- ------------------------------------------------------------------------------
12,250
- ------------------------------------------------------------------------------
COMMERCIAL SERVICES &
SUPPLIES - 2.0%
- ------------------------------------------------------------------------------
171,000 Monster Worldwide Inc.(2) 4,797
- ------------------------------------------------------------------------------
483,000 Robert Half International Inc.(1) 12,814
- ------------------------------------------------------------------------------
17,611
- ------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 2.2%
- ------------------------------------------------------------------------------
274,821 Apple Computer, Inc.(2) 14,436
- ------------------------------------------------------------------------------
691,000 Brocade
Communications System(1)(2) 4,692
- ------------------------------------------------------------------------------
19,128
- ------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.3%
- ------------------------------------------------------------------------------
75,000 Cemex SA de CV ADR 2,174
- ------------------------------------------------------------------------------
CONSUMER FINANCE - 4.1%
- ------------------------------------------------------------------------------
295,000 Capital One Financial Corp. 21,759
- ------------------------------------------------------------------------------
867,000 Providian Financial Corp.(2) 13,482
- ------------------------------------------------------------------------------
35,241
- ------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- ------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL
SERVICES - 0.3%
- ------------------------------------------------------------------------------
14,000 Chicago Mercantile Exchange
Holdings Inc. $ 2,460
- ------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES - 0.8%
- ------------------------------------------------------------------------------
318,000 Sprint Corp. 6,662
- ------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS - 2.6%
- ------------------------------------------------------------------------------
254,796 Benchmark
Electronics Inc.(1)(2) 8,655
- ------------------------------------------------------------------------------
190,000 FLIR Systems Inc.(1)(2) 10,111
- ------------------------------------------------------------------------------
117,380 Paxar Corp.(2) 2,588
- ------------------------------------------------------------------------------
23,014 Scansource Inc.(1)(2) 1,425
- ------------------------------------------------------------------------------
22,779
- ------------------------------------------------------------------------------
ENERGY EQUIPMENT &
SERVICES - 12.9%
- ------------------------------------------------------------------------------
323,100 BJ Services Co. 16,478
- ------------------------------------------------------------------------------
470,000 Global SantaFe Corp. 13,865
- ------------------------------------------------------------------------------
123,000 Grant Prideco, Inc.(2) 2,529
- ------------------------------------------------------------------------------
737,426 National-Oilwell, Inc.(1)(2) 24,860
- ------------------------------------------------------------------------------
187,000 Noble Corp.(2) 8,542
- ------------------------------------------------------------------------------
524,000 Patterson-UTI Energy Inc.(1) 10,077
- ------------------------------------------------------------------------------
297,000 Rowan Companies, Inc.(2) 7,582
- ------------------------------------------------------------------------------
271,000 Smith International, Inc.(1)(2) 15,740
- -----------------------------------------------------------------------------
190,246 Todco(2) 3,228
- ------------------------------------------------------------------------------
194,000 Transocean Inc.(2) 6,839
- ------------------------------------------------------------------------------
32,000 Weatherford International Ltd.(2) 1,672
- ------------------------------------------------------------------------------
111,412
- ------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.5%
- ------------------------------------------------------------------------------
1,274,000 Wal-Mart de Mexico
SA de CV, Series V ORD 4,171
- ------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 5.6%
- ------------------------------------------------------------------------------
494,800 Bard (C.R.), Inc. 28,104
- ------------------------------------------------------------------------------
200,936 Fisher Scientific
International(1)(2) 11,526
- ------------------------------------------------------------------------------
65,000 Guidant Corp. 4,330
- ------------------------------------------------------------------------------
120,000 Varian Inc.(2) 4,378
- ------------------------------------------------------------------------------
48,338
- ------------------------------------------------------------------------------
HEALTH CARE PROVIDERS &
SERVICES - 3.8%
- ------------------------------------------------------------------------------
207,311 Aetna Inc. 19,694
- ------------------------------------------------------------------------------
264,000 Covance Inc.(2) 10,486
- ------------------------------------------------------------------------------
58,872 Coventry Health Care Inc.(2) 2,408
- ------------------------------------------------------------------------------
32,588
- ------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
7
Giftrust - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- -----------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 9.5%
- -----------------------------------------------------------------------------
220,440 Harrah's Entertainment, Inc. $ 12,900
- ------------------------------------------------------------------------------
787,499 Hilton Hotels Corporation 15,671
- ------------------------------------------------------------------------------
724,264 Royal Caribbean Cruises Ltd.(1) 33,751
- ------------------------------------------------------------------------------
89,765 Starwood Hotels &
Resorts Worldwide, Inc. 4,284
- ------------------------------------------------------------------------------
89,000 Station Casinos Inc. 4,535
- ------------------------------------------------------------------------------
388,213 WMS Industries Inc.(1)(2) 11,355
- ------------------------------------------------------------------------------
82,496
- ------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 5.9%
- ------------------------------------------------------------------------------
146,000 Black & Decker Corporation 11,721
- ------------------------------------------------------------------------------
213,000 Garmin Ltd.(1) 10,650
- ------------------------------------------------------------------------------
41,000 Harman International
Industries Inc. 4,927
- ------------------------------------------------------------------------------
82,000 Hovnanian Enterprises Inc.(1)(2) 3,078
- ------------------------------------------------------------------------------
112,000 KB Home(1) 9,212
- ------------------------------------------------------------------------------
239,000 Toll Brothers Inc.(1)(2) 11,078
- ------------------------------------------------------------------------------
50,666
- ------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 1.1%
- ------------------------------------------------------------------------------
134,000 Textron Inc. 9,132
- ------------------------------------------------------------------------------
INTERNET SOFTWARE &
SERVICES - 2.5%
- ------------------------------------------------------------------------------
183,402 Websense Inc.(1)(2) 7,441
- ------------------------------------------------------------------------------
384,000 Yahoo! Inc.(2) 13,897
- ------------------------------------------------------------------------------
21,338
- ------------------------------------------------------------------------------
IT SERVICES - 2.6%
- ------------------------------------------------------------------------------
159,000 CACI International Inc.(1)(2) 9,695
- ------------------------------------------------------------------------------
154,000 Computer Sciences Corp.(2) 7,649
- ------------------------------------------------------------------------------
90,000 Global Payments Inc.(1) 4,928
- ------------------------------------------------------------------------------
22,272
- ------------------------------------------------------------------------------
MEDIA - 1.0%
- ------------------------------------------------------------------------------
8,570 DreamWorks Animation
SKG Inc.(2) 335
- ------------------------------------------------------------------------------
270,000 EchoStar Communications
Corp. Cl A(2) 8,537
- ------------------------------------------------------------------------------
8,872
- -----------------------------------------------------------------------------
METALS & MINING - 0.7%
- ------------------------------------------------------------------------------
594,976 Coeur d'Alene Mines
Corporation(1)(2) 2,945
- ------------------------------------------------------------------------------
93,000 Freeport-McMoRan Copper &
Gold, Inc. Cl B(1) 3,369
- ------------------------------------------------------------------------------
6,314
- ------------------------------------------------------------------------------
MULTI-UTILITIES &
UNREGULATED POWER - 1.2%
- ------------------------------------------------------------------------------
219,000 Questar Corp. 10,512
- ------------------------------------------------------------------------------
MULTILINE RETAIL - 1.7%
- ------------------------------------------------------------------------------
287,000 Kohl's Corp.(2) 14,568
- ------------------------------------------------------------------------------
OFFICE ELECTRONICS - 1.1%
- ------------------------------------------------------------------------------
185,263 Zebra Technologies Corp. Cl A(2) 9,817
- ------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- ------------------------------------------------------------------------------
OIL & GAS - 4.0%
- ------------------------------------------------------------------------------
55,000 Forest Oil Corporation(2) $ 1,678
- ------------------------------------------------------------------------------
271,000 PetroKazakhstan Inc. Cl A 10,000
- ------------------------------------------------------------------------------
232,551 Western Gas Resources Inc. 6,811
- ------------------------------------------------------------------------------
480,500 XTO Energy Inc. 16,039
- ------------------------------------------------------------------------------
34,528
- ------------------------------------------------------------------------------
PERSONAL PRODUCTS - 0.4%
- ------------------------------------------------------------------------------
76,000 Alberto-Culver
Company Cl B 3,409
- ------------------------------------------------------------------------------
PHARMACEUTICALS - 2.1%
- ------------------------------------------------------------------------------
276,000 Elan Corp. plc ADR(1)(2) 7,121
- ------------------------------------------------------------------------------
101,000 Endo Pharmaceuticals
Holdings Inc.(1)(2) 2,202
- ------------------------------------------------------------------------------
217,424 Medicis Pharmaceutical
Corp. Cl A(1) 8,842
- ------------------------------------------------------------------------------
18,165
- ------------------------------------------------------------------------------
ROAD & RAIL - 1.0%
- ------------------------------------------------------------------------------
146,000 Burlington Northern
Santa Fe Corp. 6,104
- ------------------------------------------------------------------------------
60,000 J.B. Hunt Transport
Services, Inc. 2,452
- ------------------------------------------------------------------------------
8,556
- ------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT - 0.5%
- ------------------------------------------------------------------------------
4,021 NVIDIA Corp.(2) 58
- ------------------------------------------------------------------------------
155,746 Tessera Technologies Inc.(1)(2) 4,350
- ------------------------------------------------------------------------------
4,408
- ------------------------------------------------------------------------------
SOFTWARE - 5.6%
- ------------------------------------------------------------------------------
90,400 Autodesk, Inc. 4,769
- ------------------------------------------------------------------------------
205,000 Citrix Systems, Inc.(2) 4,947
- ------------------------------------------------------------------------------
119,000 Hyperion Solutions Corp.(1)(2) 4,775
- ------------------------------------------------------------------------------
216,633 Kronos Inc.(1)(2) 10,626
- ------------------------------------------------------------------------------
95,386 Macromedia, Inc.(1)(2) 2,589
- ------------------------------------------------------------------------------
270,678 Parametric Technology Corp.(2) 1,405
- ------------------------------------------------------------------------------
178,863 RSA Security Inc.(1)(2) 3,660
- ------------------------------------------------------------------------------
279,000 Symantec Corp.(2) 15,885
- ------------------------------------------------------------------------------
48,656
- ------------------------------------------------------------------------------
SPECIALTY RETAIL - 1.2%
- ------------------------------------------------------------------------------
134,000 Bebe Stores Inc.(1) 4,137
- ------------------------------------------------------------------------------
154,000 Chico's FAS, Inc.(1)(2) 6,164
- ------------------------------------------------------------------------------
10,301
- ------------------------------------------------------------------------------
TEXTILES, APPAREL &
LUXURY GOODS - 1.6%
- ------------------------------------------------------------------------------
123,000 NIKE, Inc. Cl B 10,001
- ------------------------------------------------------------------------------
110,000 Polo Ralph Lauren Corp. 4,062
- ------------------------------------------------------------------------------
14,063
- ------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.0%
- ------------------------------------------------------------------------------
214,000 Doral Financial Corp.(1) 8,984
- ------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
Giftrust - Schedule of Investments
OCTOBER 31, 2004
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 5.8%
- --------------------------------------------------------------------------------
61,000 America Movil SA
de CV Series L ADR $ 2,684
- --------------------------------------------------------------------------------
296,000 Nextel Partners, Inc. Cl A(1)(2) 4,984
- --------------------------------------------------------------------------------
957,012 NII Holdings Inc. Cl B(1)(2) 42,367
- --------------------------------------------------------------------------------
50,035
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $757,893) 861,510
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS - 1.1%
Repurchase Agreement, Goldman Sachs & Co.,
(collateralized by various U.S. Treasury
obligations 5.25%, 2/15/29, valued at $9,687),
in a joint trading account at 1.73%,
dated 10/29/04, due 11/1/04
(Delivery value $9,501)
(Cost $9,500) 9,500
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
COLLATERAL RECEIVED FOR SECURITIES
LENDING(3) - 21.3%
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Repurchase Agreement, UBS AG,
(collateralized by various U.S. Government
Agency obligations), 1.875%, dated 10/29/04,
due 11/1/04 (Delivery value $178,904) $ 178,876
- --------------------------------------------------------------------------------
SHORT-TERM DEBT
- --------------------------------------------------------------------------------
$5,001 Citibank Omni-S Master Trust,
Series 2002-1, Class A VRN,
1.97%, 11/15/04, resets monthly
off the 1-month LIBOR plus
0.10% with no caps 5,001
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED
FOR SECURITIES LENDING
(Cost $183,877) 183,877
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 122.0%
(Cost $951,270) $1,054,887
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES - (22.0)% (190,176)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% $ 864,711
================================================================================
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
($ IN THOUSANDS)
Contracts to Sell Settlement Date Value Unrealized Gain
- --------------------------------------------------------------------------------
11,978,785 MXN for USD 11/30/2004 $ 1,034 $1
=====================================
(Value on Settlement Date $1,035)
*FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the fund to
exchange a foreign currency for U.S. dollars on a specific date in the future -
and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
LIBOR = London Interbank Offered Rate
MXN = Mexican Nuevo Peso
ORD = Foreign Ordinary Share
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a security resets,
the less risk the investor is taking that the coupon will vary significantly
from current market rates.
USD = United States Dollar
VRN = Variable Rate Note. Interest reset date is indicated, unless otherwise
noted. Rate shown is effective October 31, 2004.
(1) Security, or a portion thereof, was on loan as of October 31, 2004.
(2) Non-income producing.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions. (See Note 4 in
Notes to Financial Statements.)
See Notes to Financial Statements.
- ------
9
Statement of Assets and Liabilities
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $767,393) -
including $181,237 of securites on loan $ 871,010
- --------------------------------------------------------------------
Investments made with cash collateral received for
securities on loan, at value (cost of $183,877) 183,877
- --------------------------------------------------------------------------------
Total investment securities, at value (cost of $951,270) 1,054,887
- --------------------------------------------------------------------
Receivable for investments sold 17,045
- --------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 1
- --------------------------------------------------------------------
Dividends and interest receivable 235
- --------------------------------------------------------------------------------
1,072,168
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------
Payable for collateral received on securities on loan 183,877
- --------------------------------------------------------------------
Disbursements in excess of demand deposit cash 35
- --------------------------------------------------------------------
Payable for investments purchased 22,821
- --------------------------------------------------------------------
Accrued management fees 724
- --------------------------------------------------------------------------------
207,457
- --------------------------------------------------------------------------------
NET ASSETS $ 864,711
================================================================================
CAPITAL SHARES, $0.01 PAR VALUE
Authorized 200,000
================================================================================
Outstanding 62,611
================================================================================
NET ASSET VALUE PER SHARE $ 13.81
================================================================================
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $1,325,161
- --------------------------------------------------------------------
Accumulated net realized loss on investment and foreign currency
transactions (564,067)
- --------------------------------------------------------------------
Net unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 103,617
- --------------------------------------------------------------------------------
$ 864,711
================================================================================
See Notes to Financial Statements.
- ------
10
Statement of Operations
YEAR ENDED OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
INVESTMENT LOSS
- --------------------------------------------------------------------------------
INCOME:
- --------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $6) $ 3,187
- --------------------------------------------------------------------
Interest 269
- --------------------------------------------------------------------
Securities lending 155
- --------------------------------------------------------------------------------
3,611
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------
Management fees 8,874
- --------------------------------------------------------------------
Directors' fees and expenses 13
- --------------------------------------------------------------------
Other expenses 9
- --------------------------------------------------------------------------------
8,896
- --------------------------------------------------------------------------------
Amount waived (4,516)
- --------------------------------------------------------------------------------
4,380
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (769)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on investment and foreign currency transactions 42,726
- --------------------------------------------------------------------
Change in net unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies (56,297)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS (13,571)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (14,340)
================================================================================
See Notes to Financial Statements.
- ------
11
Statement of Changes in Net Assets
YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003 (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2004 2003
- --------------------------------------------------------------------------------
OPERATIONS
Net investment loss $ (769) $ (4,298)
- ---------------------------------------------------------
Net realized gain (loss) 42,726 (2,472)
- ---------------------------------------------------------
Change in net unrealized appreciation (56,297) 144,671
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (14,340) 137,901
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 13,366 15,126
- ---------------------------------------------------------
Payments for shares redeemed (30,236) (12,861)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital
share transactions (16,870) 2,265
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (31,210) 140,166
NET ASSETS
Beginning of period 895,921 755,755
- --------------------------------------------------------------------------------
End of period $864,711 $895,921
================================================================================
TRANSACTIONS IN SHARES OF THE FUND
Sold 950 1,239
- ---------------------------------------------------------
Redeemed (2,159) (1,042)
- --------------------------------------------------------------------------------
Net increase (decrease) in shares of the fund (1,209) 197
================================================================================
See Notes to Financial Statements.
- ------
12
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Giftrust Fund (the fund) is one fund in
a series issued by the corporation. The fund is diversified under the 1940 Act.
The fund's investment objective is to seek long-term capital growth. The fund
pursues its objective by investing primarily in equity securities of medium- and
small-sized companies. The following is a summary of the fund's significant
accounting policies.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. 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 close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
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.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its lending
agent to certain approved borrowers in order to earn additional income. The fund
continues to recognize any gain or loss in the market price of the securities
loaned and records any interest earned or dividends declared.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. 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. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the fund. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially expressed
in foreign currencies are translated into U.S. dollars at prevailing exchange
rates at period end. Purchases and sales of investment securities, dividend and
interest income, and certain expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions. For assets and
liabilities, other than investments in securities, net realized and unrealized
gains and losses from foreign currency translations arise from changes in
currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of investment securities are a component of realized
gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose taxes
on the contract amount of purchases and sales of foreign currency contracts in
their currency. The fund records the foreign tax expense, if any, as a reduction
to the net realized gain (loss) on foreign currency transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar
(continued)
- ------
13
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
value of foreign currency underlying all contractual commitments held by the
fund and the resulting unrealized appreciation or depreciation are determined
daily using prevailing exchange rates. The fund bears the risk of an unfavorable
change in the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. 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 other registered investment
companies having management agreements with ACIM, 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. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
USE OF ESTIMATES -- 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.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation 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). The
Agreement provides that all expenses of the fund, except brokerage commissions,
taxes, interest, fees and expenses of those directors who are not considered
"interested persons" as defined in the 1940 Act (including counsel fees) and
extraordinary expenses, will be paid by ACIM. The fee is computed and accrued
daily based on the daily net assets of the fund and paid monthly in arrears. The
annual management fee for the fund before waiver is 1.00%. The manager
voluntarily agreed to waive its management fee from February 1, 2004 through
July 31, 2004. For the year ended October 31, 2004, the effective annual
management fee for the fund after waiver was 0.49%.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
manager, ACIM, the distributor of the corporation, American Century Investment
Services, Inc., and the corporation's transfer agent, American Century Services
Corporation.
During the year ended October 31, 2004, the fund invested in a money market fund
for temporary purposes, which was managed by J.P. Morgan Investment Management,
Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan Chase & Co.
(JPM). JPM is an equity investor in ACC. The fund has a bank line of credit
agreement and securities lending agreement with JPMorgan Chase Bank (JPMCB).
JPMCB is a custodian of the fund and a wholly owned subsidiary of JPM.
(continued)
- ------
14
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the year ended October 31, 2004, were $2,272,171 and $2,246,798,
respectively.
4. SECURITIES LENDING
As of October 31, 2004, securities in the fund valued at $181,237, were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB receives
and maintains collateral in the form of cash, and/or acceptable securities as
approved by ACIM. Cash collateral is invested in authorized investments by the
lending agent in a pooled account. The value of cash collateral received at
period end is disclosed in the Statement of Assets and Liabilities and
investments made with the cash by the lending agent are listed in the Schedule
of Investments. Any deficiencies or excess of collateral must be delivered or
transferred by the member firms no later than the close of business on the next
business day. The total value of all collateral received, at this date, was
$183,877. The fund's risks in securities lending are that the borrower may not
provide additional collateral when required or return the securities when due.
If the borrower defaults, receipt of the collateral by the fund may be delayed
or limited.
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650 million
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the year ended October 31, 2004.
6. FEDERAL TAX INFORMATION
The 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. There were no distributions paid
by the fund during the years ended October 31, 2004 and October 31, 2003.
(continued)
- ------
15
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
6. FEDERAL TAX INFORMATION (CONTINUED)
As of October 31, 2004, the components of distributable earnings on a tax-basis
and the federal tax cost of investments were as follows:
- --------------------------------------------------------------------------------
COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST
- --------------------------------------------------------------------------------
Federal tax cost of investments $954,269
================================================================================
Gross tax appreciation of investments $104,004
- --------------------------------------------------------------------
Gross tax depreciation of investments (3,386)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $100,618
================================================================================
Net tax appreciation (depreciation) on derivatives and translation
of assets and liabilities in foreign currencies $--
- --------------------------------------------------------------------------------
Net tax appreciation $100,618
================================================================================
Undistributed ordinary income $--
- --------------------------------------------------------------------
Accumulated long-term gains $--
- --------------------------------------------------------------------
Accumulated capital losses (561,068)
- --------------------------------------------------------------------------------
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 and the realization for tax purposes of unrealized gains on certain
forward foreign currency contracts.
The accumulated capital losses listed above represent net capital loss
carryovers that may be used to offset future realized capital gains for federal
income tax purposes. The capital loss carryovers expire as follows:
2009 2010 2011
- -----------------------------------------------------------------------
$(416,365) $(138,462) $(6,241)
- -----------------------------------------------------------------------
- ------
16
Giftrust - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- ----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
PER-SHARE DATA
Net Asset Value, Beginning of Period $14.04 $11.88 $14.04 $43.71 $26.80
- ----------------------------------------------------------------------------------------------------
Income From Investment Operations
- -------------------------------------------
Net Investment Loss(1) (0.01) (0.07) (0.06) (0.02) (0.32)
- -------------------------------------------
Net Realized and
Unrealized Gain (Loss) (0.22) 2.23 (2.10) (21.07) 17.23
- ----------------------------------------------------------------------------------------------------
Total From Investment Operations (0.23) 2.16 (2.16) (21.09) 16.91
- ----------------------------------------------------------------------------------------------------
Distributions
- -------------------------------------------
From Net Realized Gains -- -- -- (8.58) --
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.81 $14.04 $11.88 $14.04 $43.71
====================================================================================================
TOTAL RETURN(2) (1.64)% 18.18% (15.38)% (56.36)% 63.10%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 0.49%(3) 1.00% 1.00% 1.00% 1.00%
- -------------------------------------------
Ratio of Net Investment Loss to
Average Net Assets (0.09)%(3) (0.55)% (0.42)% (0.11)% (0.75)%
- -------------------------------------------
Portfolio Turnover Rate 260% 140% 140% 196% 92%
- -------------------------------------------
Net Assets, End of Period (in millions) $865 $896 $756 $880 $2,086
- ----------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any.
(3) During a portion of the year ended October 31, 2004, the manager voluntarily
agreed to waive its management fee. The waiver was in effect from February 1,
2004 through July 31, 2004. Had fees not been waived the annualized ratio of
operating expenses to average net assets and annualized ratio of net
investment loss to average net assets would have been 1.00% and (0.60)%,
respectively.
See Notes to Financial Statements.
- ------
17
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders American Century Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments, of Giftrust Fund, (the "Fund"), one of the funds
comprising American Century Mutual Funds, Inc., as of October 31, 2004, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers; when replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Giftrust Fund as of October 31, 2004, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Kansas City, Missouri
December 15, 2004
- ------
18
Management
The individuals listed below serve as directors or officers of the fund. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the fund's investment advisor, American
Century Investment Management, Inc. (ACIM); the fund's principal underwriter,
American Century Investment Services, Inc. (ACIS); and the fund's transfer
agent, American Century Services Corporation (ACSC).
The other directors (more than three-fourths of the total numbers) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned subsidiaries, including
ACIM, ACIS, and ACSC. The directors serve in this capacity for six registered
investment companies in the American Century family of funds.
All persons named as officers of the fund also serve in a similar capacity for
the other 13 investment companies advised by ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated for
his or her service as an officer of the fund. The listed officers are interested
persons of the fund and are appointed or re-appointed on an annual basis.
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 23
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Strategic Account Implementation
Manager, Applied Industrial Technologies, Inc., a corporation engaged in the
sale of bearings and power transmission products
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, Midwest
Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Midwest Research Institute
- --------------------------------------------------------------------------------
D.D. (DEL) HOCK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1935
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 7
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Chairman, Public
Service Company of Colorado
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Allied Motion
Technologies, Inc. and J.D. Edwards & Company
- --------------------------------------------------------------------------------
(continued)
- ------
19
Management
INDEPENDENT DIRECTORS (CONTINUED)
- --------------------------------------------------------------------------------
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director, Vice Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Western
Investments, Inc.; Retired Chairman of the Board, Butler Manufacturing
Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Atlas-Copco, North America Inc.
- --------------------------------------------------------------------------------
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive Officer,
and Founder, Sayers Computer Source
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Triad Hospitals, Inc.
- --------------------------------------------------------------------------------
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 9
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Chief
Integration Officer, Sprint Corporation (September 2003 to present); Senior Vice
President -- Financial Services, Sprint Corporation (January 2003 to September
2003); Senior Vice President, Finance -- Global Markets Group, Sprint
Corporation (November 1998 to January 2003)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.
- --------------------------------------------------------------------------------
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 2
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, American Italian Pasta Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX
OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JAMES E. STOWERS, JR.(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director, Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 45
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman,
Director, and controlling shareholder, ACC; Chairman, ACSC and other ACC
subsidiaries; Director, ACIM, ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
JAMES E. STOWERS III(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1959 POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 13
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Co-Chairman, ACC (September 2000 to
present); Chief Executive Officer, ACC (June 1996 to September 2000); Director,
ACC, ACIM, ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
(1) James E. Stowers, Jr. is the father of James E. Stowers III.
(continued)
- ------
20
Management
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUND: President
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and
other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to
present); President, ACIM (September 2002 to present); President, ACIS (July
2003 to present); Chief Operating Officer, ACC (June 1996 to September 2000);
Also serves as: Executive Vice President, ACSC and other ACC subsidiaries
- --------------------------------------------------------------------------------
ROBERT T. JACKSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Executive Vice President
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative
Officer, ACC (August 1997 to present); Chief Financial Officer, ACC (May 1995 to
October 2002); President, ACSC (January 1999 to present); Executive Vice
President, ACC (May 1995 to present); Also serves as: Executive Vice President
and Chief Financial Officer, ACIM, ACIS and other ACC subsidiaries; and
Treasurer, ACIM
- --------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer, and Chief
Accounting Officer
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President
(April 1998 to present) and Assistant Treasurer, ACSC (September 1985 to present)
- --------------------------------------------------------------------------------
DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and
General Counsel, ACIM, ACIS, ACSC and other ACC subsidiaries (June
1998 to present); Vice President and General Counsel, ACC (June 1998 to
present)
- --------------------------------------------------------------------------------
DAVID H. REINMILLER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer
LENGTH OF TIME SERVED (YEARS): 3 and less than 1 year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer,
ACSC and ACIM (March 2001 to present); Vice President, ACSC
(March 2000 to present); Vice President, ACIM (March 2002 to present);
Vice President, ACIS (March 2003 to present); Assistant
General Counsel, ACSC (December 1996 to January 2001); Associate General
Counsel, ACSC (July 2001 to present)
- --------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Controller
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000
to present); Controller-Fund Accounting, ACSC (June 1997 to present)
- --------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC
(April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries
(April 1999 to present); President, American Century Employee Benefit Services,
Inc. (January 2000 to December 2000); Director, American Century Employee
Benefit Services, Inc. (February 2000 to December 2003); Treasurer, American
Century Employee Benefit Services, Inc. (December 2000 to December 2003);
Treasurer, American Century Ventures, Inc. (December 1999 to April 2001)
- --------------------------------------------------------------------------------
The SAI has additional information about the fund's directors and is available
without charge upon request by calling 1-800-345-2021.
- ------
21
Additional Information
INDEX DEFINITION
The following index is used to illustrate investment market, sector, or style
performance or to serve as fund performance comparisons. It is not an investment
product available for purchase.
The RUSSELL MIDCAP GROWTH INDEX measures the performance of those Russell Midcap
Index companies (the 800 smallest of the 1,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment manager, 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 manager uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-345-2021. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
manager 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 Form N-Q is available on the SEC's Web site 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 Web site at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
22
Notes
- ------
23
Notes
- ------
24
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR RELATIONS:
1-800-345-2021 or 816-531-5575
BUSINESS, NOT-FOR-PROFIT,
EMPLOYER-SPONSORED RETIREMENT PLANS:
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER:
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.
American Century Investments
P.O. Box 419200
Kansas City, MO 64141-6200
PRSRT STD
U.S. POSTAGE PAID
AMERICAN CENTURY
COMPANIES
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Services Corporation.
0412 American Century Investment Services, Inc.
SH-ANN-40958S (c)2004 American Century Services Corporation
OCTOBER 31, 2004
American Century Investments
Annual Report
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Table of Contents
Our Message to You . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SELECT
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . 5
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . 6
CAPITAL GROWTH
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . 12
Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 13
NEW OPPORTUNITIES II
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . 18
Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Shareholder Fee Examples . . . . . . . . . . . . . . . . . . . . . . . . . 21
FINANCIAL STATEMENTS
Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . . . . 24
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . 27
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 29
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Report of Independent Registered Public Accounting Firm. . . . . . . . . . 50
OTHER INFORMATION
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Share Class Information. . . . . . . . . . . . . . . . . . . . . . . . . . 54
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Index Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
The opinions expressed in each of the Portfolio Commentaries reflect those of
the portfolio management team as of the date of the report, and do not
necessarily represent the opinions of American Century or any other person in
the American Century organization. Any such opinions are subject to change at
any time based upon market or other conditions and American Century 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 funds are based on numerous factors, may not be relied upon as an
indication of trading intent on behalf of any American Century 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 by third
party vendors. To the best of American Century's knowledge, such information is
accurate at the time of printing.
Our Message to You
[photo of James E. Stowers III and James E. Stowers, Jr.]
JAMES E. STOWERS III
WITH JAMES E. STOWERS, JR.
We are pleased to provide you with the annual report for the Select, Capital
Growth and New Opportunities II funds for the year ended October 31, 2004.
The report includes comparative performance figures, portfolio and market
commentaries, summary tables, a full list of portfolio holdings, and financial
statements and highlights. We hope you find this information helpful in
monitoring your investment.
Through our Web site, americancentury.com, we provide quarterly commentaries on
all American Century portfolios, the views of our senior investment officers,
and other communications about investments, portfolio strategy, and the markets.
Your next shareholder report for these funds will be the semiannual report dated
April 30, 2005, available in approximately six months.
As always, we deeply appreciate your investment with American Century
Investments.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER AND CHAIRMAN
/s/James E. Stowers III
James E. Stowers III
CO-CHAIRMAN OF THE BOARD
- ------
1
Select - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
-------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 3.05% -5.21% 8.09% 13.92% 6/30/71(1)
- --------------------------------------------------------------------------------
S&P 500 INDEX 9.42% -2.22% 11.01% 11.20% --
- --------------------------------------------------------------------------------
Institutional Class 3.24% -5.02% -- 5.36% 3/13/97
- --------------------------------------------------------------------------------
Advisor Class 2.81% -5.44% -- 2.35% 8/8/97
- --------------------------------------------------------------------------------
A Class 1/31/03
No sales charge* 2.79% -- -- 13.57%(2)
With sales charge* -3.13% -- -- 9.79%(2)
- --------------------------------------------------------------------------------
B Class 1/31/03
No sales charge* 2.03% -- -- 12.72%(2)
With sales charge* -1.97% -- -- 10.61%(2)
- --------------------------------------------------------------------------------
C Class 2.03% -- -- 12.78%(2) 1/31/03
- --------------------------------------------------------------------------------
* Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a maximum 5.75% initial
sales charge for equity funds 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%. Please see the Share Class Information
pages for more about the applicable sales charges for each share class.
The SEC requires that mutual funds provide performance information net of
maximum sales charges in all cases where charges could be applied.
(1) Although the fund's actual inception date was 10/31/58, this inception date
corresponds with the management company's implementation of its current
investment philosophy and practices.
(2) Class returns would have been lower if service and distribution fees had
not been waived from 2/1/03 to 3/11/03, 2/1/03 to 2/11/03, and 2/1/03 to
3/11/03 for the A, B, and C Class shares, respectively.
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.
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.
(continued)
- ------
2
Select - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made October 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended October 31
- ------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
- ------------------------------------------------------------------------------------------------
Investor Class 15.02% 19.76% 27.89% 22.96% 31.22% 7.64% -28.93% -17.11% 17.11% 3.05%
- ------------------------------------------------------------------------------------------------
S&P 500 Index 26.44% 24.10% 32.11% 21.99% 25.67% 6.09% -24.90% -15.11% 20.80% 9.42%
- ------------------------------------------------------------------------------------------------
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.
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.
- ------
3
Select - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE SELECT INVESTMENT TEAM: PORTFOLIO MANAGER JOHN SYKORA
AND PORTFOLIO MANAGER KEITH LEE.
Select gained 3.05%* during the year ended October 31, 2004 while the S&P 500
Index rose 9.42%. The average return of its large growth peers tracked by
Morningstar was 3.15%.
Corporate earnings reached 10-year highs in the fourth quarter of 2003 amid
strong economic growth and low inflation. Against this backdrop, the broad
market, as measured by the S&P 500, increased 8% in the first three months of
the period covered by this report. But stock market gains eroded over the
summer. The price of crude oil rose 78% to $51.78 a barrel, short-term interest
rates climbed on the back of three interest rate hikes, and the annual real rate
of economic growth decelerated from its 7.4% rate in the third quarter of 2003
to 3.9% by the third quarter of 2004.
The portfolio's health care stake was the top contributor to returns. The
biggest lift came from the health care providers and services industry.
UnitedHealth Group was a leading contributor during the period. The managed care
company reported stellar sales, earnings and customer growth and improved
operating margin through a drop in operating costs. Pharmaceutical holding
Johnson & Johnson was also a source of strength, but not all was positive.
Drug-maker Eli Lilly & Co. was among the detractors in the portfolio.
Investments in the financial sector boosted the portfolio's performance.
Consumer finance and insurance companies led the rise. SLM Corp., better known
as Sallie Mae, was a stand out performer. The student loan provider increased
its earnings per share as its managed loan portfolio grew.
The insurance industry came under pressure late in the period when several
companies were beset by regulatory and legal scrutiny. Nevertheless, all but one
of Select's insurance holdings generated positive results. Insurance broker
Marsh & McLennan declined sharply and detracted from the portfolio's results.
TOP TEN HOLDINGS
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
UnitedHealth Group
Incorporated 4.7% 4.2%
- --------------------------------------------------------------------------------
General Electric Co. 3.7% 3.0%
- --------------------------------------------------------------------------------
Microsoft Corporation 3.6% 2.7%
- --------------------------------------------------------------------------------
Four Seasons Hotels Inc. 3.4% 2.8%
- --------------------------------------------------------------------------------
Carnival Corporation 3.4% 3.1%
- --------------------------------------------------------------------------------
Johnson & Johnson 3.2% 2.8%
- --------------------------------------------------------------------------------
Yankee Candle
Company Inc. 3.1% 2.1%
- --------------------------------------------------------------------------------
Aramark Corp. Cl B 3.0% 4.3%
- --------------------------------------------------------------------------------
American International
Group, Inc. 2.9% 3.4%
- --------------------------------------------------------------------------------
Dell Inc. 2.8% 2.5%
- --------------------------------------------------------------------------------
* All fund returns referenced in this commentary are for Investor Class shares.
(continued)
- ------
4
Select - Portfolio Commentary
Effective stock selection and an underweight position helped Select avoid much
of the decline in the information technology sector, the worst performing area
in the market. The portfolio was rewarded for the managers' selections in the IT
services and software industries.
Semiconductor stocks finished the year as the market's worst-performing
industry. Intel was among the industry's and the portfolio's largest detractors.
The chip giant cut sales and revenue estimates as semiconductor stocks were hit
by falling demand and too-high inventories.
Discretionary consumer goods and services companies, the largest single stake on
average, turned in mixed results. IAC/InterActive Corp. was the portfolio's top
detractor during the period. The company's revenues declined as hotels and
airlines sold more of their rooms and seats direct and not through the discount
on-line travel sites, such as IAC's Hotels.com and Expedia.com.
On the positive side, Carnival Corp. was a leading contributor. The world's
largest cruise company said higher ticket prices and onboard sales helped boost
earnings.
In the industrials sector, Aramark Corp. was another leading detractor during
the period. The company struggled with high costs for labor and new customer
contracts in its food services business, which squeezed profit margins. The
stock came under additional pressure late in the quarter when Aramark's CEO of
one year was replaced by his predecessor, who had served from 1984 through 2003.
The best performing group in the market was the energy sector as tight supplies
and strong demand fueled high oil prices. Exploration and production company EOG
Resources led the rise in Select's energy stake.
OUR COMMITMENT
The management team remains committed to seeking long-term capital growth by
investing in stocks of companies they believe will increase in value over time.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Pharmaceuticals 11.0% 12.3%
- --------------------------------------------------------------------------------
Hotels, Restaurants
& Leisure 7.6% 6.6%
- --------------------------------------------------------------------------------
Insurance 6.9% 7.9%
- --------------------------------------------------------------------------------
Commercial Services
& Supplies 5.7% 7.6%
- --------------------------------------------------------------------------------
Software 5.4% 3.9%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 96.7% 98.9%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 3.0% 1.1%
- --------------------------------------------------------------------------------
Collateral Received for
Securities Lending 1.3% 0.1%
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES 101.0% 100.1%
- --------------------------------------------------------------------------------
Other Assets & Liabilities (1.0)% (0.1)%
- --------------------------------------------------------------------------------
- ------
5
Select - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.7%
AEROSPACE & DEFENSE -- 0.6%
- --------------------------------------------------------------------------------
238,000 General Dynamics Corp. $ 24,304,560
- --------------------------------------------------------------------------------
AUTOMOBILES -- 0.9%
- --------------------------------------------------------------------------------
629,000 Harley-Davidson, Inc. 36,211,530
- --------------------------------------------------------------------------------
BEVERAGES -- 4.3%
- --------------------------------------------------------------------------------
690,000 Anheuser-Busch
Companies, Inc. 34,465,500
- --------------------------------------------------------------------------------
1,380,000 Coca-Cola Company (The) 56,110,800
- --------------------------------------------------------------------------------
1,512,300 PepsiCo, Inc. 74,979,834
- --------------------------------------------------------------------------------
165,556,134
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 2.5%
- --------------------------------------------------------------------------------
991,200 Amgen Inc.(1) 56,300,160
- --------------------------------------------------------------------------------
85,000 Genentech, Inc.(1) 3,870,050
- --------------------------------------------------------------------------------
730,000 Gilead Sciences, Inc.(1) 25,279,900
- --------------------------------------------------------------------------------
260,000 Neurocrine Biosciences Inc.(1) 12,103,000
- --------------------------------------------------------------------------------
97,553,110
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 1.3%
- --------------------------------------------------------------------------------
1,489,370 Bank of New York Co., Inc. (The) 48,344,950
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 0.9%
- --------------------------------------------------------------------------------
210,000 Fifth Third Bancorp 10,329,900
- --------------------------------------------------------------------------------
811,000 U.S. Bancorp 23,202,710
- --------------------------------------------------------------------------------
33,532,610
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 5.7%
- --------------------------------------------------------------------------------
140,000 Apollo Group Inc. Cl A(1) 9,240,000
- --------------------------------------------------------------------------------
5,062,379 Aramark Corp. Cl B(2) 114,156,646
- --------------------------------------------------------------------------------
345,000 Block (H & R), Inc. 16,404,750
- --------------------------------------------------------------------------------
1,072,000 Cintas Corp. 46,246,080
- --------------------------------------------------------------------------------
1,274,800 Waste Management, Inc. 36,306,304
- --------------------------------------------------------------------------------
222,353,780
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.7%
- --------------------------------------------------------------------------------
2,120,000 Cisco Systems Inc.(1) 40,725,200
- --------------------------------------------------------------------------------
640,000 QUALCOMM Inc. 26,758,400
- --------------------------------------------------------------------------------
67,483,600
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.8%
- --------------------------------------------------------------------------------
3,035,100 Dell Inc.(1) 106,410,606
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 2.9%
- --------------------------------------------------------------------------------
323,400 American Express Co. 17,162,838
- --------------------------------------------------------------------------------
2,075,000 SLM Corporation 93,914,500
- --------------------------------------------------------------------------------
111,077,338
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 2.1%
- --------------------------------------------------------------------------------
1,848,966 Citigroup Inc. 82,038,621
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 0.8%
- --------------------------------------------------------------------------------
610,000 BJ Services Co. 31,110,000
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 0.9%
- --------------------------------------------------------------------------------
650,000 Wal-Mart Stores, Inc. 35,048,000
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 1.7%
- --------------------------------------------------------------------------------
273,667 Nestle SA ORD $ 64,820,987
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 1.8%
- --------------------------------------------------------------------------------
205,000 Inamed Corp.(1) 10,895,750
- --------------------------------------------------------------------------------
965,100 Medtronic, Inc. 49,326,261
- --------------------------------------------------------------------------------
95,000 Stryker Corp. 4,093,550
- --------------------------------------------------------------------------------
60,000 Zimmer Holdings Inc.(1) 4,655,400
- --------------------------------------------------------------------------------
68,970,961
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 4.7%
- --------------------------------------------------------------------------------
2,490,000 UnitedHealth Group
Incorporated 180,276,000
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 7.6%
- --------------------------------------------------------------------------------
2,555,000 Carnival Corporation 129,180,800
- --------------------------------------------------------------------------------
789,802 Cheesecake Factory Inc.(1) 34,285,305
- --------------------------------------------------------------------------------
1,960,000 Four Seasons Hotels Inc.(2)(3) 132,535,200
- --------------------------------------------------------------------------------
296,001,305
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 3.1%
- --------------------------------------------------------------------------------
4,347,500 Yankee Candle
Company Inc.(1)(2)(3) 120,425,750
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.0%
- --------------------------------------------------------------------------------
225,000 Colgate-Palmolive Co. 10,039,500
- --------------------------------------------------------------------------------
528,600 Procter & Gamble Co. (The) 27,053,748
- --------------------------------------------------------------------------------
37,093,248
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 3.7%
- --------------------------------------------------------------------------------
4,155,700 General Electric Co. 141,792,484
- --------------------------------------------------------------------------------
INSURANCE -- 6.9%
- --------------------------------------------------------------------------------
1,809,625 American International
Group, Inc. 109,862,334
- --------------------------------------------------------------------------------
879,272 Axis Capital Holdings Limited 22,034,556
- --------------------------------------------------------------------------------
698 Berkshire Hathaway Inc. Cl A(1) 58,806,500
- --------------------------------------------------------------------------------
20,624 Berkshire Hathaway Inc. Cl B(1) 57,829,696
- --------------------------------------------------------------------------------
742,000 Marsh & McLennan
Companies Inc. 20,523,720
- --------------------------------------------------------------------------------
269,056,806
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 4.2%
- --------------------------------------------------------------------------------
555,000 Amazon.com, Inc.(1) 18,942,150
- --------------------------------------------------------------------------------
685,000 eBay Inc.(1) 66,862,850
- --------------------------------------------------------------------------------
3,508,961 IAC/InterActiveCorp(1)(2) 75,863,737
- --------------------------------------------------------------------------------
161,668,737
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 0.1%
- --------------------------------------------------------------------------------
65,000 Yahoo! Inc.(1) 2,352,350
- --------------------------------------------------------------------------------
IT SERVICES -- 2.3%
- --------------------------------------------------------------------------------
804,000 DST Systems, Inc.(1)(2) 36,059,400
- --------------------------------------------------------------------------------
305,000 First Data Corp. 12,590,400
- --------------------------------------------------------------------------------
1,170,000 Paychex, Inc. 38,368,980
- --------------------------------------------------------------------------------
87,018,780
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
6
Select - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
MACHINERY -- 1.1%
- --------------------------------------------------------------------------------
1,100,000 Dover Corp. $ 43,197,000
- --------------------------------------------------------------------------------
MEDIA -- 0.3%
- --------------------------------------------------------------------------------
460,000 Westwood One, Inc.(1) 10,616,800
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.1%
- --------------------------------------------------------------------------------
776,000 Kohl's Corp.(1) 39,389,760
- --------------------------------------------------------------------------------
45,400 Target Corporation 2,270,908
- --------------------------------------------------------------------------------
41,660,668
- --------------------------------------------------------------------------------
OIL & GAS -- 2.6%
- --------------------------------------------------------------------------------
501,380 Apache Corp. 25,419,966
- --------------------------------------------------------------------------------
255,000 BP plc ADR 14,853,750
- --------------------------------------------------------------------------------
330,500 EOG Resources Inc.(2) 21,998,080
- --------------------------------------------------------------------------------
440,000 Exxon Mobil Corp. 21,656,800
- --------------------------------------------------------------------------------
535,000 Pioneer Natural Resources Co. 17,334,000
- --------------------------------------------------------------------------------
101,262,596
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 1.1%
- --------------------------------------------------------------------------------
1,002,000 Estee Lauder
Companies, Inc. Cl A 43,035,900
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 11.0%
- --------------------------------------------------------------------------------
1,180,000 Altana AG ORD 59,752,161
- --------------------------------------------------------------------------------
340,000 Barr Pharmaceuticals Inc.(1)(2) 12,801,000
- --------------------------------------------------------------------------------
823,400 Eli Lilly and Company 45,212,894
- --------------------------------------------------------------------------------
1,188,000 Forest Laboratories, Inc. Cl A(1) 52,984,800
- --------------------------------------------------------------------------------
2,107,400 Johnson & Johnson 123,030,013
- --------------------------------------------------------------------------------
678,631 Novartis AG ORD 32,403,587
- --------------------------------------------------------------------------------
1,455,275 Pfizer, Inc. 42,130,211
- --------------------------------------------------------------------------------
2,265,000 Teva Pharmaceutical
Industries Ltd. ADR 58,890,000
- --------------------------------------------------------------------------------
427,204,666
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 2.9%
- --------------------------------------------------------------------------------
780,000 Applied Materials, Inc.(1) 12,558,000
- --------------------------------------------------------------------------------
1,000,000 Integrated Circuit
Systems, Inc.(1)(2) 22,550,000
- --------------------------------------------------------------------------------
2,375,000 Intel Corp. 52,867,500
- --------------------------------------------------------------------------------
95,000 KLA-Tencor Corp.(1) 4,325,350
- --------------------------------------------------------------------------------
280,000 Linear Technology Corp. 10,606,400
- --------------------------------------------------------------------------------
75,000 Microchip Technology Inc. 2,268,750
- --------------------------------------------------------------------------------
105,000 Texas Instruments Inc. 2,567,250
- --------------------------------------------------------------------------------
145,000 Xilinx, Inc. 4,437,000
- --------------------------------------------------------------------------------
112,180,250
- --------------------------------------------------------------------------------
SOFTWARE -- 5.4%
- --------------------------------------------------------------------------------
790,000 Citrix Systems, Inc.(1) 19,062,700
- --------------------------------------------------------------------------------
135,000 Electronic Arts Inc.(1) 6,064,200
- --------------------------------------------------------------------------------
4,922,800 Microsoft Corporation 137,789,172
- --------------------------------------------------------------------------------
2,090,000 Oracle Corp.(1) 26,459,400
- --------------------------------------------------------------------------------
405,000 SAP AG ADR 17,273,250
- --------------------------------------------------------------------------------
206,648,722
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 4.2%
- --------------------------------------------------------------------------------
250,000 Cabela's Inc.(1)(2) $ 6,315,000
- --------------------------------------------------------------------------------
1,070,100 Home Depot, Inc. 43,959,708
- --------------------------------------------------------------------------------
660,200 Lowe's Companies, Inc. 37,156,056
- --------------------------------------------------------------------------------
2,030,000 Weight Watchers
International Inc.(1)(2) 72,917,600
- --------------------------------------------------------------------------------
160,348,364
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 0.3%
- --------------------------------------------------------------------------------
167,000 Freddie Mac 11,122,200
- --------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE -- 1.2%
- --------------------------------------------------------------------------------
37,550,000 Hopewell Highway
Infrastructure Ltd. ORD 24,607,131
- --------------------------------------------------------------------------------
32,500,000 Zhejiang Expressway
Co. Ltd. ORD 21,924,189
- --------------------------------------------------------------------------------
46,531,320
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 1.0%
- --------------------------------------------------------------------------------
1,515,000 Nextel Communications, Inc.(1) 40,132,351
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $3,057,164,577) 3,734,443,084
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 3.0%
Repurchase Agreement, Bank of America
Securities, LLC, (collateralized by various
U.S. Treasury obligations, 4.58% - 8.75%,
2/15/16 - 2/15/22, valued at $73,290,154),
in a joint trading account at 1.70%,
dated 10/29/04, due 11/1/04
(Delivery value $71,610,143) 71,600,000
- --------------------------------------------------------------------------------
Repurchase Agreement, Merrill Lynch & Co., Inc.,
(collateralized by various U.S. Treasury obligations,
5.25% - 10.375%, 1/15/12 - 2/15/29, valued at
$43,755,172), in a joint trading account at 1.70%,
dated 10/29/04, due 11/1/04
(Delivery value $42,806,063) 42,800,000
- --------------------------------------------------------------------------------
TOTAL TEMPORARY
CASH INVESTMENTS
(Cost $114,400,000) 114,400,000
- --------------------------------------------------------------------------------
COLLATERAL RECEIVED FOR
SECURITIES LENDING(4) -- 1.3%
Repurchase Agreement, UBS AG,
(collateralized by various U.S. Government Agency
obligations), 1.875%, dated 10/29/04, due 11/1/04
(Delivery value $51,420,890)
(Cost $51,412,857) 51,412,857
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 101.0%
(Cost $3,222,977,434) 3,900,255,941
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- (1.0)% (38,722,594)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $3,861,533,347
================================================================================
See Notes to Financial Statements. (continued)
- ------
7
Select - Schedule of Investments
OCTOBER 31, 2004
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
Contracts Settlement Unrealized
to Sell Date Value Gain (Loss)
- -------------------------------------------------------------------------------
87,253,309 CHF for USD 11/30/04 $ 73,040,950 $(131,686)
- -------------------------------------------------------------------------------
7,447,738 Euro for USD 11/30/04 9,520,356 4,051
- -------------------------------------------------------------------------------
8,460,880 Euro for USD 11/30/04 10,815,443 (576)
- -------------------------------------------------------------------------------
27,659,255 Euro for USD 11/30/04 35,356,497 (11,633)
- -------------------------------------------------------------------------------
$128,733,246 $(139,844)
=================================
(Value on Settlement Date $128,593,402)
*FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the fund to
exchange a foreign currency for U.S. dollars on a specific date in the future -
and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
CHF = Swiss Franc
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of October 31, 2004.
(3) Affiliated Company: the fund's holding represents ownership of 5% or more
of the voting securities of the company; therefore, the company is
affiliated as defined in the Investment Company Act of 1940. (See Note 5
in Notes to Financial Statements.)
(4) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions. (See Note 6
in Notes to Financial Statements.)
See Notes to Financial Statements.
- ------
8
Capital Growth - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION(1) DATE
- --------------------------------------------------------------------------------
RUSSELL 1000 GROWTH INDEX -3.70% --
- --------------------------------------------------------------------------------
A Class 2/27/04
No sales charge* -1.10%
With sales charge* -6.79%
- --------------------------------------------------------------------------------
B Class 2/27/04
No sales charge* -1.60%
With sales charge* -6.60%
- --------------------------------------------------------------------------------
C Class 2/27/04
No sales charge* -1.60%
With sales charge* -2.58%
- --------------------------------------------------------------------------------
*Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a maximum 5.75% initial
sales charge for equity funds 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%. Please see the Share Class Information pages for
more about the applicable sales charges for each share class. The SEC requires
that mutual funds provide performance information net of maximum sales charges
in all cases where charges could be applied.
(1) Returns for periods less than one year are not annualized.
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.
Unless otherwise indicated, performance reflects A 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.
(continued)
- ------
9
Capital Growth - Performance
GROWTH OF $10,000 OVER LIFE OF CLASS
$10,000 investment made February 27, 2004*
$10,000 investment made October 31, 1994
* From 2/27/04, the A Class's inception date. Not annualized. Capital Growth A
Class's initial investment is $9,425 to reflect the maximum 5.75% initial
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.
Unless otherwise indicated, performance reflects A 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.
- ------
10
Capital Growth - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE CAPITAL GROWTH INVESTMENT TEAM: PORTFOLIO MANAGER
PRESCOTT LEGARD, PORTFOLIO MANAGER GREG WOODHAMS, AND PORTFOLIO MANAGER TIM
REYNOLDS.
American Century launched Capital Growth on February 27, 2004. During the period
from inception through October 31, 2004, the portfolio declined 1.10%*
outperforming the 3.70% fall of its benchmark, the Russell 1000 Growth Index.
Corporate earnings reached 10-year highs in the fourth quarter of 2003 amid
strong economic growth and low inflation. Against this backdrop, the broad
market, as measured by the S&P 500, jumped 8% in the first three months of the
period covered by this report. But stock market gains eroded over the summer.
The price of crude oil jumped 78% to $51.78 a barrel, short-term interest rates
climbed on the back of three interest rate hikes, and the annual real rate of
economic growth decelerated from its 7.4% rate in the third quarter of 2003 to
3.9% by the third quarter of 2004.
Capital Growth's advance over its benchmark during its fiscal year was largely
attributable to effective stock selection. For instance, security selection in
the health care sector added more than 300 basis points of performance relative
to the benchmark, helping to make this area the top contributor to returns. The
biggest lift came from manufacturers of health care equipment and supplies, such
as C.R. Bard.
Not all was positive, however. Merck's recall of its arthritis drug Vioxx
pressured many pharmaceutical stocks. Capital Growth did not own Merck at the
time. However, Pfizer weighed on the portfolio's absolute returns, although a
relatively lighter position helped lift performance versus the benchmark.
Investments in companies that make and sell discretionary consumer products and
services also boosted the portfolio's performance. Carnival Corp. was a top
contributor in this area. The world's largest cruise company said higher ticket
prices and onboard sales helped boost earnings.
TOP TEN HOLDINGS
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Microsoft Corporation 3.5% 0.7%
- --------------------------------------------------------------------------------
Procter & Gamble
Co. (The) 3.3% 3.7%
- --------------------------------------------------------------------------------
General Electric Co. 3.3% 4.6%
- --------------------------------------------------------------------------------
Cisco Systems Inc. 3.2% 4.0%
- --------------------------------------------------------------------------------
Intel Corp. 3.1% --
- --------------------------------------------------------------------------------
Johnson & Johnson 2.9% --
- --------------------------------------------------------------------------------
Medtronic, Inc. 2.7% 3.2%
- --------------------------------------------------------------------------------
PepsiCo, Inc. 2.4% 1.9%
- --------------------------------------------------------------------------------
Dell Inc. 2.4% --
- --------------------------------------------------------------------------------
Monsanto Co. 2.3% 2.0%
- --------------------------------------------------------------------------------
* All portfolio returns referenced in this review are for Class A shares
and are not reduced by sales charges. Class A shares are subject to a
maximum sales charge of 5.75%.
Had the sales charge been applied, returns would be lower than those shown.
Returns for periods less than one year are not annualized.
(continued)
- ------
11
Capital Growth - Portfolio Commentary
The industrials sector generated solid returns in the portfolio. Investments in
industrial conglomerates were the primary contributors. Elsewhere in the
portfolio, Occidental Petroleum led a rise in the portfolio's energy stake.
On the negative side, holdings in the financial sector hindered performance.
Detractors included companies in the insurance and capital markets industries.
The information technology sector was the worst performing area in the market.
For instance, excess inventories battered semiconductor stocks, which led many
chip makers to cut sales and revenue estimates. Industry leader Intel didn't
escape this fate, although Capital Growth's underweight position helped mitigate
the damage.
Additionally, a comment by Cisco Systems' influential CEO that corporate
executives were becoming more cautious on spending knocked down sentiment.
Cisco's shares took a hit during the period, and detracted from Capital Growth's
performance. However, the portfolio management team remains confident that the
network equipment maker will benefit from new product releases.
On the positive side in information technology, a leading contributor was
QUALCOMM, which saw demand for its proprietary technology rise as wireless
telephone users took advantage of new data communications capabilities. The
Internet software and services industry was another bright spot in the
information technology sector. Yahoo! was a leading contributor during the
period, bolstered by steadily rising profits.
OUR COMMITMENT
The Capital Growth management team remains committed to their investment
strategy of identifying larger-sized companies that appear best able to sustain
their accelerating growth.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Pharmaceuticals 9.3% 7.0%
- --------------------------------------------------------------------------------
Health Care Equipment
& Supplies 9.1% 12.5%
- --------------------------------------------------------------------------------
Semiconductors & Semiconductor
Equipment 7.1% 1.0%
- --------------------------------------------------------------------------------
Software 6.1% 6.8%
- --------------------------------------------------------------------------------
Communications
Equipment 5.9% 9.2%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 99.2% 97.8%
- --------------------------------------------------------------------------------
Other Assets & Liabilities 0.8% 2.2%
- --------------------------------------------------------------------------------
- ------
12
Capital Growth - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 99.2%
AEROSPACE & DEFENSE -- 2.6%
- --------------------------------------------------------------------------------
522 Rockwell Collins $ 18,515
- --------------------------------------------------------------------------------
223 United Technologies Corp. 20,699
- --------------------------------------------------------------------------------
39,214
- --------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.7%
- --------------------------------------------------------------------------------
233 Autoliv, Inc. 9,961
- --------------------------------------------------------------------------------
AUTOMOBILES -- 1.4%
- --------------------------------------------------------------------------------
364 Harley-Davidson, Inc. 20,955
- --------------------------------------------------------------------------------
BEVERAGES -- 2.4%
- --------------------------------------------------------------------------------
714 PepsiCo, Inc. 35,400
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 3.6%
- --------------------------------------------------------------------------------
294 Amgen Inc.(1) 16,699
- --------------------------------------------------------------------------------
125 Biogen Idec Inc.(1) 7,270
- --------------------------------------------------------------------------------
330 Celgene Corp.(1) 9,775
- --------------------------------------------------------------------------------
178 Invitrogen Corp.(1) 10,306
- --------------------------------------------------------------------------------
218 Neurocrine Biosciences Inc.(1) 10,148
- --------------------------------------------------------------------------------
54,198
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 2.8%
- --------------------------------------------------------------------------------
185 Goldman Sachs Group, Inc. (The) 18,200
- --------------------------------------------------------------------------------
541 Northern Trust Corp. 23,014
- --------------------------------------------------------------------------------
41,214
- --------------------------------------------------------------------------------
CHEMICALS -- 2.3%
- --------------------------------------------------------------------------------
786 Monsanto Co. 33,602
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 0.9%
- --------------------------------------------------------------------------------
455 Monster Worldwide Inc.(1) 12,763
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 5.9%
- --------------------------------------------------------------------------------
2,435 Cisco Systems Inc.(1) 46,776
- --------------------------------------------------------------------------------
264 Juniper Networks, Inc.(1) 7,025
- --------------------------------------------------------------------------------
784 Motorola, Inc. 13,532
- --------------------------------------------------------------------------------
496 QUALCOMM Inc. 20,738
- --------------------------------------------------------------------------------
88,071
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 3.5%
- --------------------------------------------------------------------------------
1,006 Dell Inc.(1) 35,270
- --------------------------------------------------------------------------------
1,264 EMC Corp.(1) 16,268
- --------------------------------------------------------------------------------
51,538
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 1.7%
- --------------------------------------------------------------------------------
485 American Express Co. 25,739
- --------------------------------------------------------------------------------
DIVERSIFIED -- 1.3%
- --------------------------------------------------------------------------------
416 iShares Russell 1000
Growth Index Fund 19,103
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 1.2%
- --------------------------------------------------------------------------------
464 J.P. Morgan Chase & Co. 17,910
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.5%
- --------------------------------------------------------------------------------
1,055 Sprint Corp. 22,102
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 3.1%
- --------------------------------------------------------------------------------
381 CVS Corp. $ 16,558
- --------------------------------------------------------------------------------
543 Wal-Mart Stores, Inc. 29,279
- --------------------------------------------------------------------------------
45,837
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.7%
- --------------------------------------------------------------------------------
274 McCormick & Company, Inc. 9,708
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 9.1%
- --------------------------------------------------------------------------------
423 Bard (C.R.), Inc. 24,026
- --------------------------------------------------------------------------------
147 Baxter International, Inc. 4,522
- --------------------------------------------------------------------------------
84 Cooper Companies, Inc. (The) 5,909
- --------------------------------------------------------------------------------
259 Fisher Scientific International(1) 14,856
- --------------------------------------------------------------------------------
292 Guidant Corp. 19,453
- --------------------------------------------------------------------------------
794 Hospira Inc.(1) 25,337
- --------------------------------------------------------------------------------
791 Medtronic, Inc. 40,428
- --------------------------------------------------------------------------------
134,531
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 1.8%
- --------------------------------------------------------------------------------
525 Carnival Corporation 26,544
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 4.5%
- --------------------------------------------------------------------------------
293 Kimberly-Clark Corp. 17,483
- --------------------------------------------------------------------------------
967 Procter & Gamble Co. (The) 49,491
- --------------------------------------------------------------------------------
66,974
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 5.2%
- --------------------------------------------------------------------------------
77 3M Co. 5,973
- --------------------------------------------------------------------------------
1,433 General Electric Co. 48,894
- --------------------------------------------------------------------------------
332 Textron Inc. 22,626
- --------------------------------------------------------------------------------
77,493
- --------------------------------------------------------------------------------
INSURANCE -- 1.0%
- --------------------------------------------------------------------------------
242 American International Group, Inc. 14,692
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 1.2%
- --------------------------------------------------------------------------------
183 eBay Inc.(1) 17,863
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 2.5%
- --------------------------------------------------------------------------------
303 VeriSign, Inc.(1) 8,129
- --------------------------------------------------------------------------------
821 Yahoo! Inc.(1) 29,712
- --------------------------------------------------------------------------------
37,841
- --------------------------------------------------------------------------------
IT SERVICES -- 1.3%
- --------------------------------------------------------------------------------
456 First Data Corp. 18,824
- --------------------------------------------------------------------------------
MEDIA -- 2.0%
- --------------------------------------------------------------------------------
14 DreamWorks Animation SKG Inc.(1) 547
- --------------------------------------------------------------------------------
690 Univision Communications Inc. Cl A(1) 21,362
- --------------------------------------------------------------------------------
259 XM Satellite Radio Holdings Inc.(1) 8,371
- --------------------------------------------------------------------------------
30,280
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 3.5%
- --------------------------------------------------------------------------------
484 Kohl's Corp.(1) 24,568
- --------------------------------------------------------------------------------
557 Target Corporation 27,861
- --------------------------------------------------------------------------------
52,429
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.1%
- --------------------------------------------------------------------------------
33 Zebra Technologies Corp. Cl A(1) 1,749
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
13
Capital Growth - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
OIL & GAS -- 3.0%
- --------------------------------------------------------------------------------
453 Apache Corp. $ 22,967
- --------------------------------------------------------------------------------
389 Occidental Petroleum Corp. 21,718
- --------------------------------------------------------------------------------
44,685
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 2.4%
- --------------------------------------------------------------------------------
206 Alberto-Culver Company Cl B 9,241
- --------------------------------------------------------------------------------
621 Gillette Company 25,759
- --------------------------------------------------------------------------------
35,000
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 9.3%
- --------------------------------------------------------------------------------
236 Eli Lilly and Company 12,959
- --------------------------------------------------------------------------------
736 Johnson & Johnson 42,967
- --------------------------------------------------------------------------------
320 Novartis AG ORD 15,280
- --------------------------------------------------------------------------------
181 Novo Nordisk AS Cl B ORD 9,015
- --------------------------------------------------------------------------------
941 Pfizer, Inc. 27,242
- --------------------------------------------------------------------------------
301 Roche Holding AG ORD 30,809
- --------------------------------------------------------------------------------
138,272
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 7.1%
- --------------------------------------------------------------------------------
723 Altera Corp.(1) 16,434
- --------------------------------------------------------------------------------
593 Applied Materials, Inc.(1) 9,547
- --------------------------------------------------------------------------------
237 Broadcom Corp.(1) 6,411
- --------------------------------------------------------------------------------
2,085 Intel Corp. 46,412
- --------------------------------------------------------------------------------
457 Linear Technology Corp. 17,311
- --------------------------------------------------------------------------------
516 Teradyne, Inc.(1) 8,545
- --------------------------------------------------------------------------------
104,660
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
SOFTWARE -- 6.1%
- --------------------------------------------------------------------------------
1,866 Microsoft Corporation $ 52,230
- --------------------------------------------------------------------------------
696 Novell, Inc.(1) 5,004
- --------------------------------------------------------------------------------
280 Oracle Corp.(1) 3,545
- --------------------------------------------------------------------------------
425 SAP AG ADR 18,126
- --------------------------------------------------------------------------------
551 Veritas Software Corp.(1) 12,056
- --------------------------------------------------------------------------------
90,961
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.5%
- --------------------------------------------------------------------------------
355 Home Depot, Inc. 14,583
- --------------------------------------------------------------------------------
289 Ross Stores, Inc. 7,592
- --------------------------------------------------------------------------------
22,175
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.8%
- --------------------------------------------------------------------------------
153 NIKE, Inc. Cl B 12,440
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 1.2%
- --------------------------------------------------------------------------------
285 MGIC Investment Corp. 18,329
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 99.2%
(Cost $1,432,506) 1,473,057
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- 0.8% 12,472
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $1,485,529
================================================================================
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
Contracts Settlement Unrealized
to Sell Date Value Gain (Loss)
- --------------------------------------------------------------------------------
38,003 CHF for USD 11/30/04 $31,813 $(54)
- --------------------------------------------------------------------------------
34,530 DKK for USD 11/30/04 5,940 (4)
- --------------------------------------------------------------------------------
2,483 Euro for USD 11/30/04 3,175 1
- --------------------------------------------------------------------------------
2,821 Euro for USD 11/30/04 3,607 --
- --------------------------------------------------------------------------------
4,381 Euro for USD 11/30/04 5,601 (2)
- --------------------------------------------------------------------------------
$50,136 $(59)
===================================
(Value on Settlement Date $50,077)
* FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the fund to
exchange a foreign currency for U.S. dollars on a specific date in the
future -- and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
CHF = Swiss Franc
DKK = Danish Krone
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
- ------
14
New Opportunities II - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
--------------
AVERAGE ANNUAL
RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 9.39% 6.96% 6/1/01
- --------------------------------------------------------------------------------
RUSSELL 2000 GROWTH INDEX 5.53% -0.52%(1) --
- --------------------------------------------------------------------------------
A Class 1/31/03
No sales charge* 9.06% 26.51%(2)
With sales charge* 2.79% 22.35%(2)
- --------------------------------------------------------------------------------
B Class 1/31/03
No sales charge* 8.23% 25.59%(2)
With sales charge* 4.23% 23.64%(2)
- --------------------------------------------------------------------------------
C Class 8.20% 25.82%(2) 1/31/03
- --------------------------------------------------------------------------------
* Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a maximum 5.75% initial
sales charge for equity funds 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%. Please see the Share Class
Information pages for more about the applicable sales charges for each share
class. The SEC requires that mutual funds provide performance information
net of maximum sales charges in all cases where charges could be applied.
(1) Since 5/31/01, the date nearest the Investor Class's inception for which
data are available.
(2) Class returns would have been lower if service and distribution fees had
not been waived from 2/1/03 to 2/21/03, 2/1/03 to 2/10/03, and 2/1/03 to
6/30/03 for the A, B, and C Class shares, respectively.
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.
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.
(continued)
- ------
15
New Opportunities II - Performance
GROWTH OF $10,000 OVER LIFE OF CLASS
$10,000 investment made June 1, 2001
ONE-YEAR RETURNS OVER LIFE OF CLASS
Periods ended October 31
- --------------------------------------------------------------------------------
2001* 2002 2003 2004
- --------------------------------------------------------------------------------
Investor Class -9.60% -8.19% 38.55% 9.39%
- --------------------------------------------------------------------------------
Russell 2000 Growth Index -19.01% -21.57% 46.56% 5.53%
- --------------------------------------------------------------------------------
* From 6/1/01, the Investor Class's inception date. Index data from 5/31/01, the
date nearest the Investor Class's inception for which data are available. Not
annualized.
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.
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.
- ------
16
New Opportunities II - Portfolio Commentary
[photo of investment team]
THE NEW OPPORTUNITIES II INVESTMENT TEAM (FROM LEFT): PORTFOLIO MANAGERS TOM
TELFORD AND HAROLD S. BRADLEY AND INVESTMENT ANALYSTS STAFFORD SOUTHWICK AND
MATT FERRETTI.
For the twelve months ended October 31, 2004, New Opportunities II gained
9.39%*, outperforming its benchmark, the Russell 2000 Growth Index, which
returned 5.53%.
The fund has posted average annualized returns of 6.96% since its June 1, 2001,
inception, significantly exceeding the 0.52% decline of its benchmark during the
same period.**
EQUITIES BOOK MODEST GAINS
The major U.S. stock indices posted single-digit gains in the fiscal year ended
October 31, 2004. The indices rose roughly 8% in the first three months to
levels not seen since the third quarter of 2001 and the first half of 2002. They
were boosted by corporate earnings that reached 10-year highs in the fourth
quarter of 2003 as the government reported strong economic growth and low
inflation. Those early gains eroded, however, as oil prices jumped 78%, interest
rates climbed, and the real rate of economic growth slipped from 7.4% in the
third quarter of 2003 to 3.3% and 3.9% in the second and third quarters of 2004.
In that environment, smaller, growth-oriented companies, which started well,
finished behind their value counterparts, with double-digit shortfalls in
performance during the last four months of the period.
INDUSTRIALS: THE TOP CONTRIBUTORS
The search for companies demonstrating earnings and revenue acceleration took us
into the industrials sector, the richest source of contribution during the year.
Machinery companies were the strongest performers, and A.S.V. Inc. ranked among
the period's top stocks. Another success was American Science & Engineering,
which sells large-scale X-ray units used to search cargo coming into the
country. Multi-million dollar orders from the U.S. government for the firm's
Z(reg.tm) Backscatter Van X-ray systems contributed to increased revenues.
TOP TEN HOLDINGS
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
American Science and
Engineering Inc. 1.7% 0.5%
- --------------------------------------------------------------------------------
Children's Place Retail
Stores, Inc. (The) 1.5% --
- --------------------------------------------------------------------------------
Bebe Stores Inc. 1.5% --
- --------------------------------------------------------------------------------
Urban Outfitters Inc. 1.5% 1.1%
- --------------------------------------------------------------------------------
Cree Inc. 1.5% --
- --------------------------------------------------------------------------------
OMI Corp. 1.4% --
- --------------------------------------------------------------------------------
Kforce Inc. 1.4% --
- --------------------------------------------------------------------------------
Brocade Communication
System 1.4% --
- --------------------------------------------------------------------------------
AK Steel Holding Corp. 1.4% --
- --------------------------------------------------------------------------------
Cybersource Corp. 1.3% 0.4%
- --------------------------------------------------------------------------------
* All fund returns referenced in this commentary are for Investor Class shares.
** Benchmark information since May 31, 2001, the date nearest the Investor Class
inception for which data are available.
(continued)
- ------
17
New Opportunities II - Portfolio Commentary
ENERGY COMPANIES GAIN GROUND
The energy sector also provided substantial lift. Energy equipment and services
firms made the greatest strides and yielded several contributors. One was Carbo
Ceramics Inc. Increased demand for natural gas in the United States and for the
company's products in Russia and China contributed to a 50% increase in 2003
net income and a 33% revenue increase for first nine months of 2004 compared to
the same period in 2003. Another standout was Lone Star Technologies, which is
benefiting from increased demand from drillers for the steel pipe it produces.
CONSUMER STOCKS SHINE
Our discipline also drew us to the consumer discretionary sector, another
source of strength. Specialty retailer Urban Outfitters Inc., which enjoyed
strong sales and record-setting, triple-digit earnings growth during the period,
was a top contributor.
HEALTH CARE: THE BIGGEST DETRACTOR
Though some of our holdings across the health care sector posted gains, many
more suffered declines, and overall, this group weighed the most on performance
during the period. Health care equipment and supplies companies generated the
greatest drag, and in that group Vascular Solutions Inc. was a top detractor.
Sonic Innovations Inc., which produces digital hearing aids, recently expanded
into Germany. But when the government mandated co-pay requirements for the
company's products, sales dropped sharply. Weaker domestic sales also pressured
margins.
INFORMATION TECHNOLOGY SLOWS RESULTS
Similarly, despite some well-performing holdings, the information technology
sector, on average our largest single stake, was another area of weakness.
Investments in the semiconductor industry slowed performance the most, followed
by holdings in the communications equipment industry. Alvarion Ltd., which
provides infrastructure for wireless broadband networking, finished among the
portfolio's top-detracting stocks.
OUR COMMITMENT
We remain committed to our investment strategy of identifying smaller-sized
companies that best appear able to sustain accelerating growth in earnings and
revenues, a strategy based on the belief that these companies have a
greater-than-average chance to increase in value over the long term.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Oil & Gas 7.2% 1.0%
- --------------------------------------------------------------------------------
Commercial Banks 7.1% 5.7%
- --------------------------------------------------------------------------------
Specialty Retail 6.3% 3.5%
- --------------------------------------------------------------------------------
Software 6.2% 3.6%
- --------------------------------------------------------------------------------
Commercial Services
& Supplies 5.4% 4.5%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 96.5% 98.8%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 4.2% 1.0%
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES 100.7% 99.8%
- --------------------------------------------------------------------------------
Other Assets & Liabilities (0.7)% 0.2%
- --------------------------------------------------------------------------------
- ------
18
New Opportunities II - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.5%
AEROSPACE & DEFENSE -- 2.0%
- --------------------------------------------------------------------------------
29,505 Heico Corporation $ 534,041
- --------------------------------------------------------------------------------
21,421 United Industrial Corporation 685,472
- --------------------------------------------------------------------------------
1,219,513
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 1.1%
- --------------------------------------------------------------------------------
16,687 Forward Air Corp.(1) 687,004
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.7%
- --------------------------------------------------------------------------------
23,743 Affymetrix Inc.(1) 724,162
- --------------------------------------------------------------------------------
30,994 Orchid BioSciences Inc.(1) 298,472
- --------------------------------------------------------------------------------
1,022,634
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 1.8%
- --------------------------------------------------------------------------------
20,414 American Capital Strategies Ltd. 631,813
- --------------------------------------------------------------------------------
21,391 Greenhill & Co. Inc. 481,084
- --------------------------------------------------------------------------------
1,112,897
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 7.1%
- --------------------------------------------------------------------------------
10,583 Bank of Hawaii Corporation 505,338
- --------------------------------------------------------------------------------
17,350 Cathay General Bancorp 683,590
- --------------------------------------------------------------------------------
19,845 First State Bancorporation 700,529
- --------------------------------------------------------------------------------
27,691 Seacoast Banking Corp. of Florida 598,679
- --------------------------------------------------------------------------------
26,880 Trico Bancshares 583,565
- --------------------------------------------------------------------------------
14,528 United Bankshares Inc. 532,742
- --------------------------------------------------------------------------------
26,811 Valley National Bancorp 760,359
- --------------------------------------------------------------------------------
4,364,802
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 5.4%
- --------------------------------------------------------------------------------
20,154 Charles River Associates Inc.(1) 809,788
- --------------------------------------------------------------------------------
81,311 Kforce Inc.(1) 861,083
- --------------------------------------------------------------------------------
28,841 Navigant Consulting Inc.(1) 717,276
- --------------------------------------------------------------------------------
21,369 Schawk Inc. 355,153
- --------------------------------------------------------------------------------
32,835 Sotheby's Holdings Cl A(1) 613,686
- --------------------------------------------------------------------------------
3,356,986
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 2.3%
- --------------------------------------------------------------------------------
92,016 ECI Telecom Ltd.(1) 635,831
- --------------------------------------------------------------------------------
233,961 MRV Communications Inc.(1) 811,844
- --------------------------------------------------------------------------------
1,447,675
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.4%
- --------------------------------------------------------------------------------
126,028 Brocade Communications System(1) 855,730
- --------------------------------------------------------------------------------
29,900 Novatel Wireless Inc.(1) 620,425
- --------------------------------------------------------------------------------
1,476,155
- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS -- 1.1%
- --------------------------------------------------------------------------------
10,217 Eagle Materials Inc. 706,097
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 1.0%
- --------------------------------------------------------------------------------
25,936 World Acceptance Corp.(1) 606,902
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.5%
- --------------------------------------------------------------------------------
23,738 Primus Guaranty Ltd.(1) 312,155
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.3%
- --------------------------------------------------------------------------------
24,491 Ametek Inc. $ 806,244
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 4.3%
- --------------------------------------------------------------------------------
28,050 ARGON ST Inc.(1) 684,420
- --------------------------------------------------------------------------------
12,616 NAM TAI Electronics Inc. 260,773
- --------------------------------------------------------------------------------
10,575 Scansource Inc.(1) 654,910
- --------------------------------------------------------------------------------
17,785 Taser International Inc.(1) 727,406
- --------------------------------------------------------------------------------
23,200 X-Rite Inc. 305,776
- --------------------------------------------------------------------------------
2,633,285
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 2.4%
- --------------------------------------------------------------------------------
19,029 Lufkin Industries Inc. 673,817
- --------------------------------------------------------------------------------
21,492 Unit Corporation(1) 797,138
- --------------------------------------------------------------------------------
1,470,955
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 1.2%
- --------------------------------------------------------------------------------
24,940 BJ's Wholesale Club Inc.(1) 724,008
- --------------------------------------------------------------------------------
GAS UTILITIES -- 1.1%
- --------------------------------------------------------------------------------
18,119 UGI Corp. 699,937
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 1.8%
- --------------------------------------------------------------------------------
62,445 Candela Corporation(1) 635,378
- --------------------------------------------------------------------------------
25,853 Intralase Corp.(1) 497,153
- --------------------------------------------------------------------------------
1,132,531
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 2.3%
- --------------------------------------------------------------------------------
22,479 American Healthcorp, Inc.(1) 678,416
- --------------------------------------------------------------------------------
23,832 Matria Healthcare Inc.(1) 744,035
- --------------------------------------------------------------------------------
1,422,451
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 1.6%
- --------------------------------------------------------------------------------
17,311 eLong Inc. ADR(1) 235,430
- --------------------------------------------------------------------------------
17,376 Red Robin Gourmet Burgers Inc.(1) 724,753
- --------------------------------------------------------------------------------
960,183
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 4.2%
- --------------------------------------------------------------------------------
17,047 Jarden Corp.(1) 598,691
- --------------------------------------------------------------------------------
32,587 Orleans Homebuilders Inc.(1) 681,068
- --------------------------------------------------------------------------------
46,779 Tempur-Pedic International Inc.(1) 759,691
- --------------------------------------------------------------------------------
32,690 Universal Electronics Inc.(1) 581,555
- --------------------------------------------------------------------------------
2,621,005
- --------------------------------------------------------------------------------
INSURANCE -- 1.0%
- --------------------------------------------------------------------------------
27,622 Safety Insurance Group, Inc. 621,771
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 1.1%
- --------------------------------------------------------------------------------
47,637 Stamps.com Inc.(1) 661,202
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 4.9%
- --------------------------------------------------------------------------------
126,962 Cybersource Corp.(1) 830,332
- --------------------------------------------------------------------------------
15,340 Infospace Inc.(1) 805,350
- --------------------------------------------------------------------------------
105,408 webMethods Inc.(1) 730,477
- --------------------------------------------------------------------------------
15,687 Websense Inc.(1) 636,422
- --------------------------------------------------------------------------------
3,002,581
- --------------------------------------------------------------------------------
IT SERVICES -- 1.1%
- --------------------------------------------------------------------------------
45,120 Keane Inc.(1) 713,347
- --------------------------------------------------------------------------------
- ------
19
See Notes to Financial Statements. (continued)
New Opportunities II - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 1.2%
- --------------------------------------------------------------------------------
44,108 K2 Inc.(1) $ 715,432
- --------------------------------------------------------------------------------
MACHINERY -- 4.2%
- --------------------------------------------------------------------------------
27,983 American Science and
Engineering Inc.(1) 1,031,453
- --------------------------------------------------------------------------------
11,417 ESCO Technologies Inc.(1) 796,907
- --------------------------------------------------------------------------------
16,044 Kennametal Inc. 746,527
- --------------------------------------------------------------------------------
2,574,887
- --------------------------------------------------------------------------------
METALS & MINING -- 4.2%
- --------------------------------------------------------------------------------
89,346 AK Steel Holding Corp.(1) 851,468
- --------------------------------------------------------------------------------
18,964 Arch Coal Inc. 616,709
- --------------------------------------------------------------------------------
12,817 Steel Technologies Inc. 307,095
- --------------------------------------------------------------------------------
42,080 Titanium Metals Corp.(1) 814,248
- --------------------------------------------------------------------------------
2,589,520
- --------------------------------------------------------------------------------
OIL & GAS -- 7.2%
- --------------------------------------------------------------------------------
20,662 Berry Petroleum Company Cl A 788,255
- --------------------------------------------------------------------------------
35,597 Comstock Resources Inc.(1) 783,134
- --------------------------------------------------------------------------------
24,261 Forest Oil Corporation(1) 739,961
- --------------------------------------------------------------------------------
59,480 Magnum Hunter Resources Inc.(1) 719,708
- --------------------------------------------------------------------------------
49,372 OMI Corp. 886,226
- --------------------------------------------------------------------------------
114,274 Petroquest Energy Inc.(1) 562,228
- --------------------------------------------------------------------------------
4,479,512
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 1.7%
- --------------------------------------------------------------------------------
32,798 Endo Pharmaceuticals
Holdings Inc.(1) 714,996
- --------------------------------------------------------------------------------
13,844 Valeant Pharmaceuticals
International 332,256
- --------------------------------------------------------------------------------
1,047,252
- --------------------------------------------------------------------------------
ROAD & RAIL -- 2.5%
- --------------------------------------------------------------------------------
32,305 Knight Transportation Inc.(1) 758,844
- --------------------------------------------------------------------------------
37,532 US Xpress Enterprises, Inc. Cl A(1) 767,530
- --------------------------------------------------------------------------------
1,526,374
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 2.8%
- --------------------------------------------------------------------------------
26,113 Cree, Inc.(1) 901,160
- --------------------------------------------------------------------------------
51,898 Microsemi Corporation(1) 806,495
- --------------------------------------------------------------------------------
1,707,655
- --------------------------------------------------------------------------------
SOFTWARE -- 6.2%
- --------------------------------------------------------------------------------
53,588 Epicor Software Corporation(1) 823,648
- --------------------------------------------------------------------------------
37,892 Internet Security Systems(1) 824,530
- --------------------------------------------------------------------------------
11,648 Kronos Inc.(1) 571,334
- --------------------------------------------------------------------------------
32,997 RADWARE Limited(1) 815,026
- --------------------------------------------------------------------------------
19,969 Verint Systems Inc.(1) 776,395
- --------------------------------------------------------------------------------
3,810,933
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 6.3%
- --------------------------------------------------------------------------------
29,569 Aaron Rents Inc. $ 641,647
- --------------------------------------------------------------------------------
29,960 Bebe Stores Inc. 924,865
- --------------------------------------------------------------------------------
30,625 Children's Place Retail
Stores, Inc. (The)(1) 945,394
- --------------------------------------------------------------------------------
22,685 New York & Co. Inc.(1) 469,580
- --------------------------------------------------------------------------------
22,258 Urban Outfitters Inc.(1) 912,578
- --------------------------------------------------------------------------------
3,894,064
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 2.4%
- --------------------------------------------------------------------------------
18,910 Deckers Outdoor Corp.(1) 715,933
- --------------------------------------------------------------------------------
25,017 Wolverine World Wide, Inc. 761,517
- --------------------------------------------------------------------------------
1,477,450
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 2.1%
- --------------------------------------------------------------------------------
28,103 Commercial Capital Bancorp Inc. 630,350
- --------------------------------------------------------------------------------
11,941 Downey Financial Corp. 659,860
- --------------------------------------------------------------------------------
1,290,210
- --------------------------------------------------------------------------------
WATER UTILITIES -- 1.0%
- --------------------------------------------------------------------------------
25,412 American States Water Co. 625,135
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $52,781,458) 59,520,744
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 4.2%
Repurchase Agreement, Merrill Lynch & Co., Inc.,
(collateralized by various U.S. Treasury obligations,
5.25% - 10.375%, 11/15/12 - 2/15/29,
valued at $2,658,024), in a joint trading account
at 1.70%, dated 10/29/04, due 11/1/04
(Delivery value $2,600,368)
(Cost $2,600,000) 2,600,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 100.7%
(Cost $55,381,458) 62,120,744
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- (0.7)% (409,821)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $61,710,923
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements.
- ------
20
Shareholder Fee Examples (Unaudited)
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 May 1, 2004 to October 31, 2004.
ACTUAL EXPENSES
The tables provide 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 fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century 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 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
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 tables also provide 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
(continued)
- ------
21
Shareholder Fee Examples (Unaudited)
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 tables are 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.
- --------------------------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 5/1/04 - EXPENSE
5/1/04 10/31/04 10/31/04 RATIO*
- --------------------------------------------------------------------------------------------------
SELECT SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------------------------
ACTUAL:
- --------------------------------------------------------------------------------------------------
Investor Class $1,000 $975.90 $4.97 1.00%
- --------------------------------------------------------------------------------------------------
Institutional Class $1,000 $976.60 $3.97 0.80%
- --------------------------------------------------------------------------------------------------
Advisor Class $1,000 $974.50 $6.20 1.25%
- --------------------------------------------------------------------------------------------------
A Class $1,000 $974.70 $6.20 1.25%
- --------------------------------------------------------------------------------------------------
B Class $1,000 $971.00 $9.91 2.00%
- --------------------------------------------------------------------------------------------------
C Class $1,000 $971.10 $9.91 2.00%
- --------------------------------------------------------------------------------------------------
HYPOTHETICAL:
- --------------------------------------------------------------------------------------------------
Investor Class $1,000 $1,020.11 $5.08 1.00%
- --------------------------------------------------------------------------------------------------
Institutional Class $1,000 $1,021.11 $4.06 0.80%
- --------------------------------------------------------------------------------------------------
Advisor Class $1,000 $1,018.85 $6.34 1.25%
- --------------------------------------------------------------------------------------------------
A Class $1,000 $1,018.85 $6.34 1.25%
- --------------------------------------------------------------------------------------------------
B Class $1,000 $1,015.08 $10.13 2.00%
- --------------------------------------------------------------------------------------------------
C Class $1,000 $1,015.08 $10.13 2.00%
- --------------------------------------------------------------------------------------------------
CAPITAL GROWTH SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------------------------
A Class $1,000 $1,032.40 $6.39 1.25%
- --------------------------------------------------------------------------------------------------
B Class $1,000 $1,028.20 $10.20 2.00%
- --------------------------------------------------------------------------------------------------
C Class $1,000 $1,028.20 $10.20 2.00%
- --------------------------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------------------------
A Class $1,000 $1,018.85 $6.34 1.25%
- --------------------------------------------------------------------------------------------------
B Class $1,000 $1,015.08 $10.13 2.00%
- --------------------------------------------------------------------------------------------------
C Class $1,000 $1,015.08 $10.13 2.00%
- --------------------------------------------------------------------------------------------------
* Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied
by 184, the number of days in the most recent fiscal half-year, divided
by 366, to reflect the one-half year period.
(continued)
- ------
22
Shareholder Fee Examples (Unaudited)
- --------------------------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 5/1/04 - EXPENSE
5/1/04 10/31/04 10/31/04 RATIO*
- --------------------------------------------------------------------------------------------------
NEW OPPORTUNITIES II SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------------------------
Investor Class $1,000 $1,014.50 $7.60 1.50%
- --------------------------------------------------------------------------------------------------
A Class $1,000 $1,012.90 $8.85 1.75%
- --------------------------------------------------------------------------------------------------
B Class $1,000 $1,008.20 $12.62 2.50%
- --------------------------------------------------------------------------------------------------
C Class $1,000 $1,008.10 $12.62 2.50%
- --------------------------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------------------------
Investor Class $1,000 $1,017.60 $7.61 1.50%
- --------------------------------------------------------------------------------------------------
A Class $1,000 $1,016.34 $8.87 1.75%
- --------------------------------------------------------------------------------------------------
B Class $1,000 $1,012.57 $12.65 2.50%
- --------------------------------------------------------------------------------------------------
C Class $1,000 $1,012.57 $12.65 2.50%
- --------------------------------------------------------------------------------------------------
* Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied
by 184, the number of days in the most recent fiscal half-year, divided by
366, to reflect the one-half year period.
- ------
23
Statement of Assets and Liabilities
OCTOBER 31, 2004
- ---------------------------------------------------------------------------------------------------
CAPITAL NEW
SELECT GROWTH OPPORTUNITIES II
- ---------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------
Investment securities -- unaffiliated,
at value (cost of $2,996,238,426, $1,432,506
and $55,381,458, respectively) - including
$23,871,784, $-- and $-- of securities on
loan, respectively $3,595,882,134 $1,473,057 $62,120,744
- --------------------------------------------------
Investment securities -- affiliated, at value
(cost of $175,326,151, $-- and $--,
respectively) -- including $26,428,318,
$-- and $-- of securities on loan, respectively 252,960,950 -- --
- --------------------------------------------------
Investments made with cash collateral received
for securities on loan, at value (cost of
$51,412,857, $-- and $--, respectively) 51,412,857 -- --
- --------------------------------------------------
Total investment securities, at value
(cost of $3,222,977,434, $1,432,506
and $55,381,458, respectively) 3,900,255,941 1,473,057 62,120,744
- ---------------------------------------------------------------------------------------------------
Cash -- -- 151,540
- --------------------------------------------------
Receivable for investments sold 39,871,629 15,304 3,336,408
- --------------------------------------------------
Receivable for forward foreign currency
exchange contracts 4,051 1 --
- --------------------------------------------------
Receivable for capital shares sold 77,803 103,141 173,464
- --------------------------------------------------
Dividends and interest receivable 3,483,703 785 4,261
- ---------------------------------------------------------------------------------------------------
3,943,693,127 1,592,288 65,786,417
- ---------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------
Payable for collateral received
on securities on loan 51,412,857 -- --
- --------------------------------------------------
Disbursements in excess of demand deposit cash 5,264,091 59,148 --
- --------------------------------------------------
Payable for investments purchased 22,083,765 45,540 3,973,219
- --------------------------------------------------
Payable for forward foreign currency
exchange contracts 143,895 60 --
- --------------------------------------------------
Payable for capital shares redeemed -- -- 20,078
- --------------------------------------------------
Accrued management fees 3,233,677 1,212 76,221
- --------------------------------------------------
Distribution fees payable 8,604 496 1,494
- --------------------------------------------------
Service fees (and distribution
fees -- A Class) payable 12,891 303 4,482
- ---------------------------------------------------------------------------------------------------
82,159,780 106,759 4,075,494
- ---------------------------------------------------------------------------------------------------
NET ASSETS $3,861,533,347 $1,485,529 $61,710,923
===================================================================================================
See Notes to Financial Statements. (continued)
- ------
24
Statement of Assets and Liabilities
OCTOBER 31, 2004
- ---------------------------------------------------------------------------------------------------
CAPITAL NEW
SELECT GROWTH OPPORTUNITIES II
- ---------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $3,822,556,430 $1,481,391 $53,194,796
- --------------------------------------------------
Accumulated undistributed net investment income 168,258 54 --
- --------------------------------------------------
Accumulated undistributed net realized
gain (loss) on investment and foreign
currency transactions (638,459,418) (36,408) 1,776,841
- --------------------------------------------------
Net unrealized appreciation on investments
and translation of assets and liabilities
in foreign currencies 677,268,077 40,492 6,739,286
- ---------------------------------------------------------------------------------------------------
$3,861,533,347 $1,485,529 $61,710,923
- ---------------------------------------------------------------------------------------------------
INVESTOR CLASS, $0.01 PAR VALUE
- ---------------------------------------------------------------------------------------------------
Net assets $3,565,463,459 N/A $38,916,558
- ----------------------------------------------------
Shares outstanding 102,453,814 N/A 6,189,528
- ----------------------------------------------------
Net asset value per share $34.80 N/A $6.29
- ---------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS, $0.01 PAR VALUE
- ---------------------------------------------------------------------------------------------------
Net assets $234,814,661 N/A --
- ----------------------------------------------------
Shares outstanding 6,691,801 N/A --
- ----------------------------------------------------
Net asset value per share $35.09 N/A --
- ---------------------------------------------------------------------------------------------------
ADVISOR CLASS, $0.01 PAR VALUE
- ---------------------------------------------------------------------------------------------------
Net assets $22,626,216 N/A N/A
- ----------------------------------------------------
Shares outstanding 657,225 N/A N/A
- ----------------------------------------------------
Net asset value per share $34.43 N/A N/A
- ---------------------------------------------------------------------------------------------------
A CLASS, $0.01 PAR VALUE
- ---------------------------------------------------------------------------------------------------
Net assets $32,623,825 $692,001 $20,337,329
- ----------------------------------------------------
Shares outstanding 941,345 69,980 3,248,144
- ----------------------------------------------------
Net asset value per share $34.66 $9.89 $6.26
- ----------------------------------------------------
Maximum offering price (net asset
value divided by 0.9425) $36.77 $10.49 $6.64
- ---------------------------------------------------------------------------------------------------
B CLASS, $0.01 PAR VALUE
- ---------------------------------------------------------------------------------------------------
Net assets $2,272,562 $450,118 $1,163,253
- ----------------------------------------------------
Shares outstanding 66,435 45,733 188,204
- ----------------------------------------------------
Net asset value per share $34.21 $9.84 $6.18
- ---------------------------------------------------------------------------------------------------
C CLASS, $0.01 PAR VALUE
- ---------------------------------------------------------------------------------------------------
Net assets $3,732,624 $343,410 $1,293,783
- ----------------------------------------------------
Shares outstanding 109,034 34,891 208,530
- ----------------------------------------------------
Net asset value per share $34.23 $9.84 $6.20
- ---------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
25
Statement of Operations
YEAR ENDED OCTOBER 31, 2004 (EXCEPT AS NOTED)
- ---------------------------------------------------------------------------------------------------
CAPITAL NEW
SELECT GROWTH(1) OPPORTUNITIES II
- ---------------------------------------------------------------------------------------------------
INVESTMENT LOSS
- ---------------------------------------------------------------------------------------------------
INCOME:
- ---------------------------------------------
Dividends (including $151,694, --,
and -- from affiliates, respectively, and
net of foreign taxes withheld of $979,464,
$65 and $71, respectively) $ 39,762,227 $ 6,145 $ 167,363
- ---------------------------------------------
Interest 805,777 19 15,873
- ---------------------------------------------
Securities lending 325,934 -- --
- ---------------------------------------------------------------------------------------------------
40,893,938 6,164 183,236
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------
Management fees 40,572,517 7,454 664,838
- ---------------------------------------------
Distribution fees:
- ---------------------------------------------
Advisor Class 67,512 -- --
- ---------------------------------------------
B Class 14,010 1,881 4,126
- ---------------------------------------------
C Class 22,458 1,692 4,293
- ---------------------------------------------
Service fees:
- ---------------------------------------------
Advisor Class 67,512 -- --
- ---------------------------------------------
B Class 4,670 627 1,375
- ---------------------------------------------
C Class 7,486 564 1,431
- ---------------------------------------------
Service and distribution fees -- A Class 59,041 673 17,444
- ---------------------------------------------
Directors' fees and expenses 60,365 30 744
- ---------------------------------------------
Other expenses 22,923 4 951
- ---------------------------------------------------------------------------------------------------
40,898,494 12,925 695,202
- ---------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (4,556) (6,761) (511,966)
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
- ---------------------------------------------
Investment transactions (including
$7,408,774 from affiliates for Select) 278,393,791 (36,408) 4,383,262
- ---------------------------------------------
Foreign currency transactions (5,243,388) (2,762) (386)
- ---------------------------------------------------------------------------------------------------
273,150,403 (39,170) 4,382,876
- ---------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
- ---------------------------------------------
Investments (139,882,092) 40,551 (239,059)
- ---------------------------------------------
Translation of assets and liabilities
in foreign currencies (12,733) (59) --
- ---------------------------------------------------------------------------------------------------
(139,894,825) 40,492 (239,059)
- ---------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 133,255,578 1,322 4,143,817
- ---------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $133,251,022 $(5,439) $3,631,851
===================================================================================================
(1) February 27, 2004 (inception date) through October 31, 2004.
See Notes to Financial Statements.
- ------
26
Statement of Changes in Net Assets
YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003 (EXCEPT AS NOTED)
- ---------------------------------------------------------------------------------------------------
SELECT CAPITAL GROWTH(1)
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2004 2003 2004
- ---------------------------------------------------------------------------------------------------
OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income (loss) (4,556) $ 1,404,549 $ (6,761)
- -----------------------------------------
Net realized gain (loss) 273,150,403 228,893,778 (39,170)
- -----------------------------------------
Change in net unrealized
appreciation (depreciation) (139,894,825) 374,823,238 40,492
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 133,251,022 605,121,565 (5,439)
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------
From net investment income:
- -----------------------------------------
Investor Class -- (8,963,381) --
- -----------------------------------------
Institutional Class -- (850,467) --
- -----------------------------------------
Advisor Class -- (1,215) --
- ---------------------------------------------------------------------------------------------------
Decrease in net assets
from distributions -- (9,815,063) --
- ---------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital share transactions (370,465,757) (225,051,208) 1,490,968
- ---------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (237,214,735) 370,255,294 1,485,529
- ---------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------
Beginning of period 4,098,748,082 3,728,492,788 --
- ---------------------------------------------------------------------------------------------------
End of period $3,861,533,347 $4,098,748,082 $1,485,529
===================================================================================================
Undistributed net investment income $168,258 $11,491 $54
===================================================================================================
(1) February 27, 2004 (inception date) through October 31, 2004.
See Notes to Financial Statements. (continued)
- ------
27
Statement of Changes in Net Assets
YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
- -------------------------------------------------------------------------------
NEW OPPORTUNITIES II
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2004 2003
- -------------------------------------------------------------------------------
OPERATIONS
- -------------------------------------------------------------------------------
Net investment loss $ (511,966) $ (304,861)
- ---------------------------------------
Net realized gain 4,382,876 2,820,904
- ---------------------------------------
Change in net unrealized
appreciation (depreciation) (239,059) 7,085,442
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 3,631,851 9,601,485
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital share transactions 24,426,403 (1,427,778)
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 28,058,254 8,173,707
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of period 33,652,669 25,478,962
- -------------------------------------------------------------------------------
End of period $61,710,923 $33,652,669
===============================================================================
See Notes to Financial Statements.
- ------
28
Notes to Financial Statements
OCTOBER 31, 2004
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Select Fund (Select), Capital Growth
Fund (Capital Growth) and New Opportunities II Fund (New Opportunities II)
(collectively, the funds) are three funds in a series issued by the corporation.
The funds are diversified under the 1940 Act. The funds' investment objectives
are to seek long-term capital growth. Select and Capital Growth pursue their
investment objectives by investing in stocks of companies they believe will
increase in value over time. New Opportunities II pursues its investment
objective by investing in stocks of smaller-sized companies it believes will
increase in value over time. The following is a summary of the funds'
significant accounting policies.
MULTIPLE CLASS -- Select is authorized to issue the Investor Class, the
Institutional Class, the Advisor Class, the A Class, the B Class and the C
Class. Capital Growth is authorized to issue the A Class, the B Class and the C
Class. New Opportunities II is authorized to issue the Investor Class, the
Institutional Class, the A Class, the B Class and the C 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 shareholder servicing and distribution
expenses and arrangements. All shares of each 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 funds are allocated
to each class of shares based on their relative net assets. Sale of Select and
New Opportunities II's A Class, B Class and C Class commenced on January 31,
2003, at which time the Investor Class became unavailable to new investors.
Capital Growth's A Class, B Class and C Class commenced on February 27, 2004,
Capital Growth's inception date. Sale of New Opportunities II's Institutional
Class had not commenced as of October 31, 2004.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. 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 close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
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.
SECURITIES ON LOAN -- Select may lend portfolio securities through its lending
agent to certain approved borrowers in order to earn additional income. Select
continues to recognize any gain or loss in the market price of the securities
loaned and records any interest earned or dividends declared.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially expressed
in foreign currencies are translated into U.S. dollars at prevailing exchange
rates at period end. Purchases and sales of investment securities, dividend and
interest income, and certain expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions. Realized and unrealized
gains and losses from foreign currency translations arise from changes in
currency exchange rates.
(continued)
- ------
29
Notes to Financial Statements
OCTOBER 31, 2004
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of investment securities are a component of realized
gain (loss) on foreign currency transactions and unrealized appreciation
(depreciation) on translation of assets and liabilities in foreign currencies,
respectively. Certain countries may impose taxes on the contract amount of
purchases and sales of foreign currency contracts in their currency. The funds
record the foreign tax expense, if any, as a reduction to the net realized gain
(loss) on foreign currency transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The funds may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the funds' exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the funds and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The funds bear the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that ACIM has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. Each fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable each 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 each fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, each fund, along with other registered investment
companies having management agreements with ACIM, 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 each 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. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
USE OF ESTIMATES -- 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.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement with
ACIM, under which ACIM provides the funds 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 the funds, except
brokerage commissions, taxes, interest, fees and expenses of those directors who
are not considered "interested persons" as defined in the 1940 Act (including
counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is
computed and accrued daily based on the daily net assets of each specific class
of shares of each fund and paid monthly in arrears. For funds with a stepped fee
schedule, the rate of the fee is determined by applying a fee rate calculation
formula. This formula takes into account all of the investment manager's assets
under management in the fund's investment strategy (strategy assets) to
calculate the appropriate fee rate for the fund. The strategy assets include the
fund's assets and the assets of other clients of the investment manager that are
not in the American Century family of mutual funds but that have the same
investment team and investment strategy.
(continued)
- ------
30
Notes to Financial Statements
OCTOBER 31, 2004
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The annual management fee for each class of Select and Capital Growth, as
applicable, is as follows:
- --------------------------------------------------------------------------------
INVESTOR,
A, B & C INSTITUTIONAL ADVISOR
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $20 billion 1.000% 0.800% 0.750%
- --------------------------------------------------------------------------------
Next $10 billion 0.950% 0.750% 0.700%
- --------------------------------------------------------------------------------
Next $10 billion 0.925% 0.725% 0.675%
- --------------------------------------------------------------------------------
Next $10 billion 0.900% 0.700% 0.650%
- --------------------------------------------------------------------------------
Over $50 billion 0.875% 0.675% 0.625%
- --------------------------------------------------------------------------------
The annual management fee schedule for each class of New Opportunities II is as
follows:
- --------------------------------------------------------------
INVESTOR,
A, B & C INSTITUTIONAL
- --------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------
First $500 million 1.50% 1.30%
- --------------------------------------------------------------
Next $500 million 1.30% 1.10%
- --------------------------------------------------------------
Over $1 billion 1.10% 0.90%
- --------------------------------------------------------------
The effective annual management fee for each class of the funds for the year
ended October 31, 2004 was as follows:
- --------------------------------------------------------------------------------
NEW
SELECT CAPITAL GROWTH OPPORTUNITIES II
- --------------------------------------------------------------------------------
Investor 1.00% N/A 1.50%
- --------------------------------------------------------------------------------
Institutional 0.80% N/A --
- --------------------------------------------------------------------------------
Advisor 0.75% N/A N/A
- --------------------------------------------------------------------------------
A, B & C 1.00% 1.00% 1.50%
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a Master
Distribution and Shareholder Services Plan for the Advisor Class (the Advisor
Class plan) and a separate Master Distribution and Individual Shareholder
Services Plan for each of the A Class, B Class and C Class (collectively with
the Advisor Class Plan, the plans), pursuant to Rule 12b-1 of the 1940 Act. The
plans provide that the Advisor Class, B Class and C Class will pay American
Century Investment Services, Inc. (ACIS) the following annual distribution and
service fees:
- --------------------------------------------------------------------------------
ADVISOR B C
- --------------------------------------------------------------------------------
Distribution Fee 0.25% 0.75% 0.75%
- --------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------
The plans provide that the A Class will pay ACIS an annual distribution and
service fee of 0.25%. The fees are computed and accrued daily based on each
class's daily net assets, and paid monthly in arrears. The distribution fee
provides compensation for expenses incurred in connection with distributing
shares of the classes including, but not limited to, payments to brokers,
dealers, and financial institutions that have entered into sales agreements with
respect to shares of the funds. The service fee provides compensation for
shareholder and administrative services rendered by ACIS, its affiliates or
independent third party providers for Advisor Class shares and for individual
shareholder services rendered by broker/dealers or other independent financial
intermediaries for A, B and C Class shares. Fees incurred under the plans during
the year ended October 31, 2004, are detailed in the Statement of Operations.
(continued)
- ------
31
Notes to Financial Statements
OCTOBER 31, 2004
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
manager, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services Corporation.
During the year ended October 31, 2004, the funds invested in a money market
fund for temporary purposes, which was managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC. The funds have a bank line
of credit agreement and Select has a securities lending agreement with JPMorgan
Chase Bank (JPMCB). JPMCB is a custodian of the funds and a wholly owned
subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year ended
October 31, 2004, (except as noted) were as follows:
- --------------------------------------------------------------------------------
CAPITAL NEW
SELECT GROWTH(1) OPPORTUNITIES II
- --------------------------------------------------------------------------------
Purchases $1,931,773,140 $2,405,980 $132,044,904
- --------------------------------------------------------------------------------
Proceeds from sales $2,393,574,375 $937,067 $109,966,923
- --------------------------------------------------------------------------------
(1) February 27, 2004 (inception date) through October 31, 2004.
(continued)
- ------
32
Notes to Financial Statements
OCTOBER 31, 2004
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows:
- ----------------------------------------------------------------------------------------------------
SELECT CAPITAL GROWTH NEW OPPORTUNITIES II
- ----------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
INVESTOR CLASS
- ----------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 360,000,000 N/A 250,000,000
====================================================================================================
Sold 3,624,507 $ 128,959,593 1,408,981 $ 8,685,743
- ---------------------------
Redeemed (14,501,975) (516,136,114) (870,628) (5,433,330)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) (10,877,468) $(387,176,521) 538,353 $ 3,252,413
====================================================================================================
YEAR ENDED OCTOBER 31, 2003
Shares Authorized 360,000,000 N/A 250,000,000
====================================================================================================
Sold 5,893,639 $ 179,550,191 1,005,193 $ 4,562,699
- ---------------------------
Issued in reinvestment
of distributions 293,884 8,460,923 -- --
- ---------------------------
Redeemed (14,695,299) (441,320,181) (1,493,317) (6,906,299)
- ----------------------------------------------------------------------------------------------------
Net decrease (8,507,776) $(253,309,067) (488,124) $(2,343,600)
====================================================================================================
INSTITUTIONAL CLASS
- ----------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 40,000,000 N/A 50,000,000
====================================================================================================
Sold 1,041,936 $37,331,163 -- --
- ---------------------------
Redeemed (1,105,498) (39,531,415) -- --
- ----------------------------------------------------------------------------------------------------
Net decrease (63,562) $ (2,200,252) -- --
====================================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 40,000,000 N/A 50,000,000
====================================================================================================
Sold 1,326,164 $ 40,613,361 -- --
- ---------------------------
Issued in reinvestment
of distributions 28,974 838,204 -- --
- ---------------------------
Redeemed (988,050) (30,031,037) -- --
- ----------------------------------------------------------------------------------------------------
Net increase 367,088 $ 11,420,528 -- --
====================================================================================================
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 100,000,000 N/A N/A
====================================================================================================
Sold 308,352 $ 10,860,454
- ---------------------------
Redeemed (521,487) (18,372,964)
- ----------------------------------------------------------------------------------------------------
Net decrease (213,135) $ (7,512,510)
====================================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 100,000,000 N/A N/A
====================================================================================================
Sold 352,320 $10,590,730
- ---------------------------
Issued in reinvestment
of distributions 38 1,083
- ---------------------------
Redeemed (194,900) (5,788,629)
- ----------------------------------------------------------------------------------------------------
Net increase 157,458 $ 4,803,184
====================================================================================================
(continued)
- ------
33
Notes to Financial Statements
OCTOBER 31, 2004
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
- ----------------------------------------------------------------------------------------------------
SELECT CAPITAL GROWTH NEW OPPORTUNITIES II
- ----------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
A CLASS
- ----------------------------------------------------------------------------------------------------
YEAR ENDED
OCTOBER 31, 2004(1)
SHARES AUTHORIZED 25,000,000 100,000,000 25,000,000
====================================================================================================
Sold 726,527 $25,737,099 69,980 $690,177 3,302,884 $20,304,602
- ------------------------
Redeemed (90,804) (3,183,330) -- -- (209,957) (1,284,533)
- ----------------------------------------------------------------------------------------------------
Net increase 635,723 $22,553,769 69,980 $690,177 3,092,927 $19,020,069
====================================================================================================
PERIOD ENDED
OCTOBER 31, 2003(2)
SHARES AUTHORIZED 25,000,000 N/A 25,000,000
====================================================================================================
Sold 306,963 $10,010,611 203,007 $ 945,809
- ------------------------
Redeemed (1,341) (42,396) (47,790) (231,694)
- ----------------------------------------------------------------------------------------------------
Net increase 305,622 $ 9,968,215 155,217 $ 714,115
====================================================================================================
B CLASS
- ----------------------------------------------------------------------------------------------------
YEAR ENDED
OCTOBER 31, 2004(1)
SHARES AUTHORIZED 25,000,000 100,000,000 25,000,000
====================================================================================================
Sold 37,593 $1,318,038 45,733 $452,333 168,526 $1,021,035
- ------------------------
Redeemed (1,950) (67,594) -- -- (17,922) (112,383)
- ----------------------------------------------------------------------------------------------------
Net increase 35,643 $1,250,444 45,733 $452,333 150,604 $ 908,652
====================================================================================================
PERIOD ENDED
OCTOBER 31, 2003(2)
SHARES AUTHORIZED 25,000,000 N/A 25,000,000
====================================================================================================
Sold 31,012 $986,003 38,203 $171,946
- ------------------------
Redeemed (220) (6,857) (603) (2,898)
- ----------------------------------------------------------------------------------------------------
Net increase 30,792 $979,146 37,600 $169,048
====================================================================================================
C CLASS
- ----------------------------------------------------------------------------------------------------
YEAR ENDED
OCTOBER 31, 2004(1)
SHARES AUTHORIZED 25,000,000 100,000,000 25,000,000
====================================================================================================
Sold 86,243 $3,002,834 34,974 $349,262 213,716 $1,313,126
- ------------------------
Redeemed (11,068) (383,521) (83) (804) (11,191) (67,857)
- ----------------------------------------------------------------------------------------------------
Net increase 75,175 $2,619,313 34,891 $348,458 202,525 $1,245,269
====================================================================================================
PERIOD ENDED
OCTOBER 31, 2003(2)
SHARES AUTHORIZED 25,000,000 N/A 25,000,000
====================================================================================================
Sold 34,025 $1,092,115 6,005 $32,659
- ------------------------
Redeemed (166) (5,329) -- --
- ----------------------------------------------------------------------------------------------------
Net increase 33,859 $1,086,786 6,005 $32,659
====================================================================================================
(1) February 27, 2004 (inception date) through October 31, 2004 for
Capital Growth.
(2) January 31, 2003 (commencement of sale) through October 31, 2003
for Select and New Opportunities II.
(continued)
- ------
34
Notes to Financial Statements
OCTOBER 31, 2004
5. AFFILIATED COMPANY TRANSACTIONS
If a fund's holding represents ownership of 5% or more of the voting securities
of a company, the company is affiliated as defined in the 1940 Act. A summary of
transactions for each company which is or was an affiliate at or during the year
ended October 31, 2004 follows:
- ------------------------------------------------------------------------------------------------------------
SHARE 10/31/04
BALANCE PURCHASE SALES REALIZED DIVIDEND ---------------------------
FUND/COMPANY 10/31/03 COST COST GAIN (LOSS) INCOME SHARE BALANCE MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
SELECT
- ------------------------------------------------------------------------------------------------------------
Four Seasons
Hotels Inc.(1) 2,240,000 $ -- $ 9,843,402 $7,652,343 $151,694 1,960,000 $132,535,200
- ------------------
Yankee Candle
Company Inc.(1)(2) 1,510,000 81,701,896 2,298,321 (243,569) -- 4,347,500 120,425,750
- ------------------------------------------------------------------------------------------------------------
$81,701,896 $12,141,723 $7,408,774 $151,694 $252,960,950
============================================================================================================
(1) Security, or a portion thereof, was on loan as of October 31, 2004
(2) Non-income producing.
6. SECURITIES LENDING
As of October 31, 2004, securities in Select valued at $50,300,102, were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB receives
and maintains collateral in the form of cash, and/or acceptable securities as
approved by ACIM. Cash collateral is invested in authorized investments by the
lending agent in a pooled account. The value of cash collateral received at
period end is disclosed in the Statement of Assets and Liabilities and
investments made with the cash by the lending agent are listed in the Schedule
of Investments. Any deficiencies or excess of collateral must be delivered or
transferred by the member firms no later than the close of business on the next
business day. The total value of all collateral received, at this date, was
$51,412,857. Select's risks in securities lending are that the borrower may not
provide additional collateral when required or return the securities when due.
If the borrower defaults, receipt of the collateral by Select may be delayed or
limited.
7. BANK LINE OF CREDIT
The funds, along with certain other funds managed by ACIM, have a $650,000,000
unsecured bank line of credit agreement with JPMCB. The funds may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The
funds did not borrow from the line during the year ended October 31, 2004.
8. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years ended October 31, 2004
and October 31, 2003 (except as noted) were as follows:
CAPITAL NEW
SELECT GROWTH OPPORTUNITIES II
- --------------------------------------------------------------------------------
2004 2003 2004(1) 2004 2003
- --------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM
- --------------------------------------------------------------------------------
Ordinary income $-- $9,815,063 $-- $-- $--
- --------------------------------------------------------------------------------
Long-term capital gains $-- $-- $-- $-- $--
- --------------------------------------------------------------------------------
(1) February 27, 2004 (inception date) through October 31, 2004.
The 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.
(continued)
- ------
35
Notes to Financial Statements
OCTOBER 31, 2004
8. FEDERAL TAX INFORMATION (CONTINUED)
As of October 31, 2004, the components of distributable earnings on a tax-basis
and the federal tax cost of investments were as follows:
- ----------------------------------------------------------------------------------------------------
CAPITAL NEW
SELECT GROWTH OPPORTUNITIES II
- ----------------------------------------------------------------------------------------------------
COMPONENTS OF DISTRIBUTABLE
EARNINGS AND TAX COST
- ----------------------------------------------------------------------------------------------------
Federal tax cost of investments $3,235,890,065 $1,440,521 $55,381,458
====================================================================================================
Gross tax appreciation of investments $736,932,678 $81,365 $7,145,341
- ----------------------------------------------
Gross tax depreciation of investments (72,566,802) (48,829) (406,055)
- ----------------------------------------------------------------------------------------------------
Net tax appreciation of investments $664,365,876 $32,536 $6,739,286
====================================================================================================
Net tax appreciation (depreciation)
on derivatives and translation of
assets and liabilities in foreign currencies 157,693 (5) --
- ----------------------------------------------------------------------------------------------------
Net tax appreciation $664,523,569 $32,531 $6,739,286
====================================================================================================
Undistributed ordinary income -- -- $993,955
- ----------------------------------------------
Accumulated long-term gains -- -- $782,886
- ----------------------------------------------
Accumulated capital losses $(625,546,652) $(28,393) --
- ----------------------------------------------------------------------------------------------------
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 and the realization for tax purposes of unrealized gains on certain
forward foreign currency contracts.
The accumulated capital losses listed above represent net capital loss
carryovers that may be used to offset future realized capital gains for federal
income tax purposes. The capital loss carryovers expire as follows:
- --------------------------------------------------------------------------------
2009 2010 2011 2012
- --------------------------------------------------------------------------------
Select $(104,198,293) $(521,348,359) -- --
- --------------------------------------------------------------------------------
Capital Growth -- -- -- $(28,393)
- --------------------------------------------------------------------------------
New Opportunities II -- -- -- --
- --------------------------------------------------------------------------------
- ------
36
Select - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- -------------------------------------------------------------------------------------------
INVESTOR CLASS
- -------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $33.77 $28.91 $34.94 $52.20 $53.32
- -------------------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------------
Net Investment Income (Loss)(1) --(2) 0.01 0.07 0.06 (0.06)
- -----------------------------------------
Net Realized and Unrealized Gain (Loss) 1.03 4.92 (6.04) (14.53) 4.04
- -------------------------------------------------------------------------------------------
Total From Investment Operations 1.03 4.93 (5.97) (14.47) 3.98
- -------------------------------------------------------------------------------------------
Distributions
- -----------------------------------------
From Net Investment Income -- (0.07) (0.06) -- --
- -----------------------------------------
From Net Realized Gains -- -- -- (2.79) (5.10)
- -------------------------------------------------------------------------------------------
Total Distributions -- (0.07) (0.06) (2.79) (5.10)
- -------------------------------------------------------------------------------------------
Net Asset Value, End of Period $34.80 $33.77 $28.91 $34.94 $52.20
===========================================================================================
TOTAL RETURN(3) 3.05% 17.11% (17.11)% (28.93)% 7.64%
- -------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.00% 1.00% 1.00% 1.00% 1.00%
- -----------------------------------------
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.01)% 0.03% 0.21% 0.15% (0.11)%
- -----------------------------------------
Portfolio Turnover Rate 48% 84% 168% 98% 67%
- -----------------------------------------
Net Assets, End of Period (in millions) $3,565 $3,828 $3,522 $4,745 $7,086
- -------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Per-share amount is less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC
guidelines and does not result in any gain or loss of value between one
class and another.
See Notes to Financial Statements.
- ------
37
Select - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- -------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- -------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $33.99 $29.10 $35.16 $52.36 $53.41
- -------------------------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------------
Net Investment Income(1) 0.07 0.07 0.13 0.14 0.04
- -----------------------------------------
Net Realized and Unrealized Gain (Loss) 1.03 4.95 (6.06) (14.55) 4.01
- -------------------------------------------------------------------------------------------------
Total From Investment Operations 1.10 5.02 (5.93) (14.41) 4.05
- -------------------------------------------------------------------------------------------------
Distributions
- -----------------------------------------
From Net Investment Income -- (0.13) (0.13) -- --
- -----------------------------------------
From Net Realized Gains -- -- -- (2.79) (5.10)
- -------------------------------------------------------------------------------------------------
Total Distributions -- (0.13) (0.13) (2.79) (5.10)
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $35.09 $33.99 $29.10 $35.16 $52.36
=================================================================================================
TOTAL RETURN(2) 3.24% 17.34% (16.93)% (28.71)% 7.77%
- -------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 0.80% 0.80% 0.80% 0.80% 0.80%
- -----------------------------------------
Ratio of Net Investment Income
to Average Net Assets 0.19% 0.23% 0.41% 0.35% 0.09%
- -----------------------------------------
Portfolio Turnover Rate 48% 84% 168% 98% 67%
- -----------------------------------------
Net Assets, End of Period (in thousands) $234,815 $229,596 $185,897 $181,708 $259,092
- -------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC
guidelines and does not result in any gain or loss of value between one
class and another.
See Notes to Financial Statements.
- ------
38
Select - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- ---------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $33.49 $28.66 $34.68 $52.01 $53.19
- ---------------------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------------
Net Investment Loss(1) (0.09) (0.07) (0.02) (0.04) (0.21)
- -----------------------------------------
Net Realized and Unrealized Gain (Loss) 1.03 4.90 (6.00) (14.50) 4.13
- ---------------------------------------------------------------------------------------------
Total From Investment Operations 0.94 4.83 (6.02) (14.54) 3.92
- ---------------------------------------------------------------------------------------------
Distributions
- -----------------------------------------
From Net Investment Income -- --(2) -- -- --
- -----------------------------------------
From Net Realized Gains -- -- -- (2.79) (5.10)
- ---------------------------------------------------------------------------------------------
Total Distributions -- --(2) -- (2.79) (5.10)
- ---------------------------------------------------------------------------------------------
Net Asset Value, End of Period $34.43 $33.49 $28.66 $34.68 $52.01
=============================================================================================
TOTAL RETURN(3) 2.81% 16.86% (17.36)% (29.18)% 7.54%
- ---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.25% 1.25% 1.25% 1.25% 1.25%
- -----------------------------------------
Ratio of Net Investment Loss
to Average Net Assets (0.26)% (0.22)% ( 0.04)% (0.10)% (0.36)%
- -----------------------------------------
Portfolio Turnover Rate 48% 84% 168% 98% 67%
- -----------------------------------------
Net Assets, End of Period (in thousands) $22,626 $29,152 $20,432 $23,389 $22,239
- ---------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Per-share amount is less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC
guidelines and does not result in any gain or loss of value between one
class and another.
See Notes to Financial Statements.
- ------
39
Select - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR ENDED OCTOBER 31 (EXCEPT AS NOTED)
- -------------------------------------------------------------------------------
A CLASS
- -------------------------------------------------------------------------------
2004 2003(1)
- -------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $33.72 $27.75
- -------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------
Net Investment Loss(2) (0.10) (0.14)
- ---------------------------------------------------
Net Realized and Unrealized Gain 1.04 6.11
- -------------------------------------------------------------------------------
Total From Investment Operations 0.94 5.97
- -------------------------------------------------------------------------------
Net Asset Value, End of Period $34.66 $33.72
===============================================================================
TOTAL RETURN(3) 2.79% 21.51%
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 1.25% 1.25%(4)
- ---------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (0.26)% (0.56)%(4)
- ---------------------------------------------------
Portfolio Turnover Rate 48% 84%(5)
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $32,624 $10,305
- -------------------------------------------------------------------------------
(1) January 31, 2003 (commencement of sale) through October 31, 2003.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal
places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two
decimal places is made in accordance with SEC guidelines and does not
result in any gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2003.
See Notes to Financial Statements.
- ------
40
Select - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR ENDED OCTOBER 31 (EXCEPT AS NOTED)
- -------------------------------------------------------------------------------
B CLASS
- -------------------------------------------------------------------------------
2004 2003(1)
- -------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $33.53 $27.75
- -------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------
Net Investment Loss(2) (0.35) (0.31)
- ---------------------------------------------------
Net Realized and Unrealized Gain 1.03 6.09
- -------------------------------------------------------------------------------
Total From Investment Operations 0.68 5.78
- -------------------------------------------------------------------------------
Net Asset Value, End of Period $34.21 $33.53
===============================================================================
TOTAL RETURN(3) 2.03% 20.83%
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 2.00% 2.00%(4)
- ---------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (1.01)% (1.28)%(4)
- ---------------------------------------------------
Portfolio Turnover Rate 48% 84%(5)
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $2,273 $1,032
- -------------------------------------------------------------------------------
(1) January 31, 2003 (commencement of sale) through October 31, 2003.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal
places, the total return differences would more closely reflect the class
expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in
any gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2003.
See Notes to Financial Statements.
- ------
41
Select - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR ENDED OCTOBER 31 (EXCEPT AS NOTED)
- -------------------------------------------------------------------------------
C CLASS
- -------------------------------------------------------------------------------
2004 2003(1)
- -------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $33.56 $27.75
- -------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------
Net Investment Loss(2) (0.36) (0.31)
- ---------------------------------------------------
Net Realized and Unrealized Gain 1.03 6.12
- -------------------------------------------------------------------------------
Total From Investment Operations 0.67 5.81
- -------------------------------------------------------------------------------
Net Asset Value, End of Period $34.23 $33.56
===============================================================================
TOTAL RETURN(3) 2.03% 20.94%
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 2.00% 2.00%(4)
- ---------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (1.01)% (1.28)%(4)
- ---------------------------------------------------
Portfolio Turnover Rate 48% 84%(5)
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $3,733 $1,136
- -------------------------------------------------------------------------------
(1) January 31, 2003 (commencement of sale) through October 31, 2003.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal
places, the total return differences would more closely reflect the class
expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in
any gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2003.
See Notes to Financial Statements.
- ------
42
Capital Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
- --------------------------------------------------------------------------------
A CLASS
- --------------------------------------------------------------------------------
2004(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00
- --------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------
Net Investment Loss(2) (0.03)
- ---------------------------------------------------
Net Realized and Unrealized Loss (0.08)
- --------------------------------------------------------------------------------
Total From Investment Operations (0.11)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $9.89
================================================================================
TOTAL RETURN(3) (1.10)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 1.25%(4)
- ---------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (0.43)%(4)
- ---------------------------------------------------
Portfolio Turnover Rate 87%
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $692
- --------------------------------------------------------------------------------
(1) February 27, 2004 (commencement of sale) through October 31, 2004.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal
places, the total return differences would more closely reflect the class
expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in
any gain or loss of value between one class and another.
(4) Annualized.
- ------
43
See Notes to Financial Statements.
Capital Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
- -------------------------------------------------------------------------------
B CLASS
- -------------------------------------------------------------------------------
2004(1)
- -------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00
- -------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------
Net Investment Loss(2) (0.08)
- ---------------------------------------------------
Net Realized and Unrealized Loss (0.08)
- -------------------------------------------------------------------------------
Total From Investment Operations (0.16)
- -------------------------------------------------------------------------------
Net Asset Value, End of Period $9.84
===============================================================================
TOTAL RETURN(3) (1.60)%
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 2.00%(4)
- ---------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (1.17)%(4)
- ---------------------------------------------------
Portfolio Turnover Rate 87%
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $450
- -------------------------------------------------------------------------------
(1) February 27, 2004 (commencement of sale) through October 31, 2004.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal
places, the total return differences would more closely reflect the class
expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in
any gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
44
Capital Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
- --------------------------------------------------------------------------------
C CLASS
- --------------------------------------------------------------------------------
2004(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00
- --------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------
Net Investment Loss(2) (0.08)
- ---------------------------------------------------
Net Realized and Unrealized Loss (0.08)
- --------------------------------------------------------------------------------
Total From Investment Operations (0.16)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $9.84
================================================================================
TOTAL RETURN(3) (1.60)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 2.00%(4)
- ---------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (1.18)%(4)
- ---------------------------------------------------
Portfolio Turnover Rate 87%
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $343
- --------------------------------------------------------------------------------
(1) February 27, 2004 (commencement of sale) through October 31, 2004.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal
places, the total return differences would more closely reflect the class
expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in
any gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
45
New Opportunities II - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------------
2004 2003 2002 2001(1)
- --------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $5.75 $4.15 $4.52 $5.00
- --------------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------------
Net Investment Loss(2) (0.07) (0.05) (0.05) (0.01)
- -----------------------------------------
Net Realized and Unrealized Gain (Loss) 0.61 1.65 (0.32) (0.47)
- --------------------------------------------------------------------------------------
Total From Investment Operations 0.54 1.60 (0.37) (0.48)
- --------------------------------------------------------------------------------------
Net Asset Value, End of Period $6.29 $5.75 $4.15 $4.52
======================================================================================
TOTAL RETURN(3) 9.39% 38.55% (8.19)% (9.60)%
- --------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.50% 1.50% 1.50% 1.50%(4)
- -----------------------------------------
Ratio of Net Investment Loss
to Average Net Assets (1.09)% (1.11)% (1.02)% (0.81)%(4)
- -----------------------------------------
Portfolio Turnover Rate 255% 236% 182% 89%
- -----------------------------------------
Net Assets, End of Period (in thousands) $38,917 $32,512 $25,479 $18,217
- --------------------------------------------------------------------------------------
(1) June 1, 2001 (inception) through October 31, 2001.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of
net asset values to two decimal places is made in accordance with SEC
guidelines and does not result in any gain or loss of value between
one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
46
New Opportunities II - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
A CLASS
- --------------------------------------------------------------------------------
2004 2003(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $5.74 $4.15
- --------------------------------------------------------------------------------
Income From Investment Operations
- --------------------------------------------------
Net Investment Loss(2) (0.08) (0.05)
- --------------------------------------------------
Net Realized and Unrealized Gain 0.60 1.64
- --------------------------------------------------------------------------------
Total From Investment Operations 0.52 1.59
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $6.26 $5.74
================================================================================
TOTAL RETURN(3) 9.06% 38.31%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 1.75% 1.75%(4)
- --------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (1.34)% (1.47)%(4)
- --------------------------------------------------
Portfolio Turnover Rate 255% 236%(5)
- --------------------------------------------------
Net Assets, End of Period (in thousands) $20,337 $891
- --------------------------------------------------------------------------------
(1) January 31, 2003 (commencement of sale) through October 31, 2003.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values
to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect
the class expense differences. The calculation of net asset values to
two decimal places is made in accordance with SEC guidelines and does
not result in any gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2003.
See Notes to Financial Statements.
- ------
47
New Opportunities II - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
B CLASS
- --------------------------------------------------------------------------------
2004 2003(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
NNet Asset Value, Beginning of Period $5.71 $4.15
- --------------------------------------------------------------------------------
Income From Investment Operations
- --------------------------------------------------
Net Investment Loss(2) (0.13) (0.08)
- --------------------------------------------------
Net Realized and Unrealized Gain 0.60 1.64
- --------------------------------------------------------------------------------
Total From Investment Operations 0.47 1.56
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $6.18 $5.71
================================================================================
TOTAL RETURN(3) 8.23% 37.59%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 2.50% 2.50%(4)
- --------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (2.09)% (2.20)%(4)
- --------------------------------------------------
Portfolio Turnover Rate 255% 236%(5)
- --------------------------------------------------
Net Assets, End of Period (in thousands) $1,163 $215
- --------------------------------------------------------------------------------
(1) January 31, 2003 (commencement of sale) through October 31, 2003.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal
places, the total return differences would more closely reflect the class
expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in
any gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2003.
See Notes to Financial Statements.
- ------
48
New Opportunities II - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
C CLASS
- --------------------------------------------------------------------------------
2004 2003(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $5.73 $4.15
- --------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------
Net Investment Loss(2) (0.13) (0.07)
- ---------------------------------------------------
Net Realized and Unrealized Gain 0.60 1.65
- --------------------------------------------------------------------------------
Total From Investment Operations 0.47 1.58
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $6.20 $5.73
================================================================================
TOTAL RETURN(3) 8.20% 38.07%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 2.50% 2.22%(4)(5)
- ---------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (2.09)% (1.97)%(4)(5)
- ---------------------------------------------------
Portfolio Turnover Rate 255% 236%(6)
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $1,294 $34
- --------------------------------------------------------------------------------
(1) January 31, 2003 (commencement of sale) through October 31, 2003.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal
places, the total return differences would more closely reflect the class
expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in
any gain or loss of value between one class and another.
(4) Annualized.
(5) During a portion of the period ended October 31, 2003, the distributor
agreed to voluntarily waive the distribution and service fees. Had fees
not been waived the annualized ratio of operating expenses to average
net assets and the annualized ratio of net investment loss to average
net assets would have been 2.50% and (2.25)%, respectively.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2003.
See Notes to Financial Statements.
- ------
49
Report of Independent Registered
Public Accounting Firm
The Board of Directors and Shareholders American Century Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Select Fund, Capital Growth Fund, and New
Opportunities II Fund, (collectively, the "Funds"), three of the funds
comprising American Century Mutual Funds, Inc., as of October 31, 2004, and the
related statements of operations for the period then ended, the statements of
changes in net assets and the financial highlights for the periods presented.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 2004, by correspondence with
the custodian and brokers; when replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Select Fund, Capital Growth Fund, and New Opportunities II Fund as of October
31, 2004, the results of their operations for the period then ended, the
changes in their net assets and their financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 15, 2004
- ------
50
Management
The individuals listed below serve as directors or officers of the funds. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the funds' investment advisor, American
Century Investment Management, Inc. (ACIM); the funds' principal underwriter,
American Century Investment Services, Inc. (ACIS); and the funds' transfer
agent, American Century Services Corporation (ACSC).
The other directors (more than three-fourths of the total numbers) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned subsidiaries, including
ACIM, ACIS, and ACSC. The directors serve in this capacity for six registered
investment companies in the American Century family of funds.
All persons named as officers of the funds also serve in a similar capacity for
the other 13 investment companies advised by ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated for
his or her service as an officer of the funds. The listed officers are
interested persons of the funds and are appointed or re-appointed on an annual
basis.
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 23
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Strategic Account Implementation
Manager, Applied Industrial Technologies, Inc., a corporation engaged in the
sale of bearings and power transmission products
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, Midwest
Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Midwest Research Institute
- --------------------------------------------------------------------------------
D.D. (DEL) HOCK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1935
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 7
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Chairman, Public
Service Company of Colorado
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Allied Motion Technologies, Inc.
and J.D. Edwards & Company
- --------------------------------------------------------------------------------
(continued)
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51
Management
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director, Vice Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Western Investments,
Inc.; Retired Chairman of the Board, Butler Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Atlas-Copco, North America Inc.
- --------------------------------------------------------------------------------
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive Officer,
and Founder, Sayers Computer Source
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Triad Hospitals, Inc.
- --------------------------------------------------------------------------------
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 9
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Chief
Integration Officer, Sprint Corporation (September 2003 to present); Senior Vice
President - Financial Services, Sprint Corporation (January 2003 to September
2003); Senior Vice President, Finance - Global Markets Group, Sprint Corporation
(November 1998 to January 2003)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.
- --------------------------------------------------------------------------------
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 2
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, American Italian Pasta Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JAMES E. STOWERS, JR.(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director, Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 45
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Director, and controlling
shareholder, ACC; Chairman, ACSC and other ACC subsidiaries; Director, ACIM,
ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
JAMES E. STOWERS III(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1959
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 13
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Co-Chairman, ACC (September 2000 to
present); Chief Executive Officer, ACC (June 1996 to September 2000); Director,
ACC, ACIM, ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
(1) James E. Stowers, Jr. is the father of James E. Stowers III.
(continued)
- ------
52
Management
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUND: President
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and
other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to
present); President, ACIM (September 2002 to present); President, ACIS (July
2003 to present); Chief Operating Officer, ACC (June 1996 to September 2000);
Also serves as: Executive Vice President, ACSC and other ACC subsidiaries
- --------------------------------------------------------------------------------
ROBERT T. JACKSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Executive Vice President
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC
(August 1997 to present); Chief Financial Officer, ACC (May 1995 to October
2002); President, ACSC (January 1999 to present); Executive Vice President, ACC
(May 1995 to present); Also serves as: Executive Vice President and Chief
Financial Officer, ACIM, ACIS and other ACC subsidiaries; and Treasurer, ACIM
- --------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer, and Chief
Accounting Officer
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President (April 1998
to present) and Assistant Treasurer, ACSC (September 1985 to present)
- --------------------------------------------------------------------------------
DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and General
Counsel, ACIM, ACIS, ACSC and other ACC subsidiaries (June 1998 to present);
Vice President and General Counsel, ACC (June 1998 to present)
- --------------------------------------------------------------------------------
DAVID H. REINMILLER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer
LENGTH OF TIME SERVED (YEARS): 3 and less than 1 year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACSC and
ACIM (March 2001 to present); Vice President, ACSC (March 2000 to present); Vice
President, ACIM (March 2002 to present); Vice President, ACIS (March 2003 to
present); Assistant General Counsel, ACSC (December 1996 to January 2001);
Associate General Counsel, ACSC (July 2001 to present)
- --------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Controller
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000
to present); Controller-Fund Accounting, ACSC (June 1997 to present)
- --------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC
(April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries
(April 1999 to present); President, American Century Employee Benefit Services,
Inc. (January 2000 to December 2000); Director, American Century Employee
Benefit Services, Inc. (February 2000 to December 2003); Treasurer, American
Century Employee Benefit Services, Inc. (December 2000 to December 2003);
Treasurer, American Century Ventures, Inc. (December 1999 to April 2001)
- --------------------------------------------------------------------------------
The SAI has additional information about the funds' directors and is available
without charge upon request by calling 1-800-345-2021.
- ------
53
Share Class Information
Six classes of shares are authorized for sale by Select: Investor Class,
Institutional Class, Advisor Class, A Class, B Class, and C Class. Three
classes of shares are authorized for sale by Capital Growth: A Class, B Class,
and C Class. Five classes of shares are authorized for sale by New
Opportunities II: Investor Class, Institutional Class, A Class, B Class, and C
Class. As of October 31, 2004, the Institutional Class of New Opportunities II
had not commenced operations. The total expense ratio of Institutional Class
shares is lower than that of Investor Class shares. The total expense ratios of
Advisor, A, B, and C Class shares are higher than that of Investor Class shares.
ON JANUARY 31, 2003, INVESTOR CLASS SHARES OF SELECT AND NEW OPPORTUNITIES II
BECAME UNAVAILABLE TO NEW INVESTORS.
INVESTOR CLASS shares are available for purchase by existing shareholders in two
ways: 1) directly from American Century without any commissions or other fees;
or 2) through a broker-dealer, which may require payment of a transaction fee to
the broker.
INSTITUTIONAL CLASS shares are available to large investors such as endowments,
foundations, and retirement plans, and to financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million ($3 million
for endowments and foundations) in an American Century fund or at least $10
million in multiple funds. In recognition of the larger investments and account
balances and comparatively lower transaction costs, the total expense ratio of
Institutional Class shares is 0.20% less than the total expense ratio of
Investor Class shares.
ADVISOR CLASS shares are sold primarily through institutions such as investment
advisors, banks, broker-dealers, insurance companies, and financial advisors.
Advisor Class shares are subject to a 0.50% annual Rule 12b-1 service and
distribution fee. The total expense ratio of Advisor Class shares is 0.25%
higher than the total expense ratio of Investor Class shares.
A CLASS shares are sold primarily through employer-sponsored retirement plans
through institutions such as investment advisors, banks, broker-dealers, and
insurance companies. A Class shares are sold at their offering price, which is
net asset value plus an initial sales charge that ranges from 5.75% to 0.00% for
equity funds, depending on the amount invested. The initial sales charge is
deducted from the purchase amount before it is invested. A Class shares may be
subject to a contingent deferred sales charge (CDSC). There is no CDSC on shares
acquired through reinvestment of dividends or capital gains. The prospectus
contains information regarding reductions and waivers of sales charges for A
Class shares. A Class shares also are subject to a 0.25% annual Rule 12b-1
service and distribution fee.
B CLASS shares are sold primarily through employer-sponsored retirement plans
through institutions such as
(continued)
- ------
54
Share Class Information
investment advisors, banks, broker-dealers, and insurance companies. 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. There is no CDSC on shares acquired through reinvestment of dividends
or capital gains. B Class shares also are subject to a 1.00% annual Rule 12b-1
service and distribution fee. B Class shares automatically convert to A Class
shares (with lower expenses) eight years after their purchase date.
C CLASS shares are sold primarily through employer-sponsored retirement plans
through institutions such as investment advisors, banks, broker-dealers, and
insurance companies. C Class shares redeemed within 12 months of purchase are
subject to a CDSC of 1.00%. There is no CDSC on shares acquired through
reinvestment of dividends or capital gains. C Class shares also are subject to a
Rule 12b-1 service and distribution fee of 1.00%.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
- ------
55
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b),
457 and qualified plans [those not eligible for rollover to an IRA or to another
qualified plan] 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. Even if you plan to roll over the amount you
withdraw to another tax-deferred account, the withholding rate still applies to
the withdrawn amount unless we have received notice not to withhold federal
income tax prior to the withdrawal. 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.
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 funds' investment manager, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the funds. A description of the policies and procedures
the manager uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-345-2021. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
manager 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.
(continued)
- ------
56
Additional Information
QUARTERLY PORTFOLIO DISCLOSURE
The funds file their 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 funds' Forms N-Q are available on the SEC's Web site 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 funds also make their complete schedule
of portfolio holdings for the most recent quarter of their fiscal year available
on their Web site at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
57
Index Definitions
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500
publicly traded U.S. companies chosen for market size, liquidity, and industry
group representation that are considered to be leading firms in dominant
industries. Each stock's weight in the index is proportionate to its market
value. Created by Standard & Poor's, it is considered to be a broad measure
of U.S. stock market performance.
The RUSSELL 1000 GROWTH INDEX measures the performance of those Russell 1000
companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth rates.
The RUSSELL 2000 GROWTH INDEX measures the performance of those Russell 2000
companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth rates.
- ------
58
Notes
- ------
59
Notes
- ------
60
American Century Investments
P.O. Box 419200
Kansas City, MO 64141-6200
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR RELATIONS:
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 ADVISORS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER:
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.
PRSRT STD
U.S. POSTAGE PAID
AMERICAN CENTURY
COMPANIES
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Services Corporation.
0412 American Century Investment Services, Inc.
SH-ANN-40956S (c)2004 American Century Services Corporation
OCTOBER 31, 2004
American Century Investments
Annual Report
[photo of market line chart]
[photo of starfish]
[photo of bridge]
New Opportunities Fund
[american century investments logo and text logo]
Table of Contents
Our Message to You....................................................... 1
NEW OPPORTUNITIES
Performance.............................................................. 2
Shareholder Fee Example.................................................. 3
Portfolio Commentary..................................................... 5
Top Ten Holdings...................................................... 5
Top Five Industries................................................... 6
Types of Investments in Portfolio..................................... 6
Schedule of Investments.................................................. 7
FINANCIAL STATEMENTS
Statement of Assets and Liabilities...................................... 9
Statement of Operations.................................................. 10
Statement of Changes in Net Assets....................................... 11
Notes to Financial Statements............................................ 12
Financial Highlights..................................................... 15
Report of Independent Registered Public Accounting Firm.................. 16
OTHER INFORMATION
Management............................................................... 17
Additional Information................................................... 20
Index Definitions........................................................ 21
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century 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
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century 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 by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
Our Message to You
[photo of James E. Stowers III and James E. Stowers, Jr.]
JAMES E. STOWERS III
WITH JAMES E. STOWERS, JR.
We are pleased to provide you with the annual report for the New Opportunities
fund for the year ended October 31, 2004.
The report includes comparative performance figures, portfolio and market
commentary, summary tables, a full list of portfolio holdings, and financial
statements and highlights. We hope you find this information helpful in
monitoring your investment.
Through our Web site, americancentury.com, we provide quarterly commentaries on
all American Century portfolios, the views of our senior investment officers,
and other communications about investments, portfolio strategy, and the markets.
Your next shareholder report for this fund will be the semiannual report dated
April 30, 2005, available in approximately six months.
As always, we deeply appreciate your investment with American Century
Investments.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER AND CHAIRMAN
/s/James E. Stowers III
James E. Stowers III
CO-CHAIRMAN OF THE BOARD
- ------
1
New Opportunities - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
----------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
- ------------------------------------------------------------------------------
NEW OPPORTUNITIES 0.00% -2.25% 6.47% 12/26/96
- ------------------------------------------------------------------------------
RUSSELL 2000 GROWTH INDEX 5.53% -0.71% 2.51%(1) --
- ------------------------------------------------------------------------------
(1) Since 12/31/96, the date nearest the fund's inception for which data are
available.
GROWTH OF $10,000 OVER LIFE OF FUND
$10,000 investment made December 26, 1996
ONE-YEAR RETURNS OVER LIFE OF FUND
Periods ended October 31
- --------------------------------------------------------------------------------
1997* 1998 1999 2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------
New
Opportunities 6.20% -10.17% 92.03% 83.28% -53.81% -16.46% 26.18% 0.00%
- --------------------------------------------------------------------------------
Russell 2000
Growth Index 15.64% -15.86% 29.28% 16.16% -31.50% -21.57% 46.56% 5.53%
- --------------------------------------------------------------------------------
* From 12/26/96, the fund's inception date. Index data from 12/31/96, the date
nearest the fund's inception for which data are available. Not annualized.
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.
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.
- ------
2
Shareholder Fee Example (Unaudited)
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 May 1, 2004 to October 31, 2004.
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 fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century 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 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
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.
(continued)
- ------
3
Shareholder Fee Example (Unaudited)
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.
- -------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 5/1/04 - EXPENSE
5/1/04 10/31/04 10/31/04 RATIO*
- -------------------------------------------------------------------------------
NEW OPPORTUNITIES SHAREHOLDER FEE EXAMPLE
- -------------------------------------------------------------------------------
Actual $1,000 $994.10 $7.42 1.48%
- -------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.70 $7.51 1.48%
- -------------------------------------------------------------------------------
*Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
184, the number of days in the most recent fiscal half-year, divided by 366,
to reflect the one-half year period.
- ------
4
New Opportunities - Portfolio Commentary
[photo of investment team]
THE NEW OPPORTUNITIES INVESTMENT TEAM (FROM LEFT): PORTFOLIO MANAGERS TOM
TELFORD AND HAROLD S. BRADLEY AND INVESTMENT ANALYSTS STAFFORD SOUTHWICK AND
MATT FERRETTI.
For the twelve months ended October 31, 2004, New Opportunities finished flat,
while its benchmark, the Russell 2000 Growth Index, returned 5.53%.
Since its December 26, 1996 inception, the fund has posted average annualized
returns of 6.47%, outpacing the 2.51% average for its benchmark.* During the
period, portfolio manager John Seitzer left American Century. Harold Bradley
remains on the investment management team and was joined by Tom Telford, who
also comanages the Technology Fund.
EQUITIES BOOK MODEST GAINS
The major U.S. stock indices posted single-digit gains in the fiscal year ended
October 31, 2004. The indices rose roughly 8% in the first three months to
levels not seen since the third quarter of 2001 and the first half of 2002. They
were boosted by corporate earnings that reached 10-year highs in the fourth
quarter of 2003 as the government reported strong economic growth and low
inflation. Those early gains eroded, however, as oil prices jumped 78%, interest
rates climbed, and the real rate of economic growth slipped from 7.4% in the
third quarter of 2003 to 3.3% and 3.9% in the second and third quarters of 2004.
In that environment, smaller, growth-oriented companies, which started well,
finished behind their value counterparts, with double-digit shortfalls in
performance during the last four months of the period.
ENERGY: THE TOP CONTRIBUTORS
The search for companies demonstrating earnings and revenue acceleration, the
foundation of our investment discipline, took us into the energy sector, the
richest source of contribution during the year. Energy equipment and services
firms made the greatest strides and yielded several contributors. One was Carbo
Ceramics Inc., whose ceramic parts are used in drilling for natural gas and oil.
Increased demand for natural gas in the United States and for the company's
products in Russia and China contributed to a 50% increase in 2003 net income.
Those trends continued, and the company recorded a 33%
TOP TEN HOLDINGS
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Unit Corporation 1.9% 1.3%
- --------------------------------------------------------------------------------
OMI Corp. 1.8% --
- --------------------------------------------------------------------------------
Titanium Metals Corp. 1.8% 1.3%
- --------------------------------------------------------------------------------
Arch Coal Inc. 1.7% 1.4%
- --------------------------------------------------------------------------------
AK Steel Holding Corp. 1.7% --
- --------------------------------------------------------------------------------
United Industrial
Corporation 1.7% 1.0%
- --------------------------------------------------------------------------------
ARGON ST Inc. 1.6% --
- --------------------------------------------------------------------------------
Navigant Consulting Inc. 1.6% 1.0%
- --------------------------------------------------------------------------------
Kronos Inc. 1.6% --
- --------------------------------------------------------------------------------
Knight Transportation Inc. 1.6% --
- --------------------------------------------------------------------------------
*Benchmark information since December 31, 1996, the date
nearest the fund's inception that data are available. (continued)
- ------
5
New Opportunities - Portfolio Commentary
revenue increase for first nine months of 2004 compared to the same period in
2003. Another standout was Lone Star Technologies, which is benefiting from
increased demand from drillers for the steel pipe it produces.
INDUSTRIALS GAIN GROUND
Investments in the industrials sector significantly bolstered results, with
commercial services and supplies companies leading the way. Navigant Consulting
Inc., which provides legal, financial and operational consulting to government
agencies and large companies, ranked among the period's top contributors.
CONSUMER STOCKS SHINE
Our discipline also drew us to the consumer discretionary sector, another source
of strength. Specialty retailer Urban Outfitters Inc., which enjoyed strong
sales and record-setting, triple-digit earnings growth during the period, was a
top contributor.
INFORMATION TECHNOLOGY: THE BIGGEST DETRACTORS
Those gains were offset by weakness in other areas of the portfolio, most
notably the information technology sector. Our position here represented, on
average, our largest sector stake and the greatest detractor to performance.
Investments in the communications equipment industry proved most detrimental,
followed by semiconductor stocks. Though some of our holdings in each area
posted gains, many more were swept lower with the market. In the former group,
Alvarion Ltd., which provides infrastructure for wireless broadband networking,
finished among the portfolio's top-detracting stocks. In the latter, Cohu Inc.
and Silicon Image Inc. were two that disappointed.
HEALTH CARE SLOWS PERFORMANCE
Similarly, we found opportunity and success in the health care sector and held
some advancing names. However, it was not enough to overcome the declines of
other holdings, and our position in this sector ultimately detracted. Health
care equipment and supplies companies generated the most drag.
OUR COMMITMENT
We remain committed to our investment strategy of identifying smaller-sized
companies that best appear able to sustain accelerating growth in earnings and
revenues, a strategy based on the belief that these companies have a
greater-than-average chance to increase in value over the long term.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Oil & Gas 7.8% 1.1%
- --------------------------------------------------------------------------------
Software 6.9% 3.5%
- --------------------------------------------------------------------------------
Metals & Mining 6.2% 4.4%
- --------------------------------------------------------------------------------
Specialty Retail 6.1% 3.9%
- --------------------------------------------------------------------------------
Commercial Banks 5.7% 3.9%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 97.6% 99.2%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 3.9% 1.4%
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES 101.5% 100.6%
- --------------------------------------------------------------------------------
Other Assets & Liabilities (1.5)% (0.6)%
- --------------------------------------------------------------------------------
- ------
6
New Opportunities - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.6%
AEROSPACE & DEFENSE -- 1.7%
- --------------------------------------------------------------------------------
141,240 United Industrial Corporation $ 4,520
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 1.2%
- --------------------------------------------------------------------------------
76,631 Forward Air Corp.(1) 3,155
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.3%
- --------------------------------------------------------------------------------
91,453 Affymetrix Inc.(1) 2,789
- --------------------------------------------------------------------------------
83,853 Orchid BioSciences Inc.(1) 808
- --------------------------------------------------------------------------------
3,597
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 2.4%
- --------------------------------------------------------------------------------
106,044 American Capital Strategies Ltd. 3,282
- --------------------------------------------------------------------------------
148,475 Greenhill & Co. Inc. 3,339
- --------------------------------------------------------------------------------
6,621
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 5.7%
- --------------------------------------------------------------------------------
65,019 Bank of Hawaii Corporation 3,105
- --------------------------------------------------------------------------------
90,926 Cathay General Bancorp 3,581
- --------------------------------------------------------------------------------
92,681 Seacoast Banking Corp. of Florida 2,004
- --------------------------------------------------------------------------------
90,660 United Bankshares Inc. 3,325
- --------------------------------------------------------------------------------
122,452 Valley National Bancorp 3,473
- --------------------------------------------------------------------------------
15,488
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 5.5%
- --------------------------------------------------------------------------------
75,701 Charles River Associates Inc.(1) 3,042
- --------------------------------------------------------------------------------
342,637 Kforce Inc.(1) 3,629
- --------------------------------------------------------------------------------
180,901 Navigant Consulting Inc.(1) 4,498
- --------------------------------------------------------------------------------
213,329 Sotheby's Holdings Cl A(1) 3,987
- --------------------------------------------------------------------------------
15,156
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 3.5%
- --------------------------------------------------------------------------------
411,541 ECI Telecom Ltd.(1) 2,844
- --------------------------------------------------------------------------------
383,491 Harmonic Inc.(1) 3,191
- --------------------------------------------------------------------------------
985,890 MRV Communications Inc.(1) 3,420
- --------------------------------------------------------------------------------
9,455
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.3%
- --------------------------------------------------------------------------------
545,890 Brocade Communications System(1) 3,706
- --------------------------------------------------------------------------------
123,109 Novatel Wireless Inc.(1) 2,555
- --------------------------------------------------------------------------------
6,261
- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS -- 1.0%
- --------------------------------------------------------------------------------
39,343 Eagle Materials Inc. 2,719
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 1.3%
- --------------------------------------------------------------------------------
151,954 World Acceptance Corp.(1) 3,556
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.5%
- --------------------------------------------------------------------------------
95,215 Primus Guaranty Ltd.(1) 1,252
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.1%
- --------------------------------------------------------------------------------
91,111 Ametek Inc. 2,999
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 5.3%
- --------------------------------------------------------------------------------
184,457 ARGON ST Inc.(1) $ 4,501
- --------------------------------------------------------------------------------
51,945 NAM TAI Electronics Inc. 1,074
- --------------------------------------------------------------------------------
69,365 Scansource Inc.(1) 4,296
- --------------------------------------------------------------------------------
81,420 Taser International Inc.(1) 3,330
- --------------------------------------------------------------------------------
88,347 X-Rite Inc. 1,164
- --------------------------------------------------------------------------------
14,365
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 1.9%
- --------------------------------------------------------------------------------
142,713 Unit Corporation(1) 5,293
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 1.1%
- --------------------------------------------------------------------------------
104,555 BJ's Wholesale Club Inc.(1) 3,035
- --------------------------------------------------------------------------------
GAS UTILITIES -- 1.5%
- --------------------------------------------------------------------------------
103,856 UGI Corp. 4,012
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 1.8%
- --------------------------------------------------------------------------------
257,107 Candela Corporation(1) 2,616
- --------------------------------------------------------------------------------
121,910 Intralase Corp.(1) 2,344
- --------------------------------------------------------------------------------
4,960
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 3.2%
- --------------------------------------------------------------------------------
144,275 American Healthcorp, Inc.(1) 4,354
- --------------------------------------------------------------------------------
138,172 Matria Healthcare Inc.(1) 4,314
- --------------------------------------------------------------------------------
8,668
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 1.1%
- --------------------------------------------------------------------------------
77,374 eLong Inc. ADR(1) 1,052
- --------------------------------------------------------------------------------
46,016 Red Robin Gourmet Burgers Inc.(1) 1,920
- --------------------------------------------------------------------------------
2,972
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 2.1%
- --------------------------------------------------------------------------------
76,866 Jarden Corp.(1) 2,700
- --------------------------------------------------------------------------------
194,060 Tempur-Pedic International Inc.(1) 3,151
- --------------------------------------------------------------------------------
5,851
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 1.2%
- --------------------------------------------------------------------------------
236,316 Stamps.com Inc.(1) 3,280
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 5.4%
- --------------------------------------------------------------------------------
232,611 Cybersource Corp.(1) 1,521
- --------------------------------------------------------------------------------
68,608 Infospace Inc.(1) 3,602
- --------------------------------------------------------------------------------
352,467 Interwoven Inc.(1) 3,197
- --------------------------------------------------------------------------------
390,695 webMethods Inc.(1) 2,708
- --------------------------------------------------------------------------------
90,951 Websense Inc.(1) 3,689
- --------------------------------------------------------------------------------
14,717
- --------------------------------------------------------------------------------
IT SERVICES -- 1.4%
- --------------------------------------------------------------------------------
237,714 Keane Inc.(1) 3,758
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 1.2%
- --------------------------------------------------------------------------------
200,701 K2 Inc.(1) 3,255
- --------------------------------------------------------------------------------
MACHINERY -- 1.1%
- --------------------------------------------------------------------------------
61,796 Kennametal Inc. 2,875
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
7
New Opportunities - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
METALS & MINING -- 6.2%
- --------------------------------------------------------------------------------
491,240 AK Steel Holding Corp.(1) $ 4,682
- --------------------------------------------------------------------------------
144,410 Arch Coal Inc. 4,696
- --------------------------------------------------------------------------------
249,730 Titanium Metals Corp.(1) 4,833
- --------------------------------------------------------------------------------
149,549 Worthington Industries, Inc. 2,969
- --------------------------------------------------------------------------------
17,180
- --------------------------------------------------------------------------------
OIL & GAS -- 7.8%
- --------------------------------------------------------------------------------
103,234 Berry Petroleum Company Cl A 3,938
- --------------------------------------------------------------------------------
137,111 Comstock Resources Inc.(1) 3,016
- --------------------------------------------------------------------------------
101,488 Forest Oil Corporation(1) 3,095
- --------------------------------------------------------------------------------
326,061 Magnum Hunter Resources Inc.(1) 3,946
- --------------------------------------------------------------------------------
273,491 OMI Corp. 4,910
- --------------------------------------------------------------------------------
573,089 Petroquest Energy Inc.(1) 2,820
- --------------------------------------------------------------------------------
21,725
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 1.7%
- --------------------------------------------------------------------------------
149,237 Endo Pharmaceuticals
Holdings Inc.(1) 3,254
- --------------------------------------------------------------------------------
57,768 Valeant Pharmaceuticals
International 1,386
- --------------------------------------------------------------------------------
4,640
- --------------------------------------------------------------------------------
ROAD & RAIL -- 3.1%
- --------------------------------------------------------------------------------
104,251 Arkansas Best Corporation 4,075
- --------------------------------------------------------------------------------
186,429 Knight Transportation Inc.(1) 4,379
- --------------------------------------------------------------------------------
8,454
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 2.2%
- --------------------------------------------------------------------------------
199,899 Microsemi Corporation(1) 3,106
- --------------------------------------------------------------------------------
177,370 Ultratech, Inc.(1) 3,019
- --------------------------------------------------------------------------------
6,125
- --------------------------------------------------------------------------------
SOFTWARE -- 6.9%
- --------------------------------------------------------------------------------
209,590 Epicor Software Corporation(1) 3,221
- --------------------------------------------------------------------------------
157,193 Internet Security Systems(1) 3,421
- --------------------------------------------------------------------------------
90,699 Kronos Inc.(1) 4,450
- --------------------------------------------------------------------------------
149,184 RADWARE Limited(1) 3,685
- --------------------------------------------------------------------------------
109,851 Verint Systems Inc.(1) 4,271
- --------------------------------------------------------------------------------
19,048
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 6.1%
- --------------------------------------------------------------------------------
188,670 Aaron Rents Inc. $ 4,094
- --------------------------------------------------------------------------------
111,455 Bebe Stores Inc. 3,441
- --------------------------------------------------------------------------------
113,512 Children's Place Retail
Stores, Inc. (The)(1) 3,504
- --------------------------------------------------------------------------------
107,143 New York & Co. Inc.(1) 2,218
- --------------------------------------------------------------------------------
81,400 Urban Outfitters Inc.(1) 3,337
- --------------------------------------------------------------------------------
16,594
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 3.8%
- --------------------------------------------------------------------------------
110,795 Deckers Outdoor Corp.(1) 4,194
- --------------------------------------------------------------------------------
107,696 Quiksilver, Inc.(1) 2,935
- --------------------------------------------------------------------------------
105,418 Wolverine World Wide, Inc. 3,209
- --------------------------------------------------------------------------------
10,338
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 4.0%
- --------------------------------------------------------------------------------
166,540 CharterMac 3,857
- --------------------------------------------------------------------------------
158,705 Commercial Capital Bancorp Inc. 3,560
- --------------------------------------------------------------------------------
65,237 Downey Financial Corp. 3,605
- --------------------------------------------------------------------------------
11,022
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $236,132) 266,946
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 3.9%
Repurchase Agreement, Merrill Lynch & Co.,
Inc., (collateralized by various U.S. Treasury
obligations, 5.25% - 10.375%, 11/15/12 -
2/15/29, valued at $10,939), in a joint
trading account at 1.70%, dated 10/29/04,
due 11/1/04 (Delivery value $10,702)
(Cost $10,700) 10,700
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 101.5%
(Cost $246,832) 277,646
================================================================================
OTHER ASSETS AND LIABILITIES -- (1.5)% (4,091)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $273,555
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements.
- ------
8
Statement of Assets and Liabilities
OCTOBER 31, 2004
(AMOUNTS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------
Investment securities, at value (cost of $246,832) $277,646
- --------------------------------------------------------------------
Receivable for investments sold 15,594
- --------------------------------------------------------------------
Dividends and interest receivable 85
- --------------------------------------------------------------------------------
293,325
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash 1,053
- --------------------------------------------------------------------
Payable for investments purchased 18,364
- --------------------------------------------------------------------
Accrued management fees 353
- --------------------------------------------------------------------------------
19,770
- --------------------------------------------------------------------------------
NET ASSETS $273,555
================================================================================
CAPITAL SHARES, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Authorized 300,000
================================================================================
Outstanding 54,052
================================================================================
NET ASSET VALUE PER SHARE $5.06
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $428,948
- --------------------------------------------------------------------
Accumulated net realized loss on investment
and foreign currency transactions (186,207)
- --------------------------------------------------------------------
Net unrealized appreciation on investments
and translation of assets and
liabilities in foreign currencies 30,814
- --------------------------------------------------------------------------------
$273,555
================================================================================
See Notes to Financial Statements.
- ------
9
Statement of Operations
YEAR ENDED OCTOBER 31, 2004
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
INVESTMENT LOSS
- --------------------------------------------------------------------
INCOME:
- --------------------------------------------------------------------
Dividends $1,285
- --------------------------------------------------------------------
Interest 63
- --------------------------------------------------------------------------------
1,348
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------
Management fees 4,492
- --------------------------------------------------------------------
Directors' fees and expenses 4
- --------------------------------------------------------------------
Other expenses 5
- --------------------------------------------------------------------------------
4,501
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (3,153)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment and foreign currency transactions 27,030
- --------------------------------------------------------------------
Change in net unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies (23,133)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 3,897
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 744
================================================================================
See Notes to Financial Statements.
- ------
10
Statement of Changes in Net Assets
YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2004 2003
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment loss $ (3,153) $ (2,820)
- --------------------------------------------------------
Net realized gain 27,030 18,192
- --------------------------------------------------------
Change in net unrealized appreciation (23,133) 52,934
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 744 68,306
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Proceeds from shares sold 10,510 11,765
- --------------------------------------------------------
Payments for shares redeemed(1) (55,925) (59,025)
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital share transactions (45,415) (47,260)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (44,671) 21,046
- --------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 318,226 297,180
- --------------------------------------------------------------------------------
End of period $273,555 $318,226
================================================================================
TRANSACTIONS IN SHARES OF THE FUND
- --------------------------------------------------------------------------------
Sold 2,024 2,743
- --------------------------------------------------------
Redeemed (10,841) (13,977)
- --------------------------------------------------------------------------------
Net decrease in shares of the fund (8,817) (11,234)
================================================================================
(1) Net of redemption fees of $219 and $237, respectively.
See Notes to Financial Statements.
- ------
11
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. New Opportunities Fund (the fund) is one
fund in a series issued by the corporation. The fund is diversified under the
1940 Act. The fund's investment objective is to seek long-term capital growth.
The fund pursues its objective by investing primarily in common stocks of
smaller-sized companies that are considered by management to have
better-than-average prospects for appreciation. The following is a summary of
the fund's significant accounting policies.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. 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 close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
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.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. 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. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the fund. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially expressed
in foreign currencies are translated into U.S. dollars at prevailing exchange
rates at period end. Purchases and sales of investment securities, dividend and
interest income, and certain expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions. For assets and
liabilities, other than investments in securities, net realized and unrealized
gains and losses from foreign currency translations arise from changes in
currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of investment securities are a component of realized
gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose taxes
on the contract amount of purchases and sales of foreign currency contracts in
their currency. The fund records the foreign tax expense, if any, as a reduction
to the net realized gain (loss) on foreign currency transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM has determined are creditworthy pursuant
(continued)
- ------
12
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to criteria adopted by the Board of Directors. Each repurchase agreement is
recorded at cost. 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 other registered investment
companies having management agreements with ACIM, 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. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
REDEMPTION -- The fund may impose a 2% redemption fee on shares held less than
180 days. The redemption fee is recorded as a reduction in the cost of shares
redeemed. The redemption fee is retained by the fund and helps cover transaction
costs that long-term investors may bear when a fund sells securities to meet
investor redemptions.
USE OF ESTIMATES -- 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.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation 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). The
Agreement provides that all expenses of the fund, except brokerage commissions,
taxes, interest, fees and expenses of those directors who are not considered
"interested persons" as defined in the 1940 Act (including counsel fees) and
extraordinary expenses, will be paid by ACIM. The fee is computed and accrued
daily based on the fund's daily net assets and paid monthly in arrears. For
funds with a stepped fee schedule, the rate of the fee is determined by applying
a fee rate calculation formula. This formula takes into account all of the
investment manager's assets under management in the fund's investment strategy
(strategy assets) to calculate the appropriate fee rate for the fund. The
strategy assets include the fund's assets and the assets of other clients of the
investment manager that are not in the American Century family of funds, but
that have the same investment team and investment strategy.
The annual management fee schedule for fund is as follows:
- --------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $500 million 1.50%
- --------------------------------------------------------------------------------
Next $500 million 1.30%
- --------------------------------------------------------------------------------
Over $1 billion 1.10%
- --------------------------------------------------------------------------------
The effective annual management fee for the fund for the year ended October 31,
2004 was 1.49%.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
manager, ACIM, the distributor of the corporation, American Century Investment
Services, Inc., and the corporation's transfer agent, American Century Services
Corporation.
During the year ended October 31, 2004, the fund invested in a money market fund
for temporary purposes, which was managed by J.P. Morgan Investment Management,
Inc. (JPMIM). JPMIM
(continued)
- ------
13
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
is a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity
investor in ACC. The fund has a bank line of credit agreement with JPMorgan
Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly owned
subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the year ended October 31, 2004, were $796,372 and $843,060, respectively.
4. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650 million
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the year ended October 31, 2004.
5. FEDERAL TAX INFORMATION
The 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. There were no distributions paid
by the fund during the years ended October 31, 2004 and October 31, 2003.
As of October 31, 2004, the components of distributable earnings on a tax-basis
and the federal tax cost of investments were as follows:
- --------------------------------------------------------------------------------
Federal tax cost of investments $246,832
================================================================================
Gross tax appreciation of investments $32,528
- -----------------------------------------------------------------
Gross tax depreciation of investments (1,714)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $30,814
================================================================================
Undistributed ordinary income $--
- -----------------------------------------------------------------
Accumulated long-term gains $--
- -----------------------------------------------------------------
Accumulated capital losses $(186,207)
- --------------------------------------------------------------------------------
The cost of investments for federal income tax purposes was the same as the cost
for financial statement purposes.
The accumulated capital losses listed above represent net capital loss
carryovers that may be used to offset future realized capital gains for federal
income tax purposes. Capital loss carryovers of $148,508 and $37,699 expire in
2009 and 2010, respectively.
- ------
14
New Opportunities - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $5.06 $4.01 $4.80 $15.35 $9.16
- --------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment Loss (0.06) (0.04) (0.05) (0.05) (0.19)
- -------------------------
Net Realized and
Unrealized Gain (Loss) 0.06 1.09 (0.74) (6.85) 7.52
- --------------------------------------------------------------------------------
Total From Investment
Operations -- 1.05 (0.79) (6.90) 7.33
- --------------------------------------------------------------------------------
Distributions
- -------------------------
From Net Realized Gains -- -- -- (3.65) (1.14)
- --------------------------------------------------------------------------------
Redemption Fees(1) --(2) --(2) --(2) -- --
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $5.06 $5.06 $4.01 $4.80 $15.35
================================================================================
TOTAL RETURN(3) 0.00% 26.18% (16.46)% (53.81)% 83.28%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.49% 1.50% 1.50% 1.50% 1.50%
- -------------------------
Ratio of Net
Investment Loss
to Average Net Assets (1.04)% (0.98)% (1.02)% (0.72)% (1.28)%
- -------------------------
Portfolio Turnover Rate 269% 217% 175% 189% 112%
- -------------------------
Net Assets,
End of Period
(in thousands) $273,555 $318,226 $297,180 $380,741 $873,376
- --------------------------------------------------------------------------------
(1) The fund adopted the provisions of the revised AICPA Audit and Accounting
Guide for Investment Companies which requires the disclosure of the
per-share effect of redemption fees. Periods prior to November 1, 2001,
have not been restated to reflect this change. Amounts computed using
average shares outstanding throughout the period.
(2) Per share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any.
See Notes to Financial Statements.
- ------
15
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
American Century Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments, of New Opportunities Fund, (the "Fund"), one of the
funds comprising American Century Mutual Funds, Inc., as of October 31, 2004,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers; when replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of New
Opportunities Fund as of October 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Kansas City, Missouri
December 15, 2004
- ------
16
Management
The individuals listed below serve as directors or officers of the fund. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the fund's investment advisor, American
Century Investment Management, Inc. (ACIM); the fund's principal underwriter,
American Century Investment Services, Inc. (ACIS); and the fund's transfer
agent, American Century Services Corporation (ACSC).
The other directors (more than three-fourths of the total numbers) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned subsidiaries, including
ACIM, ACIS, and ACSC. The directors serve in this capacity for six registered
investment companies in the American Century family of funds.
All persons named as officers of the fund also serve in a similar capacity for
the other 13 investment companies advised by ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated for
his or her service as an officer of the fund. The listed officers are interested
persons of the fund and are appointed or re-appointed on an annual basis.
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 23
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Strategic Account Implementation
Manager, Applied Industrial Technologies, Inc., a corporation engaged in the
sale of bearings and power transmission products
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, Midwest
Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Midwest Research Institute
- --------------------------------------------------------------------------------
D.D. (DEL) HOCK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1935
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 7
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Chairman, Public
Service Company of Colorado
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Allied Motion Technologies, Inc.
and J.D. Edwards & Company
- --------------------------------------------------------------------------------
(continued)
- ------
17
Management
- --------------------------------------------------------------------------------
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director, Vice Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Western Investments,
Inc.; Retired Chairman of the Board, Butler Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Atlas-Copco, North America Inc.
- --------------------------------------------------------------------------------
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive Officer,
and Founder, Sayers Computer Source
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Triad Hospitals, Inc.
- --------------------------------------------------------------------------------
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 9
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Chief
Integration Officer, Sprint Corporation (September 2003 to present); Senior Vice
President - Financial Services, Sprint Corporation (January 2003 to September
2003); Senior Vice President, Finance - Global Markets Group, Sprint Corporation
(November 1998 to January 2003)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.
- --------------------------------------------------------------------------------
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 2
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, American Italian Pasta Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JAMES E. STOWERS, JR.(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director, Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 45
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Director, and controlling
shareholder, ACC; Chairman, ACSC and other ACC subsidiaries; Director, ACIM,
ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
JAMES E. STOWERS III(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1959
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 13
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Co-Chairman, ACC (September 2000 to
present); Chief Executive Officer, ACC (June 1996 to September 2000); Director,
ACC, ACIM, ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
(1) James E. Stowers, Jr. is the father of James E. Stowers III.
(continued)
- ------
18
Management
- --------------------------------------------------------------------------------
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUND: President
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and
other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to
present); President, ACIM (September 2002 to present); President, ACIS (July
2003 to present); Chief Operating Officer, ACC (June 1996 to September 2000);
Also serves as: Executive Vice President, ACSC and other ACC subsidiaries
- --------------------------------------------------------------------------------
ROBERT T. JACKSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Executive Vice President
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC
(August 1997 to present); Chief Financial Officer, ACC (May 1995 to October
2002); President, ACSC (January 1999 to present); Executive Vice President, ACC
(May 1995 to present); Also serves as: Executive Vice President and Chief
Financial Officer, ACIM, ACIS and other ACC subsidiaries; and Treasurer, ACIM
- --------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer, and Chief
Accounting Officer
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President (April 1998
to present) and Assistant Treasurer, ACSC (September 1985 to present)
- --------------------------------------------------------------------------------
DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and General
Counsel, ACIM, ACIS, ACSC and other ACC subsidiaries (June 1998 to present);
Vice President and General Counsel, ACC (June 1998 to present)
- --------------------------------------------------------------------------------
DAVID H. REINMILLER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer
LENGTH OF TIME SERVED (YEARS): 3 and less than 1 year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACSC and
ACIM (March 2001 to present); Vice President, ACSC (March 2000 to present); Vice
President, ACIM (March 2002 to present); Vice President, ACIS (March 2003 to
present); Assistant General Counsel, ACSC (December 1996 to January 2001);
Associate General Counsel, ACSC (July 2001 to present)
- --------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Controller
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000
to present); Controller-Fund Accounting, ACSC (June 1997 to present)
- --------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC
(April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries
(April 1999 to present); President, American Century Employee Benefit Services,
Inc. (January 2000 to December 2000); Director, American Century Employee
Benefit Services, Inc. (February 2000 to December 2003); Treasurer, American
Century Employee Benefit Services, Inc. (December 2000 to December 2003);
Treasurer, American Century Ventures, Inc. (December 1999 to April 2001)
The SAI has additional information about the fund's directors and is available
without charge upon request by calling 1-800-345-2021.
- ------
19
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b),
457 and qualified plans [those not eligible for rollover to an IRA or to another
qualified plan] 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. Even if you plan to roll over the amount you
withdraw to another tax-deferred account, the withholding rate still applies to
the withdrawn amount unless we have received notice not to withhold federal
income tax prior to the withdrawal. 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.
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 manager, 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 manager uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-345-2021. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
manager 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 Form N-Q is available on the SEC's Web site 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 Web site at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
20
Index Definition
The following index is used to illustrate investment market, sector, or style
performance or to serve as fund performance comparisons. It is not an investment
product available for purchase.
The RUSSELL 2000 GROWTH INDEX measures the performance of those Russell 2000
companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth rates.
- ------
21
Notes
- ------
22
Notes
- ------
23
Notes
- ------
24
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR RELATIONS:
1-800-345-2021 or 816-531-5575
BUSINESS, NOT-FOR-PROFIT,
EMPLOYER-SPONSORED RETIREMENT PLANS:
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER:
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.
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
COMPANIES
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Services Corporation.
0412 American Century Investment Services, Inc.
SH-ANN-40957S (c)2004 American Century Services Corporation
[front cover]
OCTOBER 31, 2004
American Century Investments
Annual Report
[photo of market line chart]
[photo of starfish]
[photo of bridge]
Balanced Fund
[american century investments logo and text logo]
[inside front cover]
Table of Contents
Our Message to You . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
BALANCED
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Top Ten Stock Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Top Five Stock Industries . . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . . . 7
Key Fixed-Income Portfolio Statistics . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 17
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . .19
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 20
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . 29
OTHER INFORMATION
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century 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
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century 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 by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
Our Message to You
[photo of James E. Stowers III and James E. Stowers, Jr.]
JAMES E. STOWERS III WITH JAMES E. STOWERS, JR.
To help you monitor your investment, we are pleased to provide the annual report
for the Balanced fund for the fiscal year ended October 31, 2004.
You'll find details about your fund's return and holdings as well as data and
analysis that provide insight into the market conditions affecting the fund's
performance.
Through our Web site, americancentury.com, we provide quarterly commentaries on
all American Century portfolios, the views of our senior investment officers,
and other communications about investments, portfolio strategy, and the markets.
We also have many resources available in the Education & Planning section of our
site to help you with your investment strategy.
Your next shareholder report for this fund will be the semiannual report dated
April 30, 2005, available in approximately six months.
We remain committed to our guiding belief that the ultimate measure of our
performance is our customers' success. Thank you for investing with us.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER AND CHAIRMAN
/s/James E. Stowers III
James E. Stowers III
CO-CHAIRMAN OF THE BOARD
- ------
1
Balanced - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
-------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 8.46% 2.13% 7.82% 9.10% 10/20/88
- --------------------------------------------------------------------------------
BLENDED INDEX 7.92% 1.99% 10.05% 10.46%(1) --
- --------------------------------------------------------------------------------
S&P 500 INDEX 9.42% -2.22% 11.01% 11.64%(1) --
- --------------------------------------------------------------------------------
LEHMAN BROTHERS U.S.
AGGREGATE INDEX 5.53% 7.58% 7.76% 8.03%(1) --
- --------------------------------------------------------------------------------
Institutional Class 8.61% -- -- 1.11% 5/1/00
- --------------------------------------------------------------------------------
Advisor Class 8.11% 1.88% -- 5.61% 1/6/97
- --------------------------------------------------------------------------------
(1) Since 10/31/88, the date nearest the Investor Class's inception for which
data are available.
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 do not.
(continued)
- ------
2
Balanced - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made October 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended October 31
- ---------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
- ---------------------------------------------------------------------------------------------------------
Investor Class 16.36% 14.04% 16.34% 10.46% 12.03% 5.90% -10.46% -6.80% 15.92% 8.46%
- ---------------------------------------------------------------------------------------------------------
blended index 22.08% 16.56% 22.60% 17.45% 15.19% 6.85% -10.56% -6.59% 14.54% 7.92%
- ---------------------------------------------------------------------------------------------------------
S&P 500 Index 26.44% 24.10% 32.11% 21.99% 25.67% 6.09% -24.90% -15.11% 20.80% 9.42%
- ---------------------------------------------------------------------------------------------------------
Lehman Brothers
U.S. Aggregate
Index 15.65% 5.85% 8.89% 9.34% 0.53% 7.30% 14.56% 5.89% 4.90% 5.53%
- ---------------------------------------------------------------------------------------------------------
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 do not.
- ------
3
Shareholder Fee Example (Unaudited)
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 May 1, 2004 to October 31, 2004.
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 fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century 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 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
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.
(continued)
- ------
4
Shareholder Fee Example (Unaudited)
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.
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 5/1/04 - EXPENSE
5/1/04 10/31/04 10/31/04 RATIO*
- --------------------------------------------------------------------------------
BALANCED SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,035.60 $4.61 0.90%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $1,036.60 $3.58 0.70%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,034.40 $5.88 1.15%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,020.61 $4.57 0.90%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $1,021.62 $3.56 0.70%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,019.36 $5.84 1.15%
- --------------------------------------------------------------------------------
*Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
184, the number of days in the most recent fiscal half-year, divided by 366, to
reflect the one-half year period.
- ------
5
Balanced - Portfolio Commentary
PORTFOLIO MANAGERS: JEFF TYLER (EQUITY TEAM LEADER) AND JEFF HOUSTON
(FIXED-INCOME TEAM LEADER)
PERFORMANCE SUMMARY
Balanced gained 8.46%* in the fiscal year ended October 31, 2004, outperforming
its blended index (defined on page 36), which advanced 7.92%. The blended
index's return reflected the performance of its components: the S&P 500 Index
and the Lehman Brothers U.S. Aggregate Index (Lehman Aggregate), which advanced
9.42% and 5.53%, respectively. The fund outgained the blended index because
Balanced's stock portfolio outperformed the S&P 500.
ECONOMIC & STOCK MARKET REVIEW
The S&P 500 was limited to a single-digit gain in the fiscal year as oil prices
soared, the Federal Reserve (the Fed) raised short-term interest rates, and the
economic recovery lost momentum. The index began strongly, jumping 10% by the
fourth week of January 2004 to levels not seen since the first half of 2002.
Those early gains eroded, however, as the price of crude oil jumped 78% during
the fiscal year to $51.78 a barrel, short-term interest rates climbed (the Fed
raised its overnight rate target three times, from 1% to 1.75%), and the real
rate of economic growth slipped from 7.4% (annualized) in the third quarter of
2003 to 3.3% and 3.9%, respectively, in the second and third quarters of 2004.
As oil prices rose, energy was the top-performing sector of the S&P 500,
followed by utilities and telecommunications services. Information technology
was the bottom-performing sector, and health care and consumer staples also
lagged notably.
STOCK PORTFOLIO REVIEW
Balanced's stock portfolio gained 11.1% in the fiscal year. Energy, utilities,
consumer discretionary, and financials were the sectors that contributed most to
the portfolio's advance, while information technology and health care detracted
most.
Our equity investment goal is to outperform the S&P 500 without taking on
significant additional risk, utilizing a two-step process that uses computer
models as key tools in our decision
BALANCED'S TOP TEN STOCK HOLDINGS
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF EQUITY % OF S&P
HOLDINGS 500 INDEX
- --------------------------------------------------------------------------------
Johnson & Johnson 3.3% 1.7%
- --------------------------------------------------------------------------------
International Business
Machines Corp. 3.0% 1.4%
- --------------------------------------------------------------------------------
ChevronTexaco Corp. 2.8% 1.1%
- --------------------------------------------------------------------------------
Bank of America Corp. 2.8% 1.7%
- --------------------------------------------------------------------------------
Pfizer, Inc. 2.4% 2.1%
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 2.3% 3.0%
- --------------------------------------------------------------------------------
Intel Corp. 2.2% 1.4%
- --------------------------------------------------------------------------------
Disney (Walt) Co. 2.2% 0.5%
- --------------------------------------------------------------------------------
Time Warner Inc. 2.1% 0.7%
- --------------------------------------------------------------------------------
Wachovia Corp. 2.1% 0.6%
- --------------------------------------------------------------------------------
BALANCED'S TOP FIVE STOCK INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF EQUITY % OF S&P
HOLDINGS 500 INDEX
- --------------------------------------------------------------------------------
Commercial Banks 8.1% 6.1%
- --------------------------------------------------------------------------------
Pharmaceuticals 7.4% 7.1%
- --------------------------------------------------------------------------------
Oil & Gas 7.2% 6.4%
- --------------------------------------------------------------------------------
Media 4.8% 3.6%
- --------------------------------------------------------------------------------
Electric Utilities 4.5% 2.1%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Investor Class shares.
(continued)
- ------
6
Balanced - Portfolio Commentary
making. That process helped guide us to overweight positions (compared with the
index) in electric utilities TXU Corp. and Edison International, which returned
approximately 173% and 60% respectively. Their performance helped make the
utilities sector the biggest contributor to the stock portfolio's relative
outperformance. The second-biggest contributing sector to relative
outperformance was consumer staples, boosted by our decisions to overweight
tobacco company Reynolds American Inc. (52% return) and underweight retailer
Wal-Mart Stores Inc. (8% loss).
BOND PERFORMANCE & FIXED-INCOME PORTFOLIO REVIEW
Some of the same factors that hobbled U.S. stocks during the fiscal
year--particularly higher oil prices and decelerating economic growth--boosted
the U.S. bond market. Bonds advanced despite the Fed's rate hikes and a sharp
selloff in the second quarter of 2004.
Balanced's bond portfolio, like the Lehman Aggregate, consisted primarily of the
taxable investment-grade U.S. bond market's three largest sectors: fixed-rate
mortgage-backed securities (MBS), Treasury securities, and corporate bonds.
Ranked by their fiscal year returns in the Lehman Aggregate, corporates (up
6.77%) performed best, followed by MBS (up 5.57%), and Treasurys (up 4.97%).
Since our last shareholder report, we reduced our corporate holdings and added
more mortgage- and asset-backed securities and Treasurys. We also shortened the
portfolio's duration (reduced its sensitivity to rate changes) in anticipation
of rising interest rates.
OUR COMMITMENT
We remain committed to seeking long-term capital growth and current income by
investing in a balanced portfolio consisting of approximately 60% equity
securities and the remainder in bonds and other fixed-income securities.
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 50.6% 54.5%
- --------------------------------------------------------------------------------
Mortgage- & Asset-
Backed Securities 21.0% 14.7%
- --------------------------------------------------------------------------------
Corporate Bonds 9.2% 10.7%
- --------------------------------------------------------------------------------
U.S. Treasury Securities 8.4% 5.6%
- --------------------------------------------------------------------------------
U.S. Government
Agency Securities 3.6% 3.3%
- --------------------------------------------------------------------------------
Other 0.1% 0.8%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 0.6% 6.3%
- --------------------------------------------------------------------------------
Collateral Received
for Securities Lending 6.5% 4.1%
- --------------------------------------------------------------------------------
KEY FIXED-INCOME PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Weighted Average
Maturity 4.7 years 5.3 years
- --------------------------------------------------------------------------------
Average Duration
(Effective) 3.7 years 4.5 years
- --------------------------------------------------------------------------------
- ------
7
Balanced - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 58.5%
AEROSPACE & DEFENSE -- 1.1%
- --------------------------------------------------------------------------------
131,878 Boeing Co. $ 6,581
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 0.5%
- --------------------------------------------------------------------------------
4,101 FedEx Corporation 374
- --------------------------------------------------------------------------------
32,728 United Parcel Service, Inc. Cl B 2,591
- --------------------------------------------------------------------------------
2,965
- --------------------------------------------------------------------------------
AIRLINES -- 0.1%
- --------------------------------------------------------------------------------
34,416 Southwest Airlines Co. 543
- --------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.7%
- --------------------------------------------------------------------------------
408,701 Goodyear Tire & Rubber Co.
(The)(1)(2) 4,120
- --------------------------------------------------------------------------------
AUTOMOBILES -- 1.0%
- --------------------------------------------------------------------------------
462,851 Ford Motor Company 6,031
- --------------------------------------------------------------------------------
BEVERAGES -- 0.8%
- --------------------------------------------------------------------------------
165,817 Pepsi Bottling Group Inc. 4,650
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.5%
- --------------------------------------------------------------------------------
50,498 Amgen Inc.(1) 2,868
- --------------------------------------------------------------------------------
10,751 Applera Corporation-Applied
Biosystems Group 205
- --------------------------------------------------------------------------------
3,073
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 0.3%
- --------------------------------------------------------------------------------
69,738 Raymond James Financial, Inc. 1,820
- --------------------------------------------------------------------------------
CHEMICALS -- 0.9%
- --------------------------------------------------------------------------------
59,120 Georgia Gulf Corporation 2,676
- --------------------------------------------------------------------------------
65,563 Monsanto Co. 2,803
- --------------------------------------------------------------------------------
5,479
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 4.7%
- --------------------------------------------------------------------------------
222,264 Bank of America Corp. 9,954
- --------------------------------------------------------------------------------
42,266 Comerica Inc. 2,600
- --------------------------------------------------------------------------------
157,546 National City Corp. 6,140
- --------------------------------------------------------------------------------
149,751 Wachovia Corp. 7,369
- --------------------------------------------------------------------------------
47,701 Wells Fargo & Co. 2,849
- --------------------------------------------------------------------------------
28,912
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 1.1%
- --------------------------------------------------------------------------------
137,277 Cendant Corporation 2,827
- --------------------------------------------------------------------------------
159,026 Equifax Inc. 4,158
- --------------------------------------------------------------------------------
819 Pitney Bowes, Inc. 36
- --------------------------------------------------------------------------------
7,021
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.7%
- --------------------------------------------------------------------------------
216,572 Cisco Systems Inc.(1) 4,160
- --------------------------------------------------------------------------------
369,478 Motorola, Inc. 6,378
- --------------------------------------------------------------------------------
10,538
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.0%
- --------------------------------------------------------------------------------
11,578 Dell Inc.(1) 406
- --------------------------------------------------------------------------------
54,558 Hewlett-Packard Co. 1,018
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
120,892 International Business Machines
Corp. $ 10,850
- --------------------------------------------------------------------------------
12,274
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 1.9%
- --------------------------------------------------------------------------------
70,118 American Express Co. 3,720
- --------------------------------------------------------------------------------
48,635 AmeriCredit Corporation(1) 944
- --------------------------------------------------------------------------------
74,887 Capital One Financial Corp. 5,523
- --------------------------------------------------------------------------------
42,118 CompuCredit Corp.(1) 802
- --------------------------------------------------------------------------------
9,297 WFS Financial Inc.(1) 410
- --------------------------------------------------------------------------------
11,399
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.4%
- --------------------------------------------------------------------------------
70,486 J.P. Morgan Chase & Co. 2,721
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.8%
- --------------------------------------------------------------------------------
10,089 ALLTEL Corp. 554
- --------------------------------------------------------------------------------
26,969 AT&T Corp. 461
- --------------------------------------------------------------------------------
124,265 BellSouth Corp. 3,314
- --------------------------------------------------------------------------------
5,067 CenturyTel Inc. 163
- --------------------------------------------------------------------------------
60,000 SBC Communications Inc. 1,516
- --------------------------------------------------------------------------------
44,138 Sprint Corp. 925
- --------------------------------------------------------------------------------
96,940 Verizon Communications 3,790
- --------------------------------------------------------------------------------
10,723
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 2.6%
- --------------------------------------------------------------------------------
338,191 CenterPoint Energy, Inc. 3,554
- --------------------------------------------------------------------------------
17,913 Exelon Corporation 710
- --------------------------------------------------------------------------------
141,658 FirstEnergy Corp. 5,855
- --------------------------------------------------------------------------------
96,959 TXU Corp. 5,936
- --------------------------------------------------------------------------------
16,055
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS -- 0.1%
- --------------------------------------------------------------------------------
21,943 Arrow Electronics, Inc.(1) 526
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 0.1%
- --------------------------------------------------------------------------------
11,355 Baker Hughes Inc. 486
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 1.0%
- --------------------------------------------------------------------------------
12,638 7-Eleven Inc.(1) 266
- --------------------------------------------------------------------------------
40,927 Costco Wholesale Corporation 1,962
- --------------------------------------------------------------------------------
136,616 Supervalu Inc. 4,029
- --------------------------------------------------------------------------------
6,257
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 1.8%
- --------------------------------------------------------------------------------
71,742 Corn Products International Inc. 3,530
- --------------------------------------------------------------------------------
82,533 Pilgrim's Pride Corp.(2) 2,232
- --------------------------------------------------------------------------------
30,327 Sanderson Farms Inc.(2) 985
- --------------------------------------------------------------------------------
311,124 Tyson Foods, Inc. Cl A 4,511
- --------------------------------------------------------------------------------
11,258
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT
& SUPPLIES -- 0.9%
- --------------------------------------------------------------------------------
101,979 Becton Dickinson & Co. 5,354
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
Balanced - Schedule of Investments
OCTOBER 31, 2004
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 2.4%
- --------------------------------------------------------------------------------
101,224 AmerisourceBergen Corp. $ 5,571
- --------------------------------------------------------------------------------
54,520 Cardinal Health, Inc. 2,549
- --------------------------------------------------------------------------------
91,247 CIGNA Corp. 5,791
- --------------------------------------------------------------------------------
24,950 Humana Inc.(1) 478
- --------------------------------------------------------------------------------
14,389
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 1.2%
- --------------------------------------------------------------------------------
7,003 Jack in the Box Inc.(1) 234
- --------------------------------------------------------------------------------
240,202 McDonald's Corporation 7,002
- --------------------------------------------------------------------------------
7,236
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 2.2%
- --------------------------------------------------------------------------------
5,413 American Greetings 143
- --------------------------------------------------------------------------------
71,546 Black & Decker Corporation 5,744
- --------------------------------------------------------------------------------
9,712 NVR, Inc.(1) 6,089
- --------------------------------------------------------------------------------
9,701 Stanley Works (The) 432
- --------------------------------------------------------------------------------
19,960 Whirlpool Corp. 1,173
- --------------------------------------------------------------------------------
13,581
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.8%
- --------------------------------------------------------------------------------
159,731 Tyco International Ltd. 4,976
- --------------------------------------------------------------------------------
INSURANCE -- 2.2%
- --------------------------------------------------------------------------------
25,977 Ace, Ltd. 989
- --------------------------------------------------------------------------------
13,739 American Financial Group, Inc. 407
- --------------------------------------------------------------------------------
32,805 American International Group, Inc. 1,992
- --------------------------------------------------------------------------------
81,510 AON Corp. 1,664
- --------------------------------------------------------------------------------
107,960 Berkley (W.R.) Corp. 4,614
- --------------------------------------------------------------------------------
33,644 First American Financial Corp. (The) 1,049
- --------------------------------------------------------------------------------
45,099 Safeco Corp. 2,085
- --------------------------------------------------------------------------------
29,927 UICI 885
- --------------------------------------------------------------------------------
13,685
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 1.0%
- --------------------------------------------------------------------------------
490,548 Earthlink Inc.(1) 5,067
- --------------------------------------------------------------------------------
106,555 United Online, Inc.(1) 1,001
- --------------------------------------------------------------------------------
6,068
- --------------------------------------------------------------------------------
IT SERVICES -- 1.3%
- --------------------------------------------------------------------------------
44,222 Acxiom Corp. 1,106
- --------------------------------------------------------------------------------
88,904 Computer Sciences Corp.(1) 4,416
- --------------------------------------------------------------------------------
102,579 Sabre Holdings Corp. 2,206
- --------------------------------------------------------------------------------
7,728
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.4%
- --------------------------------------------------------------------------------
88,500 Eastman Kodak Co. 2,680
- --------------------------------------------------------------------------------
MACHINERY -- 0.4%
- --------------------------------------------------------------------------------
38,189 Cummins Inc. 2,676
- --------------------------------------------------------------------------------
MEDIA -- 2.8%
- --------------------------------------------------------------------------------
307,968 Disney (Walt) Co. 7,766
- --------------------------------------------------------------------------------
54,729 Regal Entertainment Group 1,090
- --------------------------------------------------------------------------------
456,541 Time Warner Inc.(1) 7,597
- --------------------------------------------------------------------------------
23,112 Viacom, Inc. Cl B 843
- --------------------------------------------------------------------------------
17,296
- --------------------------------------------------------------------------------
Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
METALS & MINING -- 0.3%
- --------------------------------------------------------------------------------
6,700 Nucor Corp. $ 283
- --------------------------------------------------------------------------------
2,738 Phelps Dodge Corp. 240
- --------------------------------------------------------------------------------
41,625 United States Steel Corp. 1,528
- --------------------------------------------------------------------------------
2,051
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.2%
- --------------------------------------------------------------------------------
85,834 Federated Department Stores, Inc. 4,330
- --------------------------------------------------------------------------------
70,525 J.C. Penney Co. Inc. Holding
Company 2,439
- --------------------------------------------------------------------------------
5,994 Kmart Holding Corp.(1)(2) 552
- --------------------------------------------------------------------------------
7,321
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.3%
- --------------------------------------------------------------------------------
103,973 Xerox Corp.(1) 1,536
- --------------------------------------------------------------------------------
OIL & GAS -- 4.2%
- --------------------------------------------------------------------------------
189,951 ChevronTexaco Corp. 10,080
- --------------------------------------------------------------------------------
6,657 ConocoPhillips 561
- --------------------------------------------------------------------------------
163,620 Exxon Mobil Corp. 8,053
- --------------------------------------------------------------------------------
26,645 Marathon Oil Corp. 1,015
- --------------------------------------------------------------------------------
631 Occidental Petroleum Corp. 35
- --------------------------------------------------------------------------------
77,977 Sunoco, Inc. 5,798
- --------------------------------------------------------------------------------
2,376 Valero Energy Corp. 102
- --------------------------------------------------------------------------------
25,644
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 1.4%
- --------------------------------------------------------------------------------
40,131 Georgia-Pacific Corp. 1,388
- --------------------------------------------------------------------------------
151,567 Louisiana-Pacific Corp. 3,715
- --------------------------------------------------------------------------------
29,581 Potlatch Corp. 1,393
- --------------------------------------------------------------------------------
36,498 Weyerhaeuser Co. 2,286
- --------------------------------------------------------------------------------
8,782
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 1.0%
- --------------------------------------------------------------------------------
150,610 Gillette Company 6,247
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.3%
- --------------------------------------------------------------------------------
200,115 Johnson & Johnson 11,682
- --------------------------------------------------------------------------------
196,774 Merck & Co., Inc. 6,161
- --------------------------------------------------------------------------------
298,310 Pfizer, Inc. 8,636
- --------------------------------------------------------------------------------
26,479
- --------------------------------------------------------------------------------
REAL ESTATE(3)
- --------------------------------------------------------------------------------
12,568 Host Marriott Corp.(1) 183
- --------------------------------------------------------------------------------
ROAD & RAIL -- 0.1%
- --------------------------------------------------------------------------------
1,200 Burlington Northern Santa Fe Corp. 50
- --------------------------------------------------------------------------------
9,014 Union Pacific Corp. 568
- --------------------------------------------------------------------------------
618
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 1.3%
- --------------------------------------------------------------------------------
356,962 Intel Corp. 7,946
- --------------------------------------------------------------------------------
SOFTWARE -- 1.0%
- --------------------------------------------------------------------------------
162,804 Microsoft Corporation 4,557
- --------------------------------------------------------------------------------
130,350 Oracle Corp.(1) 1,650
- --------------------------------------------------------------------------------
6,207
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
9
Balanced - Schedule of Investments
OCTOBER 31, 2004
Shares/Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 0.9%
- --------------------------------------------------------------------------------
42,530 Barnes & Noble Inc.(1) $ 1,415
- --------------------------------------------------------------------------------
31,465 Blockbuster Inc.(2) 214
- --------------------------------------------------------------------------------
8,184 Circuit City Stores-Circuit City
Group 133
- --------------------------------------------------------------------------------
25,124 Claire's Stores Inc. 654
- --------------------------------------------------------------------------------
60,261 Home Depot, Inc. 2,475
- --------------------------------------------------------------------------------
14,787 Rent-A-Center Inc.(1) 355
- --------------------------------------------------------------------------------
5,246
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 1.0%
- --------------------------------------------------------------------------------
188,397 Countrywide Financial Corporation 6,016
- --------------------------------------------------------------------------------
TOBACCO -- 0.6%
- --------------------------------------------------------------------------------
50,747 Reynolds American Inc. 3,494
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES -- 0.2%
- --------------------------------------------------------------------------------
35,606 Nextel Communications, Inc.(1) 943
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $309,638) 357,814
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(4) -- 15.0%
$ 4,750 FHLMC, 5.00%, settlement date
11/18/04(5) 4,845
- --------------------------------------------------------------------------------
401 FHLMC, 7.00%, 10/1/12 426
- --------------------------------------------------------------------------------
3,678 FHLMC, 4.50%, 1/1/19(6) 3,698
- --------------------------------------------------------------------------------
316 FHLMC, 6.50%, 1/1/28 333
- --------------------------------------------------------------------------------
1,888 FHLMC, 5.50%, 12/1/33(6) 1,927
- --------------------------------------------------------------------------------
12,390 FNMA, 5.00%, settlement date
11/18/04(5) 12,645
- --------------------------------------------------------------------------------
4,700 FNMA, 5.50%, settlement date
11/18/04(5) 4,866
- --------------------------------------------------------------------------------
12,663 FNMA, 6.00%, settlement date
12/13/04(5) 13,093
- --------------------------------------------------------------------------------
10,725 FNMA, 6.50%, settlement date
12/13/04(5) 11,255
- --------------------------------------------------------------------------------
811 FNMA, 6.00%, 2/1/09(6) 853
- --------------------------------------------------------------------------------
59 FNMA, 6.50%, 5/1/11 63
- --------------------------------------------------------------------------------
634 FNMA, 7.50%, 11/1/11 675
- --------------------------------------------------------------------------------
7 FNMA, 6.50%, 10/1/12 7
- --------------------------------------------------------------------------------
18 FNMA, 6.50%, 5/1/13 19
- --------------------------------------------------------------------------------
42 FNMA, 6.50%, 5/1/13 44
- --------------------------------------------------------------------------------
20 FNMA, 6.50%, 6/1/13 21
- --------------------------------------------------------------------------------
97 FNMA, 6.50%, 6/1/13 103
- --------------------------------------------------------------------------------
25 FNMA, 6.50%, 6/1/13 27
- --------------------------------------------------------------------------------
126 FNMA, 6.50%, 6/1/13 134
- --------------------------------------------------------------------------------
39 FNMA, 6.50%, 6/1/13 42
- --------------------------------------------------------------------------------
294 FNMA, 6.00%, 1/1/14 309
- --------------------------------------------------------------------------------
1,022 FNMA, 6.00%, 4/1/14(6) 1,075
- --------------------------------------------------------------------------------
904 FNMA, 4.50%, 5/1/19 907
- --------------------------------------------------------------------------------
1,379 FNMA, 4.50%, 5/1/19 1,384
- --------------------------------------------------------------------------------
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
$ 1,682 FNMA, 4.50%, 6/1/19(7) $ 1,688
- --------------------------------------------------------------------------------
66 FNMA, 6.50%, 1/1/28 70
- --------------------------------------------------------------------------------
432 FNMA, 7.00%, 1/1/28 460
- --------------------------------------------------------------------------------
368 FNMA, 6.50%, 1/1/29 388
- --------------------------------------------------------------------------------
303 FNMA, 7.50%, 7/1/29 326
- --------------------------------------------------------------------------------
199 FNMA, 7.00%, 5/1/30 212
- --------------------------------------------------------------------------------
256 FNMA, 7.50%, 9/1/30 275
- --------------------------------------------------------------------------------
283 FNMA, 6.50%, 9/1/31 299
- --------------------------------------------------------------------------------
180 FNMA, 7.00%, 9/1/31 192
- --------------------------------------------------------------------------------
661 FNMA, 6.50%, 1/1/32 696
- --------------------------------------------------------------------------------
1,375 FNMA, 7.00%, 6/1/32(6) 1,461
- --------------------------------------------------------------------------------
646 FNMA, 6.50%, 8/1/32 680
- --------------------------------------------------------------------------------
2,468 FNMA, 5.50%, 6/1/33(6) 2,518
- --------------------------------------------------------------------------------
3,392 FNMA, 5.50%, 8/1/33(6) 3,460
- --------------------------------------------------------------------------------
1,697 FNMA, 5.50%, 9/1/33(6) 1,731
- --------------------------------------------------------------------------------
10,574 FNMA, 5.50%, 1/1/34(6) 10,787
- --------------------------------------------------------------------------------
1,350 FNMA, 5.50%, 11/15/34 1,375
- --------------------------------------------------------------------------------
567 GNMA, 7.00%, 4/20/26 605
- --------------------------------------------------------------------------------
312 GNMA, 7.50%, 8/15/26 337
- --------------------------------------------------------------------------------
210 GNMA, 7.00%, 2/15/28 224
- --------------------------------------------------------------------------------
279 GNMA, 7.50%, 2/15/28 301
- --------------------------------------------------------------------------------
406 GNMA, 7.00%, 12/15/28 434
- --------------------------------------------------------------------------------
143 GNMA, 8.00%, 12/15/29 156
- --------------------------------------------------------------------------------
772 GNMA, 7.00%, 5/15/31(6) 825
- --------------------------------------------------------------------------------
3,464 GNMA, 5.50%, 11/15/32(6) 3,554
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $90,868) 91,805
- --------------------------------------------------------------------------------
CORPORATE BONDS -- 10.6%
AUTO COMPONENTS -- 0.1%
- --------------------------------------------------------------------------------
590 Dana Corp., 6.50%, 3/1/09 624
- --------------------------------------------------------------------------------
AUTOMOBILES -- 0.2%
- --------------------------------------------------------------------------------
850 DaimlerChrysler N.A. Holding Corp.,
7.30%, 1/15/12 975
- --------------------------------------------------------------------------------
BEVERAGES -- 0.2%
- --------------------------------------------------------------------------------
550 Foster's Finance Corp., 4.875%,
10/1/14 (Acquired 10/1/04,
Cost $544)(8) 553
- --------------------------------------------------------------------------------
750 Miller Brewing Co., 4.25%, 8/15/08
(Acquired 1/6/04, Cost $762)(8) 765
- --------------------------------------------------------------------------------
1,318
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 0.3%
- --------------------------------------------------------------------------------
750 Goldman Sachs Group Inc., 5.70%,
9/1/12(2) 800
- --------------------------------------------------------------------------------
750 Goldman Sachs Group Inc., 5.25%,
10/15/13(2) 769
- --------------------------------------------------------------------------------
350 Morgan Stanley, 4.25%, 5/15/10(2) 354
- --------------------------------------------------------------------------------
1,923
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
10
Balanced - Schedule of Investments
OCTOBER 31, 2004
Principal Amount/Shares ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 0.5%
- --------------------------------------------------------------------------------
$ 1,600 Bank of America Corp., 4.375%,
12/1/10(6) $ 1,624
- --------------------------------------------------------------------------------
500 SouthTrust Corp., 5.80%, 6/15/14 538
- --------------------------------------------------------------------------------
500 U.S. Bancorp, Series N, MTN,
2.75%, 3/30/06 500
- --------------------------------------------------------------------------------
660 Wachovia Bank N.A., 4.80%,
11/1/14(2) 661
- --------------------------------------------------------------------------------
3,323
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 0.2%
- --------------------------------------------------------------------------------
900 Allied Waste North America, Inc.,
Series 1998 B, 7.625%, 1/1/06 936
- --------------------------------------------------------------------------------
350 R.R. Donnelley & Sons Co., 3.75%,
4/1/09 349
- --------------------------------------------------------------------------------
1,285
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 0.1%
- --------------------------------------------------------------------------------
500 American Express Centurion Bank,
4.375%, 7/30/09 514
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.2%
- --------------------------------------------------------------------------------
1,000 Ball Corp., 7.75%, 8/1/06 1,078
- --------------------------------------------------------------------------------
DIVERSIFIED -- 1.9%
- --------------------------------------------------------------------------------
72,450 iShares GS $ InvesTop Corporate
Bond Fund(2)(9) 8,160
- --------------------------------------------------------------------------------
3,045 Morgan Stanley TRACERS(SM), 7.72%,
3/1/32 (Acquired 3/15/02-8/28/02,
Cost $3,203)(8) 3,649
- --------------------------------------------------------------------------------
11,809
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 1.3%
- --------------------------------------------------------------------------------
1,500 American General Finance Corp.,
Series 2002 H, 4.50%, 11/15/07(6) 1,546
- --------------------------------------------------------------------------------
640 CIT Group Inc., 5.125%, 9/30/14 645
- --------------------------------------------------------------------------------
2,300 Citigroup Inc., 4.125%, 6/30/05(6) 2,325
- --------------------------------------------------------------------------------
1,000 Citigroup Inc., 5.00%, 9/15/14
(Acquired 9/9/04, Cost $999)(6)(8) 1,017
- --------------------------------------------------------------------------------
775 Ford Motor Credit Co., 5.80%,
1/12/09(2) 800
- --------------------------------------------------------------------------------
750 Ford Motor Credit Co., 7.375%,
10/28/09(2) 817
- --------------------------------------------------------------------------------
800 J.P. Morgan Chase & Co., 6.75%,
2/1/11(2) 904
- --------------------------------------------------------------------------------
8,054
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.9%
- --------------------------------------------------------------------------------
690 British Telecommunications plc,
7.00%, 5/23/07 751
- --------------------------------------------------------------------------------
800 Deutsche Telekom International
Finance BV, 8.50%, 6/15/10 965
- --------------------------------------------------------------------------------
300 Deutsche Telekom International
Finance BV, 5.25%, 7/22/13 311
- --------------------------------------------------------------------------------
300 France Telecom, 8.50%, 3/1/11(2) 361
- --------------------------------------------------------------------------------
440 SBC Communications Inc., 5.10%,
9/15/14(7) 444
- --------------------------------------------------------------------------------
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
$ 1,350 Sprint Capital Corp., 8.375%,
3/15/12(2) $ 1,659
- --------------------------------------------------------------------------------
1,020 Telecom Italia Capital SA, 4.95%,
9/30/14 (Acquired 9/28/04-
10/29/04, Cost $1,014)(8) 1,014
- --------------------------------------------------------------------------------
5,505
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.5%
- --------------------------------------------------------------------------------
939 CenterPoint Energy Resources
Corp., 6.50%, 2/1/08 1,017
- --------------------------------------------------------------------------------
400 FirstEnergy Corp., 6.45%, 11/15/11 439
- --------------------------------------------------------------------------------
300 Pacific Gas & Electric Co., 6.05%,
3/1/34 310
- --------------------------------------------------------------------------------
300 Tampa Electric Co., 6.375%,
8/15/12 330
- --------------------------------------------------------------------------------
750 Virginia Electric and Power Co.,
5.25%, 12/15/15 769
- --------------------------------------------------------------------------------
2,865
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 0.2%
- --------------------------------------------------------------------------------
410 CVS Corp., 4.00%, 9/15/09
(Acquired 9/9/04, Cost $409)(8) 412
- --------------------------------------------------------------------------------
900 Safeway Inc., 6.50%, 3/1/11(2) 996
- --------------------------------------------------------------------------------
1,408
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 0.6%
- --------------------------------------------------------------------------------
600 Mandalay Resort Group, 6.45%,
2/1/06 622
- --------------------------------------------------------------------------------
1,250 MGM Mirage, 6.00%, 10/1/09(2) 1,300
- --------------------------------------------------------------------------------
450 Royal Caribbean Cruises Ltd.,
6.875%, 12/1/13 496
- --------------------------------------------------------------------------------
1,050 Yum! Brands Inc., 8.875%, 4/15/11 1,312
- --------------------------------------------------------------------------------
3,730
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.1%
- --------------------------------------------------------------------------------
620 KB Home, 6.375%, 8/15/11
(Acquired 9/24/04, Cost $655)(2)(8) 653
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.3%
- --------------------------------------------------------------------------------
620 General Electric Capital Corp.,
4.25%, 12/1/10(2) 627
- --------------------------------------------------------------------------------
1,000 General Electric Co., 5.00%,
2/1/13(6) 1,038
- --------------------------------------------------------------------------------
1,665
- --------------------------------------------------------------------------------
INSURANCE -- 0.4%
- --------------------------------------------------------------------------------
750 Allstate Financial Global Funding,
4.25%, 9/10/08 (Acquired 9/3/03,
Cost $749)(2)(8) 766
- --------------------------------------------------------------------------------
750 Genworth Financial Inc., 5.75%,
6/15/14 797
- --------------------------------------------------------------------------------
750 Monumental Global Funding II,
3.85%, 3/3/08 (Acquired 2/5/03,
Cost $750)(8) 766
- --------------------------------------------------------------------------------
2,329
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL(3)
- --------------------------------------------------------------------------------
200 IAC/InterActiveCorp, 7.00%,
1/15/13 222
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
11
Balanced - Schedule of Investments
OCTOBER 31, 2004
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
MEDIA -- 0.9%
- --------------------------------------------------------------------------------
$ 400 Clear Channel Communications Inc.,
4.25%, 5/15/09 $ 398
- --------------------------------------------------------------------------------
670 Clear Channel Communications Inc.,
5.00%, 3/15/12 669
- --------------------------------------------------------------------------------
1,360 Comcast Cable Communications,
8.375%, 5/1/07 1,522
- --------------------------------------------------------------------------------
131 Comcast Cable Communications
Holdings Inc., 8.375%, 3/15/13 161
- --------------------------------------------------------------------------------
1,500 Comcast Corp., 5.50%, 3/15/11(2) 1,584
- --------------------------------------------------------------------------------
300 CSC Holdings Inc., 6.75%, 4/15/12
(Acquired 8/5/04, Cost $290)(8) 312
- --------------------------------------------------------------------------------
550 News America Holdings, 7.75%,
1/20/24 655
- --------------------------------------------------------------------------------
5,301
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED
POWER -- 0.1%
- --------------------------------------------------------------------------------
750 Dominion Resources Inc., 4.125%,
2/15/08 762
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 0.2%
- --------------------------------------------------------------------------------
350 May Department Stores Co. (The),
3.95%, 7/15/07 (Acquired 7/13/04,
Cost $350)(8) 354
- --------------------------------------------------------------------------------
850 May Department Stores Co. (The),
4.80%, 7/15/09 (Acquired
7/13/04-7/15/04, Cost $852)(2)(8) 871
- --------------------------------------------------------------------------------
1,225
- --------------------------------------------------------------------------------
OIL & GAS -- 0.7%
- --------------------------------------------------------------------------------
300 Anadarko Petroleum Corp., 7.95%,
4/15/29 383
- --------------------------------------------------------------------------------
800 Devon Energy Corp., 2.75%, 8/1/06 797
- --------------------------------------------------------------------------------
710 Enterprise Products Operating L.P.,
4.625%, 10/15/09 (Acquired
10/8/04-10/15/04, Cost $717)(8) 718
- --------------------------------------------------------------------------------
410 Enterprise Products Operating L.P.,
5.60%, 10/15/14 (Acquired
10/4/04, Cost $413)(8) 419
- --------------------------------------------------------------------------------
730 Kerr-McGee Corp., 6.875%,
9/15/11 829
- --------------------------------------------------------------------------------
180 Magellan Midstream Partners,
5.65%, 10/15/16 184
- --------------------------------------------------------------------------------
640 XTO Energy Inc., 6.25%, 4/15/13 708
- --------------------------------------------------------------------------------
4,038
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 0.1%
- --------------------------------------------------------------------------------
400 Schering-Plough Corp., 5.30%,
12/1/13 416
- --------------------------------------------------------------------------------
ROAD & RAIL -- 0.4%
- --------------------------------------------------------------------------------
800 Canadian National Railway Co.,
6.25%, 8/1/34 865
- --------------------------------------------------------------------------------
600 Norfolk Southern Corp., 7.80%,
5/15/27 745
- --------------------------------------------------------------------------------
700 Norfolk Southern Corp., 7.05%,
5/1/37 810
- --------------------------------------------------------------------------------
2,420
- --------------------------------------------------------------------------------
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
SPECIALTY RETAIL(3)
- --------------------------------------------------------------------------------
$ 300 Toys "R" Us, Inc., 7.375%,
10/15/18 $ 281
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES -- 0.2%
- --------------------------------------------------------------------------------
850 AT&T Wireless Services Inc.,
7.875%, 3/1/11 1,014
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $62,716) 64,737
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 9.7%
2,400 U.S. Treasury Bonds, 8.00%,
11/15/21(2) 3,331
- --------------------------------------------------------------------------------
3,700 U.S. Treasury Bonds, 6.25%,
8/15/23(2) 4,372
- --------------------------------------------------------------------------------
1,675 U.S. Treasury Bonds, 5.375%,
2/15/31(2) 1,820
- --------------------------------------------------------------------------------
5,931 U.S. Treasury Inflation Indexed
Notes, 2.00%, 7/15/14(2) 6,138
- --------------------------------------------------------------------------------
15,000 U.S. Treasury Notes, 2.00%,
8/31/05(2) 14,981
- --------------------------------------------------------------------------------
10,880 U.S. Treasury Notes, 2.375%,
8/15/06(2) 10,864
- --------------------------------------------------------------------------------
9,200 U.S. Treasury Notes, 3.125%,
5/15/07(2) 9,297
- --------------------------------------------------------------------------------
3,900 U.S. Treasury Notes, 4.00%,
6/15/09(6) 4,028
- --------------------------------------------------------------------------------
2,420 U.S. Treasury Notes, 4.25%,
8/15/14(2) 2,463
- --------------------------------------------------------------------------------
2,000 U.S. Treasury Notes, 4.75%,
5/15/14(2) 2,115
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES
(Cost $58,757) 59,409
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES(4) -- 5.9%
500 ABSC Non-Improvement Trust,
Series 2004 HE7, Class A1 SC,
5.00%, 10/27/34 (Acquired
9/1/04, Cost $498)(8) 498
- --------------------------------------------------------------------------------
312 ABSC Non-Improvement Trust,
Series 2004 HE5, Class A1, 5.00%,
8/27/34 (Acquired 6/22/04,
Cost $312)(8) 312
- --------------------------------------------------------------------------------
783 Ameriquest Mortgage Securities
Inc., Series 2004 R8, Class A2,
VRN, 2.09%, 11/26/04, resets
monthly off the 1-month LIBOR
plus 0.16% with no caps 784
- --------------------------------------------------------------------------------
71 AQ Finance Non-Improvement
Trust, Series 2003 N11A, 7.14%,
11/25/33 70
- --------------------------------------------------------------------------------
315 AQ Finance Non-Improvement
Trust, Series 2004 RN4, Class A,
4.60%, 7/25/34 314
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
12
Balanced - Schedule of Investments
OCTOBER 31, 2004
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
$ 203 AQ Finance Non-Improvement
Trust, Series 2004 RN5, Class A,
5.19%, 6/29/34 (Acquired
6/24/04, Cost $203)(8) $ 203
- --------------------------------------------------------------------------------
225 Argent Non-Improvement Trust,
Series 2004 WN10, Class A SC,
4.21%, 11/25/34 (Acquired
10/19/04, Cost $225)(8) 225
- --------------------------------------------------------------------------------
130 Argent Non-Improvement Trust,
Series 2004 WN2, Class A, 4.55%,
4/25/34 129
- --------------------------------------------------------------------------------
275 Argent Non-Improvement Trust,
Series 2004 WN8, Class A, 4.70%,
7/25/34 275
- --------------------------------------------------------------------------------
150 Argent Non-Improvement Trust,
Series 2004 WN9, Class A, 5.19%,
10/25/34 (Acquired 9/9/04,
Cost $150)(8) 150
- --------------------------------------------------------------------------------
77 Asset Backed Funding Corp.
Non-Improvement Trust, Series
2003-1, Class N1, 6.90%, 7/26/33 77
- --------------------------------------------------------------------------------
166 Asset Backed Funding Corp.
Non-Improvement Trust, Series
2004 OPT4, Class N1, 4.45%,
5/26/34 166
- --------------------------------------------------------------------------------
437 Bayview Financial Acquisition Trust,
Series 1998 B, Class M1, VRN,
3.33%, 11/26/04, resets monthly
off the 1-month LIBOR plus 1.40%
with a cap of 13.00% (Acquired
6/13/03, Cost $439)(8) 438
- --------------------------------------------------------------------------------
363 Bayview Financial Acquisition Trust,
Series 2002 DA, Class M1, VRN,
2.78%, 11/25/04, resets monthly
off the 1-month LIBOR plus 0.85%
with no caps (Acquired 9/19/03,
Cost $364)(8) 365
- --------------------------------------------------------------------------------
2,000 Capital One Prime Auto Receivables
Trust, Series 2004-2, Class A4, VRN,
1.93%, 11/15/04, resets monthly
off the 1-month LIBOR plus 0.06%
with no caps(6) 2,002
- --------------------------------------------------------------------------------
1,316 Centex Home Equity, Series 2004 C,
Class AF1, VRN, 2.82%, 11/1/04(6) 1,315
- --------------------------------------------------------------------------------
355 CIT RV Trust, Series 1998 A,
Class A4 SEQ, 6.09%, 2/15/12 358
- --------------------------------------------------------------------------------
1,825 CNH Equipment Trust, Series
2004 A, Class A3A, VRN, 1.94%,
11/15/04, resets monthly off the
1-month LIBOR plus 0.07% with
no caps(6) 1,825
- --------------------------------------------------------------------------------
1,125 Countrywide Asset-Backed
Certificates, Series 2004 11,
Class A1, VRN, 2.15%, 11/25/04,
resets monthly off the 1-month
LIBOR plus 0.19% with no caps(7) 1,125
- --------------------------------------------------------------------------------
150 Countrywide Asset-Backed
Certificates, Series 2004 11N,
Class N SC, 5.25%, 4/25/36
(Acquired 10/27/04, Cost $150)(8) 150
- --------------------------------------------------------------------------------
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
$ 208 Countrywide Asset-Backed
Certificates, Series 2004 5N,
Class N1, 5.50%, 10/25/35 $ 209
- --------------------------------------------------------------------------------
154 Finance America Non-Improvement
Trust, Series 2004-1, Class A,
5.25%, 6/27/34 154
- --------------------------------------------------------------------------------
209 First Franklin Non-Improvement
Trust, Series 2004 FF1, Class N1,
4.50%, 9/25/05 209
- --------------------------------------------------------------------------------
1,000 Ford Credit Auto Owner Trust,
Series 2002 A, Class B, 4.79%,
11/15/06(6) 1,015
- --------------------------------------------------------------------------------
6,000 Ford Credit Floorplan Master Owner
Trust, Series 2004-1, Class A, VRN,
1.93%, 11/15/04, resets monthly
off the 1-month LIBOR plus 0.04%
with no caps(6) 6,007
- --------------------------------------------------------------------------------
203 Fremont Non-Improvement Trust,
Series 2004 B, 4.70%, 5/25/34
(Acquired 5/20/04, Cost $203)(8) 203
- --------------------------------------------------------------------------------
5,250 GE Corporate Aircraft Financing
LLC, Series 2004 1A, Class A1,
VRN, 2.00%, 11/25/04, resets
monthly off the 1-month LIBOR
plus 0.09% with no caps (Acquired
10/5/04, Cost $5,250)(6)(8) 5,251
- --------------------------------------------------------------------------------
252 GSAMP Non-Improvement Trust,
Series 2004, Class N1, 5.50%,
9/25/34 (Acquired 9/20/04,
Cost $252)(8) 252
- --------------------------------------------------------------------------------
488 Household Mortgage Loan Trust,
Series 2002 HC1, Class M, VRN,
2.56%, 11/20/04, resets monthly
off the 1-month LIBOR plus 0.65%
with no caps 489
- --------------------------------------------------------------------------------
603 Household Mortgage Loan Trust,
Series 2003 HC2, Class M, VRN,
2.51%, 11/20/04, resets monthly
off the 1-month LIBOR plus 0.60%
with no caps 604
- --------------------------------------------------------------------------------
203 Long Beach Asset Holdings
Corporation, Series 2004-5, Class C
and P, 5.00%, 9/25/34 (Acquired
9/15/04, Cost $205)(8) 203
- --------------------------------------------------------------------------------
1,200 Long Beach Mortgage Loan Trust,
Series 2001-2, Class M2, VRN,
2.88%, 11/25/04, resets monthly
off the 1-month LIBOR plus 0.95%
with no caps(6) 1,189
- --------------------------------------------------------------------------------
84 MASTR Non-Improvement Trust,
Series 2004 CI3, Class N1, 4.45%,
2/26/34 (Acquired 5/18/04,
Cost $84)(8) 84
- --------------------------------------------------------------------------------
93 Merrill Lynch Mortgage Investors
Inc., Series 2003 OP1N, Class N1,
7.25%, 7/25/34 94
- --------------------------------------------------------------------------------
14 Morgan Stanley ABS Capital I,
Series 2003 NC9N, Class X and P,
7.60%, 7/25/33 (Acquired
10/29/03, Cost $14)(8) 14
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
13
Balanced - Schedule of Investments
OCTOBER 31, 2004
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
$ 95 Morgan Stanley ABS Capital I,
Series 2004 NC2N, Class X and P,
6.25%, 12/25/33 (Acquired
3/16/04, Cost $96)(8) $ 95
- --------------------------------------------------------------------------------
290 Novastar Non-Improvement Trust,
Series 2004 N2, Class X, O and P,
4.46%, 6/27/34 (Acquired
7/20/04, Cost $290)(8) 289
- --------------------------------------------------------------------------------
1,900 Residential Asset Mortgage
Products Inc,, Series 2004 RS10,
Class AII1, VRN, 2.12%, 11/25/04,
resets monthly off the 1-month
LIBOR plus 0.17% with no caps(7) 1,899
- --------------------------------------------------------------------------------
300 Residential Asset Securities Corp.,
Series 2004 KS2, Class MI1,
4.71%, 3/25/34 299
- --------------------------------------------------------------------------------
3,108 Residential Asset Securities Corp.,
Series 2004 KS7, Class A2B1, VRN,
2.07%, 11/26/04, resets monthly
off the 1-month LIBOR plus 0.14%
with no caps(6) 3,110
- --------------------------------------------------------------------------------
285 Sail Net Interest Margin Notes,
Series 2004 8A, Class A, 5.00%,
9/27/34 (Acquired 9/13/04,
Cost $286)(8) 285
- --------------------------------------------------------------------------------
124 Sail Net Interest Margin Notes,
Series 2004 BNCA, Class A, 5.00%,
9/27/34 123
- --------------------------------------------------------------------------------
2,143 SLMA Student Loan Trust, Series
2004-8, Class A1, VRN, 2.09%,
11/25/04, resets quarterly off the
3-month LIBOR minus 0.01% with
no caps(6) 2,144
- --------------------------------------------------------------------------------
1,254 WFS Financial Owner Trust, Series
2004-3, Class A1 SEQ, 1.73%,
8/17/05(6) 1,254
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $36,225) 36,256
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 4.2%
5,000 FHLB, 3.375%, 9/14/07(6) 5,052
- --------------------------------------------------------------------------------
2,300 FHLMC, 2.875%, 5/15/07(2) 2,298
- --------------------------------------------------------------------------------
5,170 FHLMC, 3.75%, 8/3/07(6) 5,205
- --------------------------------------------------------------------------------
8,100 FNMA, 3.75%, 5/17/07(6) 8,149
- --------------------------------------------------------------------------------
2,000 FNMA, 6.625%, 10/15/07(6) 2,200
- --------------------------------------------------------------------------------
2,050 FNMA, 5.75%, 2/15/08 2,214
- --------------------------------------------------------------------------------
600 FNMA, 3.25%, 8/15/08(2) 599
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES
(Cost $25,623) 25,717
- --------------------------------------------------------------------------------
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS(4) -- 3.3%
$17,571 Bank of America Commercial
Mortgage Inc. STRIPS - INTEREST,
Series 2004-1, Class XP, VRN,
0.99%, 11/1/04 $ 553
- --------------------------------------------------------------------------------
19,000 Bear Stearns Commercial
Mortgage Securities STRIPS -
INTEREST, Series 2004 T16,
Class X2, 0.81%, 12/1/04(7) 846
- --------------------------------------------------------------------------------
4,682 Citigroup Commercial Mortgage
Trust, Series 2004 FL1, Class A1,
VRN, 2.00%, 11/15/04(6) 4,684
- --------------------------------------------------------------------------------
1,500 Commercial Mortgage Pass-Through
Certificates, Series 2004 HTL1,
Class A1, VRN, 2.11%, 11/15/04,
resets monthly off the 1-month
LIBOR plus 0.24% with no caps(6) 1,501
- --------------------------------------------------------------------------------
589 FHLMC REMIC, Series 77, Class H,
8.50%, 9/15/20 590
- --------------------------------------------------------------------------------
1,370 GMAC Commercial Mortgage
Securities Inc., Series 2002 C2,
Class A1 SEQ, 4.32%, 10/15/38(6) 1,395
- --------------------------------------------------------------------------------
2,700 LB-UBS Commercial Mortgage
Trust, Series 2003 C5, Class A2
SEQ, 3.48%, 7/15/27(6) 2,688
- --------------------------------------------------------------------------------
957 MASTR Alternative Loans Trust,
Series 2003-8, Class 4A1, 7.00%,
12/25/33(6) 985
- --------------------------------------------------------------------------------
259 Sharps SP I LLC Net Interest
Margin Trust, Series 2004 OP1N,
Class NA, 5.19%, 4/25/34
(Acquired 6/9/04, Cost $259)(8) 259
- --------------------------------------------------------------------------------
2,150 Washington Mutual, Series 2004
AR4, Class A6, 3.81%, 6/25/34(6) 2,131
- --------------------------------------------------------------------------------
1,800 Washington Mutual, Series 2004
AR9, Class A6, 4.28%, 8/25/34(6) 1,798
- --------------------------------------------------------------------------------
2,600 Washington Mutual, Series 2004
AR9, Class A7, VRN, 4.26%,
11/1/04(6) 2,623
- --------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $19,979) 20,053
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 0.1%
800 Illinois GO, (Taxable Pension),
5.10%, 6/1/33
(Cost $804) 772
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
14
Balanced - Schedule of Investments
OCTOBER 31, 2004
($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.7%
Repurchase Agreement, Deutsche Bank Securities,
Inc., (collateralized by various U.S. Treasury
obligations, 2.00%-6.50%, 5/15/06-10/15/06,
valued at $4,201), in a joint trading account at
1.74%, dated 10/29/04, due 11/1/04 (Delivery
value $4,101)(6)
(Cost $4,100) $ 4,100
- --------------------------------------------------------------------------------
COLLATERAL RECEIVED FOR
SECURITIES LENDING -- 7.5%(10)
REPURCHASE AGREEMENTS -- 7.2%
- --------------------------------------------------------------------------------
Repurchase Agreement, UBS AG, (collateralized by
U.S. Government Agency obligations), 1.875%,
dated 10/29/04, due 11/1/04 (Delivery value
$43,957) 43,950
- --------------------------------------------------------------------------------
Principal Amount ($ IN THOUSANDS) Value
- --------------------------------------------------------------------------------
SHORT-TERM DEBT -- 0.3%
- --------------------------------------------------------------------------------
$ 2,000 Bear Stearns Companies, Inc.
Master Note, VRN, 2.06%,
11/1/04 $ 2,000
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED FOR
SECURITIES LENDING
(Cost $45,950) 45,950
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 115.5%
(Cost $654,660) 706,613
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (15.5)% (94,770)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $611,843
================================================================================
FUTURES CONTRACTS*
($ IN THOUSANDS)
Expiration Underlying Face Unrealized
Contracts Purchased Date Amount at Value Gain
- --------------------------------------------------------------------------------
68 U.S. Treasury
10-Year Notes December 2004 $7,722 $20
==================================
($ IN THOUSANDS)
Expiration Underlying Face Unrealized
Contracts Sold Date Amount at Value Loss
- -------------------------------------------------------------------------------
200 U.S. Treasury
2-Year Notes December 2004 $42,353 $(11)
- --------------------------------------------------------------------------------
68 U.S. Treasury
5-Year Notes December 2004 7,574 (30)
- --------------------------------------------------------------------------------
$49,927 $(41)
================================
*FUTURES CONTRACTS typically are based on an index or specific securities and
tend to track the performance of the index or specific securities while
remaining very liquid (easy to buy and sell). By investing in futures, the fund
has increased exposure to certain markets. By selling futures, the fund hedges
its investments against price fluctuations.
SWAP AGREEMENTS**
($ IN THOUSANDS)
Expiration Unrealized
Notional Amount Description of Agreement Date Gain
- --------------------------------------------------------------------------------
$4,900 Receive semiannually a fixed September 2007 $18
rate equal to 3.24375% and ==========
pay quarterly a variable
rate based on the 3-month
LIBOR with Deutsche Bank
Securities, Inc.
**SWAP AGREEMENTS are contracts in which two parties agree to exchange the
returns earned or realized on predetermined investments or instruments. The
fund may enter into swap agreements in order to manage interest, credit, or
market risk or to gain exposure to certain markets.
See Notes to Financial Statements. (continued)
- ------
15
Balanced - Schedule of Investments
OCTOBER 31, 2004
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GMAC = General Motors Acceptance Corporation
GNMA = Government National Mortgage Association
GO = General Obligation
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
MASTR = Mortgage Asset Securitization Transactions, Inc.
REMIC = Real Estate Mortgage Investment Conduit
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon
will vary significantly from current market rates.
SEQ = Sequential Payer
SLMA = Student Loan Marketing Association
STRIPS = Separate Trading of Registered Interest and Principal of Securities
TRACERS(SM) = Traded Custody Receipts(SM). Rate indicated is the
weighted-average coupon of the underlying securities held.
VRN = Variable Rate Note. Interest reset date is indicated, unless otherwise
noted. Rate shown is effective October 31, 2004.
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of October 31, 2004.
(3) Industry is less than 0.05% of net assets.
(4) Final maturity indicated, unless otherwise noted.
(5) Forward Commitment.
(6) Security, or a portion thereof, has been segregated for a when-issued
security, forward commitment, futures contract, and/or swap agreement.
(7) When-issued security.
(8) 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 restricted securities at October 31, 2004, was $21,545,
which represented 3.5% of net assets.
(9) Security is an exchange-traded bond fund. Quantity indicated reflects the
number of shares owned.
(10) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions. (See Note 5 in
Notes to Financial Statements.)
See Notes to Financial Statements.
- ------
16
Statement of Assets and Liabilities
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $608,710) --
including $77,828 of securities on loan $660,663
- ------------------------------------------------------------
Investments made with cash collateral received for
securities on loan, at value (cost of $45,950) 45,950
- --------------------------------------------------------------------------------
Total investment securities, at value (cost of $654,660) 706,613
- ------------------------------------------------------------
Receivable for investments sold 5,796
- ------------------------------------------------------------
Receivable for capital shares sold 54
- ------------------------------------------------------------
Unrealized appreciation on swap agreements 18
- ------------------------------------------------------------
Dividends and interest receivable 2,429
- --------------------------------------------------------------------------------
714,910
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for collateral received for securities on loan 45,950
- ------------------------------------------------------------
Disbursements in excess of demand deposit cash 400
- ------------------------------------------------------------
Payable for investments purchased 56,241
- ------------------------------------------------------------
Payable for variation margin on futures contracts 9
- ------------------------------------------------------------
Accrued management fees 461
- ------------------------------------------------------------
Distribution fees payable 3
- ------------------------------------------------------------
Service fees payable 3
- --------------------------------------------------------------------------------
103,067
- --------------------------------------------------------------------------------
NET ASSETS $611,843
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $571,798
- ------------------------------------------------------------
Undistributed net investment income 761
- ------------------------------------------------------------
Accumulated net realized loss on investment transactions (12,658)
- ------------------------------------------------------------
Net unrealized appreciation on investments 51,942
- --------------------------------------------------------------------------------
$611,843
================================================================================
INVESTOR CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $595,179,030
- ------------------------------------------------------------
Shares outstanding 37,836,752
- ------------------------------------------------------------
Net asset value per share $15.73
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $224,841
- ------------------------------------------------------------
Shares outstanding 14,293
- ------------------------------------------------------------
Net asset value per share $15.73
- --------------------------------------------------------------------------------
ADVISOR CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
- --------------------------------------------------------------------------------
Net assets $16,438,726
- ------------------------------------------------------------
Shares outstanding 1,045,606
- ------------------------------------------------------------
Net asset value per share $15.72
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
17
Statement of Operations
YEAR ENDED OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- ------------------------------------------------------------
Interest $ 8,993
- ------------------------------------------------------------
Dividends 6,436
- ------------------------------------------------------------
Securities lending 103
- --------------------------------------------------------------------------------
15,532
- --------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------
Management fees 5,409
- ------------------------------------------------------------
Distribution fees -- Advisor Class 42
- ------------------------------------------------------------
Service fees -- Advisor Class 42
- ------------------------------------------------------------
Directors' fees and expenses 9
- ------------------------------------------------------------
Other expenses 4
- --------------------------------------------------------------------------------
5,506
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 10,026
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment transactions 55,859
- ------------------------------------------------------------
Change in net unrealized appreciation on investments (16,885)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 38,974
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 49,000
================================================================================
See Notes to Financial Statements.
- ------
18
Statement of Changes in Net Assets
YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003 (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2004 2003
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 10,026 $ 11,213
- ------------------------------------------
Net realized gain 55,859 2,451
- ------------------------------------------
Change in net unrealized appreciation (16,885) 71,549
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 49,000 85,213
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income:
- ------------------------------------------
Investor Class (10,813) (10,188)
- ------------------------------------------
Institutional Class (3) (263)
- ------------------------------------------
Advisor Class (262) (241)
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (11,078) (10,692)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital share transactions (26,486) (45,550)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 11,436 28,971
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 600,407 571,436
- --------------------------------------------------------------------------------
End of period $611,843 $600,407
================================================================================
Undistributed net investment income $761 $1,637
================================================================================
See Notes to Financial Statements.
- ------
19
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Balanced Fund (the fund) is one fund in
a series issued by the corporation. The fund is diversified under the 1940 Act.
The fund's investment objective is to seek long-term capital growth and current
income. The fund pursues its objective by investing approximately 60% of its
assets in equity securities and the remainder in bonds and other fixed-income
securities. The following is a summary of the fund's significant accounting
policies.
MULTIPLE CLASS -- The fund is authorized to issue the Investor Class, the
Institutional Class and the Advisor Class. The share classes differ principally
in their respective shareholder servicing and distribution expenses and
arrangements. All shares of the fund represent an equal pro rata interest in the
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.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. 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 close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
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.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its lending
agent to certain approved borrowers in order to earn additional income. The fund
continues to recognize any gain or loss in the market price of the securities on
loan and records any interest earned or dividends declared.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. 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. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the fund. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
WHEN-ISSUED AND FORWARD COMMITMENTS -- The funds 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
(continued)
- ------
20
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
during this period, securities are subject to market fluctuations. In a forward
commitment transaction, the funds 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 funds 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 funds will segregate cash, cash equivalents or other
appropriate liquid securities on their records in amounts sufficient to meet the
purchase price. The funds account for "roll" transactions as purchases and
sales; as such these transactions may increase portfolio turnover.
SWAP AGREEMENTS -- The fund may enter into a swap agreement 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; protect against currency fluctuations; attempt to manage duration
to protect against any increase in the price of securities the fund anticipates
purchasing at a later date; or gain exposure to certain markets in the most
economical way possible. A swap agreement is a contract in which two parties
agree to exchange the returns earned or realized on predetermined investments or
instruments. The fund will segregate cash, cash equivalents or other appropriate
liquid securities on its records in amounts sufficient to meet requirements.
Unrealized gains are reported as an asset and unrealized losses are reported as
a liability on the Statement of Assets and Liabilities. Swap agreements are
valued daily and changes in value, including the periodic amounts of interest to
be paid or received on swaps are recorded as unrealized appreciation
(depreciation) on investments. Realized gain or loss is recorded upon receipt or
payment of a periodic settlement or termination of swap agreements. The risks of
entering into swap agreements include the possible lack of liquidity, failure of
the counterparty to meets its obligations, and that there may be unfavorable
changes in the underlying investments and instruments.
TRACERS(SM)/TRAINS(SM) -- The fund may invest in TRACERS and TRAINS which
represent ownership of a specified percentage of each security in an underlying
pool of securities. Owners are entitled to receive a pro rata share of
distributions from the underlying securities. In the event an underlying
security is downgraded by a rating agency, that portion of the investment
product will be redeemed and the underlying security will be distributed to the
owner pro rata or the owner may receive cash proceeds. The risk of owning these
products are the same as owning the individual securities, but enable the fund
to be more diversified by owning a single security.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. 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 other registered investment
companies having management agreements with ACIM, 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. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income are declared and
paid quarterly. Distributions from net realized gains, if any, are generally
declared and paid annually.
USE OF ESTIMATES -- 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.
(continued)
- ------
21
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation 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 the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. For funds with a stepped fee schedule, the
rate of the fee is determined by applying a fee rate calculation formula. This
formula takes into account all of the investment manager's assets under
management in the fund's investment strategy (strategy assets) to calculate the
appropriate fee rate for the fund. The strategy assets include the fund's assets
and the assets of other clients of the investment manager that are not in the
American Century family of funds but that have the same investment team and
investment strategy.
The annual management fee schedule for each class of the fund is as follows:
- --------------------------------------------------------------------------------
INVESTOR INSTITUTIONAL ADVISOR
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $1 billion 0.90% 0.70% 0.65%
- --------------------------------------------------------------------------------
Over $1 billion 0.80% 0.60% 0.55%
- --------------------------------------------------------------------------------
The effective annual management fee for the year ended October 31, 2004 was
0.90%, 0.70%, and 0.65%, for the Investor Class, Institutional Class and Advisor
Class, respectively.
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a Master
Distribution and Shareholder Services Plan (the plan) for the Advisor Class,
pursuant to Rule 12b-1 of the 1940 Act. The plan provides that the Advisor Class
will pay American Century Investment Services, Inc. (ACIS) an annual
distribution fee equal to 0.25% and an annual service fee equal to 0.25%. The
fees are computed and accrued daily based on the Advisor Class's daily net
assets, and paid monthly in arrears. The distribution fee provides compensation
for expenses incurred by financial intermediaries in connection with
distributing shares of the Advisor Class including, but not limited to, payments
to brokers, dealers, and financial institutions that have entered into sales
agreements with respect to shares of the fund. The service fee provides
compensation for shareholder and administrative services rendered by ACIS, its
affiliates or independent third party providers. Fees incurred under the plan
during the year ended October 31, 2004, are detailed in the Statement of
Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
manager, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services Corporation.
During the year ended October 31, 2004, the fund invested in a money market fund
for temporary purposes, which was managed by J.P. Morgan Investment Management,
Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan Chase & Co.
(JPM). JPM is an equity investor in ACC. The fund has a bank line of credit
agreement and securities lending agreement with JPMorgan Chase Bank (JPMCB).
JPMCB is a custodian of the fund and a wholly owned subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for the
year ended October 31, 2004, totaled $1,212,318, of which $740,204 represented
U.S. Treasury and Agency obligations. Sales of investment securities, excluding
short-term investments, for the year ended October 31, 2004, totaled $1,218,019,
of which $683,237 represented U.S. Treasury and Agency obligations.
(continued)
- ------
22
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 150,000
================================================================================
Sold 3,895 $ 60,116
- ---------------------------------------
Issued in reinvestment of distributions 678 10,467
- ---------------------------------------
Redeemed (6,182) (95,049)
- --------------------------------------------------------------------------------
Net decrease (1,609) $(24,466)
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 150,000
================================================================================
Sold 4,621 $ 63,845
- ---------------------------------------
Issued in reinvestment of distributions 721 9,881
- ---------------------------------------
Redeemed (7,585) (103,228)
- --------------------------------------------------------------------------------
Net decrease (2,243) $ (29,502)
================================================================================
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 15,000
================================================================================
Sold 4 $66
- ---------------------------------------
Issued in reinvestment of distributions -- 3
- ---------------------------------------
Redeemed -- (9)
- --------------------------------------------------------------------------------
Net increase 4 $60
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 15,000
================================================================================
Sold 90 $ 1,192
- ---------------------------------------
Issued in reinvestment of distributions 19 263
- ---------------------------------------
Redeemed (1,350) (19,069)
- --------------------------------------------------------------------------------
Net decrease (1,241) $(17,614)
================================================================================
ADVISOR CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 50,000
================================================================================
Sold 386 $ 5,954
- ---------------------------------------
Issued in reinvestment of distributions 15 234
- ---------------------------------------
Redeemed (539) (8,268)
- --------------------------------------------------------------------------------
Net decrease (138) $(2,080)
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 50,000
================================================================================
Sold 420 $ 5,827
- ---------------------------------------
Issued in reinvestment of distributions 16 214
- ---------------------------------------
Redeemed (330) (4,475)
- --------------------------------------------------------------------------------
Net increase 106 $ 1,566
================================================================================
(continued)
- ------
23
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
5. SECURITIES LENDING
As of October 31, 2004, securities in the fund valued at $77,828 were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB receives
and maintains collateral in the form of cash, and/or acceptable securities as
approved by ACIM. Cash collateral is invested in authorized investments by the
lending agent in a pooled account. The value of cash collateral received at
period end is disclosed in the Statement of Assets and Liabilities and
investments made with the cash by the lending agent are listed in the Schedule
of Investments. Any deficiencies or excess of collateral must be delivered or
transferred by the member firms no later than the close of business on the next
business day. The total value of all collateral received, at this date, was
$79,260. The fund's risks in securities lending are that the borrower may not
provide additional collateral when required or return the securities when due.
If the borrower defaults, receipt of the collateral by the fund may be delayed
or limited.
6. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650 million
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the year ended October 31, 2004.
7. FEDERAL TAX INFORMATION
The tax character of distributions made during the years ended October 31, 2004
and October 31, 2003 were as follows:
- --------------------------------------------------------------------------------
2004 2003
- --------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM
- --------------------------------------------------------------------------------
Ordinary income $11,078 $10,692
- --------------------------------------------------------------------------------
Long-term capital gains -- --
- --------------------------------------------------------------------------------
The 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 paydown losses, 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. The reclassifications
between income and realized gain relate primarily to the character of paydown
gains and losses.
As of October 31, 2004, the components of distributable earnings on a tax-basis
and the federal tax cost of investments were as follows:
- --------------------------------------------------------------------------------
COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST
- --------------------------------------------------------------------------------
Federal tax cost of investments $658,041
================================================================================
Gross tax appreciation of investments $56,022
- ---------------------------------------------------
Gross tax depreciation of investments (7,450)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $48,572
================================================================================
Net tax appreciation (depreciation) on derivatives $10
- --------------------------------------------------------------------------------
Net tax appreciation $48,582
================================================================================
Undistributed ordinary income $761
- ---------------------------------------------------
Accumulated capital losses $(9,298)
- --------------------------------------------------------------------------------
(continued)
- ------
24
Notes to Financial Statements
OCTOBER 31, 2004 (AMOUNTS IN THOUSANDS)
7. FEDERAL TAX INFORMATION (CONTINUED)
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 accumulated capital losses listed on the previous page represent net capital
loss carryovers that may be used to offset future realized capital gains for
federal income tax purposes. Capital loss carryovers of $7,975 and $1,323 expire
in 2010 and 2011, respectively.
8. OTHER TAX INFORMATION (UNAUDITED) ($ IN FULL)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
The fund hereby designates $5,572,186 of qualified dividend income for the
fiscal year ended October 31, 2004.
For corporate taxpayers, 25.28% of the ordinary income distributions paid during
the fiscal year ended October 31, 2004, qualify for the corporate dividends
received deduction.
- ------
25
Balanced - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $14.77 $12.98 $14.28 $17.01 $18.95
- --------------------------------------------------------------------------------
Income From
Investment Operations
- --------------------------
Net Investment Income(1) 0.26 0.27 0.35 0.38 0.42
- --------------------------
Net Realized and
Unrealized Gain (Loss) 0.98 1.77 (1.30) (2.10) 0.61
- --------------------------------------------------------------------------------
Total From
Investment Operations 1.24 2.04 (0.95) (1.72) 1.03
- --------------------------------------------------------------------------------
Distributions
- --------------------------
From Net
Investment Income (0.28) (0.25) (0.35) (0.40) (0.43)
- --------------------------
From Net
Realized Gains -- -- -- (0.61) (2.54)
- --------------------------------------------------------------------------------
Total Distributions (0.28) (0.25) (0.35) (1.01) (2.97)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $15.73 $14.77 $12.98 $14.28 $17.01
================================================================================
TOTAL RETURN(2) 8.46% 15.92% (6.80)% (10.46)% 5.90%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.90% 0.90% 0.90% 0.90% 0.97%
- --------------------------
Ratio of Net Investment
Income to Average
Net Assets 1.65% 1.96% 2.46% 2.46% 2.40%
- --------------------------
Portfolio Turnover Rate 204% 133% 108% 107% 85%
- --------------------------
Net Assets, End of Period
(in millions) $595 $583 $541 $663 $835
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
26
Balanced - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $14.78 $12.99 $14.28 $17.01 $17.34
- --------------------------------------------------------------------------------
Income From
Investment Operations
- --------------------------
Net Investment Income(2) 0.28 0.41 0.37 0.41 0.23
- --------------------------
Net Realized and
Unrealized Gain (Loss) 0.98 1.66 (1.29) (2.10) (0.34)
- --------------------------------------------------------------------------------
Total From
Investment Operations 1.26 2.07 (0.92) (1.69) (0.11)
- --------------------------------------------------------------------------------
Distributions
- --------------------------
From Net
Investment Income (0.31) (0.28) (0.37) (0.43) (0.22)
- --------------------------
From Net
Realized Gains -- -- -- (0.61) --
- --------------------------------------------------------------------------------
Total Distributions (0.31) (0.28) (0.37) (1.04) (0.22)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $15.73 $14.78 $12.99 $14.28 $17.01
================================================================================
TOTAL RETURN(3) 8.61% 16.13% (6.54)% (10.27)% (0.63)%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.70% 0.70% 0.70% 0.70% 0.75%(4)
- --------------------------
Ratio of Net Investment
Income to Average
Net Assets 1.85% 2.16% 2.66% 2.66% 2.66%(4)
- --------------------------
Portfolio Turnover Rate 204% 133% 108% 107% 85%(5)
- --------------------------
Net Assets, End of Period
(in thousands) $225 $155 $16,245 $20,474 $23,214
- --------------------------------------------------------------------------------
(1) May 1, 2000 (commencement of sale) through October 31, 2000.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2000.
See Notes to Financial Statements.
- ------
27
Balanced - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $14.77 $12.97 $14.27 $17.00 $18.94
- --------------------------------------------------------------------------------
Income From
Investment Operations
- --------------------------
Net Investment Income(1) 0.22 0.22 0.31 0.34 0.37
- --------------------------
Net Realized and
Unrealized Gain (Loss) 0.97 1.80 (1.30) (2.10) 0.62
- --------------------------------------------------------------------------------
Total From
Investment Operations 1.19 2.02 (0.99) (1.76) 0.99
- --------------------------------------------------------------------------------
Distributions
- --------------------------
From Net
Investment Income (0.24) (0.22) (0.31) (0.36) (0.39)
- --------------------------
From Net
Realized Gains -- -- -- (0.61) (2.54)
- --------------------------------------------------------------------------------
Total Distributions (0.24) (0.22) (0.31) (0.97) (2.93)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $15.72 $14.77 $12.97 $14.27 $17.00
================================================================================
TOTAL RETURN(2) 8.11% 15.74% (7.04)% (10.69)% 5.63%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.15% 1.15% 1.15% 1.15% 1.22%
- --------------------------
Ratio of Net Investment
Income to Average
Net Assets 1.40% 1.71% 2.21% 2.21% 2.15%
- --------------------------
Portfolio Turnover Rate 204% 133% 108% 107% 85%
- --------------------------
Net Assets, End of Period
(in thousands) $16,439 $17,482 $13,985 $16,990 $17,046
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
28
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
American Century Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments, of Balanced Fund, (the "Fund"), one of the funds
comprising American Century Mutual Funds, Inc., as of October 31, 2004, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Balanced Fund as of October 31, 2004, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Kansas City, Missouri
December 15, 2004
- ------
29
Management
The individuals listed below serve as directors or officers of the fund. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the fund's investment advisor, American
Century Investment Management, Inc. (ACIM); the fund's principal underwriter,
American Century Investment Services, Inc. (ACIS); and the fund's transfer
agent, American Century Services Corporation (ACSC).
The other directors (more than three-fourths of the total numbers) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned subsidiaries, including
ACIM, ACIS, and ACSC. The directors serve in this capacity for six registered
investment companies in the American Century family of funds.
All persons named as officers of the fund also serve in a similar capacity for
the other 13 investment companies advised by ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated for
his or her service as an officer of the fund. The listed officers are interested
persons of the fund and are appointed or re-appointed on an annual basis.
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 23
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Strategic Account Implementation
Manager, Applied Industrial Technologies, Inc., a corporation engaged in the
sale of bearings and power transmission products
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, Midwest
Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Midwest Research Institute
- --------------------------------------------------------------------------------
D.D. (DEL) HOCK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1935
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 7
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Chairman, Public
Service Company of Colorado
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Allied Motion Technologies, Inc.
and J.D. Edwards & Company
- --------------------------------------------------------------------------------
(continued)
- ------
30
Management
INDEPENDENT DIRECTORS (CONTINUED)
- --------------------------------------------------------------------------------
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director, Vice Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Western Investments,
Inc.; Retired Chairman of the Board, Butler Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Atlas-Copco, North America Inc.
- --------------------------------------------------------------------------------
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive Officer,
and Founder, Sayers Computer Source
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Triad Hospitals, Inc.
- --------------------------------------------------------------------------------
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 9
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Chief
Integration Officer, Sprint Corporation (September 2003 to present); Senior Vice
President - Financial Services, Sprint Corporation (January 2003 to September
2003); Senior Vice President, Finance - Global Markets Group, Sprint Corporation
(November 1998 to January 2003)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.
- --------------------------------------------------------------------------------
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 2
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, American Italian Pasta Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JAMES E. STOWERS, JR.(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director, Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 45
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Director, and controlling
shareholder, ACC; Chairman, ACSC and other ACC subsidiaries; Director, ACIM,
ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
JAMES E. STOWERS III(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1959
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 13
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Co-Chairman, ACC (September 2000 to
present); Chief Executive Officer, ACC (June 1996 to September 2000); Director,
ACC, ACIM, ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
(1) James E. Stowers, Jr. is the father of James E. Stowers III.
(continued)
- ------
31
Management
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUND: President
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and
other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to
present); President, ACIM (September 2002 to present); President, ACIS (July
2003 to present); Chief Operating Officer, ACC (June 1996 to September 2000);
Also serves as: Executive Vice President, ACSC and other ACC subsidiaries
- --------------------------------------------------------------------------------
ROBERT T. JACKSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Executive Vice President
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC
(August 1997 to present); Chief Financial Officer, ACC (May 1995 to October
2002); President, ACSC (January 1999 to present); Executive Vice President, ACC
(May 1995 to present); Also serves as: Executive Vice President and Chief
Financial Officer, ACIM, ACIS and other ACC subsidiaries; and Treasurer, ACIM
- --------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer, and Chief
Accounting Officer
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President (April 1998
to present) and Assistant Treasurer, ACSC (September 1985 to present)
- --------------------------------------------------------------------------------
DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and General
Counsel, ACIM, ACIS, ACSC and other ACC subsidiaries (June 1998 to present);
Vice President and General Counsel, ACC (June 1998 to present)
- --------------------------------------------------------------------------------
DAVID H. REINMILLER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer
LENGTH OF TIME SERVED (YEARS): 3 and less than 1 year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACSC and
ACIM (March 2001 to present); Vice President, ACSC (March 2000 to present); Vice
President, ACIM (March 2002 to present); Vice President, ACIS (March 2003 to
present); Assistant General Counsel, ACSC (December 1996 to January 2001);
Associate General Counsel, ACSC (July 2001 to present)
- --------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Controller
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000
to present); Controller - Fund Accounting, ACSC (June 1997 to present)
- --------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC
(April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries
(April 1999 to present); President, American Century Employee Benefit Services,
Inc. (January 2000 to December 2000); Director, American Century Employee
Benefit Services, Inc. (February 2000 to December 2003); Treasurer, American
Century Employee Benefit Services, Inc. (December 2000 to December 2003);
Treasurer, American Century Ventures, Inc. (December 1999 to April 2001)
- --------------------------------------------------------------------------------
The SAI has additional information about the fund's directors and is available
without charge upon request by calling 1-800-345-2021.
- ------
32
Share Class Information
Three classes of shares are authorized for sale by Balanced: Investor Class,
Institutional Class, and Advisor Class. The total expense ratio of Advisor Class
shares is higher than that of Investor Class shares. The total expense ratio of
Institutional Class shares is lower than that of Investor Class shares.
INVESTOR CLASS shares are available for purchase in two ways: 1) directly from
American Century without any commissions or other fees; or 2) through a
broker-dealer, which may require payment of a transaction fee to the broker.
INSTITUTIONAL CLASS shares are available to large investors such as endowments,
foundations, and retirement plans, and to financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million ($3 million
for endowments and foundations) in an American Century fund or at least $10
million in multiple funds. In recognition of the larger investments and account
balances and comparatively lower transaction costs, the total expense ratio of
Institutional Class shares is 0.20% less than the total expense ratio of
Investor Class shares.
ADVISOR CLASS shares are sold primarily through institutions such as investment
advisors, banks, broker-dealers, insurance companies, and financial advisors.
Advisor Class shares are subject to a 0.50% annual Rule 12b-1 service and
distribution fee. The total expense ratio of Advisor Class shares is 0.25%
higher than the total expense ratio of Investor Class shares.
All classes of shares represent a pro rata interest in the fund and generally
have the same rights and preferences.
- ------
33
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b),
457 and qualified plans [those not eligible for rollover to an IRA or to another
qualified plan] 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. Even if you plan to roll over the amount you
withdraw to another tax-deferred account, the withholding rate still applies to
the withdrawn amount unless we have received notice not to withhold federal
income tax prior to the withdrawal. 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.
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 manager, 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 manager uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-345-2021. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
manager 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.
(continued)
- ------
34
Additional Information
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 N-Q is available on the SEC's Web site 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 Web
site at americancentury.com and, upon request, by calling 1-800-345-2021.
- ------
35
Index Definitions
The following indices are used to illustrate investment market, sector, or style
performance or to serve as fund performance comparisons. They are not investment
products available for purchase.
The BLENDED INDEX is considered the benchmark for Balanced. It combines two
widely known indices in proportion to the asset mix of the fund. Accordingly,
60% of the index is represented by the S&P 500 Index, which reflects the
approximately 60% of the fund's assets invested in stocks. The remaining 40% of
the index is represented by the Lehman Brothers U.S. Aggregate Index, which
reflects the roughly 40% of the fund's assets invested in fixed-income
securities.
The LEHMAN BROTHERS U.S. AGGREGATE INDEX represents securities that are taxable,
registered with the Securities and Exchange Commission, and U.S.
dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond
market, with index components for government and corporate securities, mortgage
pass-through securities, and asset-backed securities.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500 publicly
traded U.S. companies chosen for market size, liquidity, and industry group
representation that are considered to be leading firms in dominant industries.
Each stock's weight in the index is proportionate to its market value. Created
by Standard & Poor's, it is considered to be a broad measure of U.S. stock
market performance.
- ------
36
[inside back cover - blank]
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR RELATIONS:
1-800-345-2021 or 816-531-5575
BUSINESS, NOT-FOR-PROFIT,
EMPLOYER-SPONSORED RETIREMENT PLANS:
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER:
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.
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
COMPANIES
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Services Corporation.
0412 American Century Investment Services, Inc.
SH-ANN-40961S (c)2004 American Century Services Corporation
[front cover]
OCTOBER 31, 2004
American Century Investments
Annual Report
[photo of market line chart]
[photo of starfish]
[photo of bridge]
Veedot(reg.sm) Fund
PROSPECTUS SUPPLEMENT
ENCLOSED
[american century investments logo and text logo]
Table of Contents
Our Message to You. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
VEEDOT
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . .14
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .15
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . .16
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . .17
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Report of Independent Registered Public Accounting Firm . . . . . . . . . .24
OTHER INFORMATION
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . .28
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . .29
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century 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
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century 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 by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
Our Message to You
[photo of James E. Stowers III and James E. Stowers, Jr.]
JAMES E. STOWERS III
WITH JAMES E. STOWERS, JR.
We are pleased to provide you with the annual report for the Veedot fund for the
year ended October 31, 2004.
The report includes comparative performance figures, portfolio and market
commentary, summary tables, a full list of portfolio holdings, and financial
statements and highlights. We hope you find this information helpful in
monitoring your investment.
Through our Web site, americancentury.com, we provide quarterly commentaries on
all American Century portfolios, the views of our senior investment officers,
and other communications about investments, portfolio strategy, and the markets.
Your next shareholder report for this fund will be the semiannual report dated
April 30, 2005, available in approximately six months.
As always, we deeply appreciate your investment with American Century
Investments.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER AND CHAIRMAN
/s/James E. Stowers III
James E. Stowers III
CO-CHAIRMAN OF THE BOARD
- ------
1
Veedot - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
----------------
AVERAGE ANNUAL
RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 11/30/99
Before redemption fee 1.40% 0.24%
Net of redemption fee(1) -0.63% -0.17%
- --------------------------------------------------------------------------------
DOW JONES WILSHIRE 5000
TOTAL MARKET INDEX(2) 10.00% -1.61% --
- --------------------------------------------------------------------------------
Institutional Class 8/1/00
Before redemption fee 1.59% -4.21%
Net of redemption fee(1) -0.44% -4.65%
- --------------------------------------------------------------------------------
(1) Returns reflect the deduction of a 2.00% redemption fee, incurred if shares
were redeemed within the first five years after purchase.
(2) In May 2004, the Wilshire 5000 Total Market Index, the fund's benchmark
since inception, became known as the Dow Jones Wilshire 5000 Total Market
Index.
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. The Veedot Fund's investment process may involve high
portfolio turnover and high capital gains distributions. In addition, its
investment approach may involve higher volatility and 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.
(continued)
- ------
2
Veedot - Performance
GROWTH OF $10,000 OVER LIFE OF CLASS
$10,000 investment made November 30, 1999
ONE-YEAR RETURNS OVER LIFE OF CLASS
Periods ended October 31
- --------------------------------------------------------------------------------
2000* 2001 2002 2003 2004
- --------------------------------------------------------------------------------
Investor Class 18.40% -27.03% -12.73% 32.36% 1.40%
- --------------------------------------------------------------------------------
Dow Jones Wilshire 5000
Total Market Index 4.60% -25.54% -13.40% 24.45% 10.00%
- --------------------------------------------------------------------------------
* From 11/30/99, the Investor Class's inception date. Not annualized.
**Reflects the deduction of a 2.00% redemption fee, incurred if shares were
redeemed within the first 5 years after purchase.
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. The Veedot Fund's investment process may involve high
portfolio turnover and high capital gains distributions. In addition, its
investment approach may involve higher volatility and 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.
- ------
3
Shareholder Fee Example (Unaudited)
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 May 1, 2004 to October 31, 2004.
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 fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century 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 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
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.
(continued)
- ------
4
Shareholder Fee Example (Unaudited)
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.
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 5/1/04 -- EXPENSE
5/1/04 10/31/04 10/31/04 RATIO*
- --------------------------------------------------------------------------------
VEEDOT SHAREHOLDER
FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL:
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,012.00 $7.59 1.50%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $1,011.90 $6.57 1.30%
- --------------------------------------------------------------------------------
HYPOTHETICAL:
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,017.60 $7.61 1.50%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $1,018.60 $6.60 1.30%
- --------------------------------------------------------------------------------
*Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
184, the number of days in the most recent fiscal half-year, divided by 366,
to reflect the one-half year period.
- ------
5
Veedot - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE VEEDOT INVESTMENT TEAM: JIM STOWERS III AND JOHN
SMALL, JR.
Veedot rose 1.40%* during the 12 months ended October 31, 2004, trailing its
benchmark, the Dow Jones Wilshire 5000 Total Market Index, which gained 10.00%.
INITIAL GAINS, THEN EROSION
The three major U.S. stock indices (the S&P 500 Index, the Dow Jones Industrial
Average, and the Nasdaq Composite Index) were limited to single-digit returns
for the year-long period reported here, as oil prices soared, the Federal
Reserve raised short-term interest rates, and the economic recovery lost
momentum. The stock market began the fiscal year on a high note. The S&P 500 was
up 8% during the first three months, boosted by corporate earnings that reached
record highs in the fourth quarter of 2003 as the government reported strong
economic growth and low inflation. Those early gains eroded some over the
summer, however, as the price of crude oil jumped 78% during the fiscal year,
short-term interest rates climbed, and the real rate of economic growth slipped
during the second and third quarters of 2004.
ENERGY LED CONTRIBUTORS
Investments in oil and gas companies and the businesses that supply them with
services and equipment added the most to results, benefiting from rising demand
for energy worldwide and concern that violence in Iraq might disrupt Middle
Eastern oil shipments. Among the contributors were Range Resources Corp. and
Tesoro Petroleum Corp. on the production side, and Lone Star Technologies, Inc.,
the portfolio's fifth-largest contributor, in the equipment realm.
SUCCESS IN INDUSTRIALS
Our search for accelerating growth also led us to industrials, with the greatest
contributions made by companies involved in machinery, commercial services, and
road and rail transportation. In machinery, ASV Inc., a top-10 contributor,
makes and sells all-purpose crawlers used in construction, landscaping and
agriculture. The company reported record sales and earnings for the second and
third quarters of 2004. Commercial services standouts included Sotheby's
Holdings Inc., the auction house, and New England
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
First Horizon
Pharmaceutical
Corporation 1.2% 0.7%
- --------------------------------------------------------------------------------
Airspan Networks Inc. 0.6% --
- --------------------------------------------------------------------------------
Sanmina-SCI Corp. 0.6% --
- --------------------------------------------------------------------------------
Ciber Inc. 0.6% --
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 0.5% --
- --------------------------------------------------------------------------------
Swift Energy Co. 0.5% --
- --------------------------------------------------------------------------------
KLA-Tencor Corp. 0.5% --
- --------------------------------------------------------------------------------
Monster Worldwide Inc. 0.5% --
- --------------------------------------------------------------------------------
Arch Coal Inc. 0.5% 0.2%
- --------------------------------------------------------------------------------
EGL Inc. 0.5% --
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary
are for Investor Class shares. (continued)
- ------
6
Veedot - Portfolio Commentary
Business Services Inc., which supplies business forms and related products to
small businesses.
MATERIALS, FINANCIALS CONTRIBUTE
Veedot's highly automated investment process uncovered opportunities in the
materials sector. Performance there was paced by businesses from the metals and
mining industry, chemicals, and paper and forest products. Notable names
included Carpenter Technology Corp. a specialty metals company, whose
first-quarter sales jumped 40% from a year earlier, and United States Steel
Corp., which was helped by a recovering world economy and demand from developing
countries. Georgia-Pacific Corp., the paper and buildings products giant, was
another strong contributor.
Positive contributors in the financial sector were led by real estate investment
trusts (known as REITs) and commercial banks and thrifts. In REITs, our
technical analysis led us to Innkeepers USA Trust, which makes investments in
upscale extended-stay hotel properties. That segment of the industry has been
helped by growing business travel. IMPAC Mortgage Holdings Inc., an investor in
residential mortgage loans and second mortgages, was another highlight.
TECHNOLOGY DETRACTS
Investments in information technology businesses, averaging more than one-fourth
of assets, slowed Veedot the most. In fact, of the ten stocks that fared the
worst, seven were from the IT sector. Semiconductor companies and makers of
electronic equipment, the fund's two largest industry groups, led the decline.
The company that hurt results most was August Technology Corp., a maker of
automated inspection equipment used by semiconductor manufacturers, which saw
orders slip during the third quarter. Electroglas Inc., a firm in a similar line
of work, was another large detractor. In electronic equipment, Brightpoint Inc.,
a distributor of mobile phones and wireless accessories, was a disappointment.
OUR COMMITMENT
We remain committed to seeking long-term capital growth by using a systematic
investment process designed to identify businesses whose fundamentals meet
strict requirements for accelerating growth and whose stock price histories
point to the likelihood of future increases.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Oil & Gas 10.2% 1.9%
- --------------------------------------------------------------------------------
Semiconductors &
Semiconductor
Equipment 6.3% 7.8%
- --------------------------------------------------------------------------------
Communications
Equipment 6.2% 3.5%
- --------------------------------------------------------------------------------
Software 6.1% 3.9%
- --------------------------------------------------------------------------------
Commercial Services
& Supplies 4.7% 4.5%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 97.7% 92.9%
- --------------------------------------------------------------------------------
Temporary
Cash Investments 2.7% 4.3%
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES 100.4% 97.2%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities (0.4)% 2.8%
- --------------------------------------------------------------------------------
- ------
7
Veedot - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.7%
AEROSPACE & DEFENSE -- 0.9%
- --------------------------------------------------------------------------------
15,000 Applied Signal Technology Inc. $ 454,350
- --------------------------------------------------------------------------------
31,000 Hexcel Corp.(1) 480,500
- --------------------------------------------------------------------------------
19,000 Raytheon Company 693,120
- --------------------------------------------------------------------------------
14,000 Teledyne Technologies Inc.(1) 357,980
- --------------------------------------------------------------------------------
1,985,950
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 1.4%
- --------------------------------------------------------------------------------
35,000 EGL Inc.(1) 1,119,300
- --------------------------------------------------------------------------------
10,000 Expeditors International
of Washington, Inc. 571,000
- --------------------------------------------------------------------------------
7,000 FedEx Corporation 637,840
- --------------------------------------------------------------------------------
12,000 Forward Air Corp.(1) 494,040
- --------------------------------------------------------------------------------
18,000 Park-Ohio Holdings Corp.(1) 376,200
- --------------------------------------------------------------------------------
3,198,380
- --------------------------------------------------------------------------------
AIRLINES -- 0.3%
- --------------------------------------------------------------------------------
33,000 Pinnacle Airlines Corp.(1) 357,720
- --------------------------------------------------------------------------------
21,500 SkyWest, Inc. 367,220
- --------------------------------------------------------------------------------
724,940
- --------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.3%
- --------------------------------------------------------------------------------
13,000 Bandag, Incorporated 598,000
- --------------------------------------------------------------------------------
BEVERAGES -- 0.2%
- --------------------------------------------------------------------------------
11,500 Ito En Ltd. ORD 520,161
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.8%
- --------------------------------------------------------------------------------
110,000 Cell Therapeutics Inc.(1) 682,000
- --------------------------------------------------------------------------------
6,000 Genentech, Inc.(1) 273,180
- --------------------------------------------------------------------------------
65,000 Myogen Inc.(1) 563,550
- --------------------------------------------------------------------------------
32,000 Myriad Genetics Inc.(1) 567,040
- --------------------------------------------------------------------------------
50,000 Orchid BioSciences Inc.(1) 481,500
- --------------------------------------------------------------------------------
7,500 OSI Pharmaceuticals Inc.(1) 487,350
- --------------------------------------------------------------------------------
13,500 United Therapeutics Corp.(1) 422,010
- --------------------------------------------------------------------------------
55,000 Vertex Pharmaceuticals Inc.(1) 598,400
- --------------------------------------------------------------------------------
4,075,030
- --------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.5%
- --------------------------------------------------------------------------------
30,000 USG Corp.(1) 671,700
- --------------------------------------------------------------------------------
15,000 York International Corp. 477,600
- --------------------------------------------------------------------------------
1,149,300
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 1.0%
- --------------------------------------------------------------------------------
13,000 Edwards (A.G.), Inc. 471,380
- --------------------------------------------------------------------------------
30,000 Investment Technology Group Inc.(1) 462,000
- --------------------------------------------------------------------------------
23,500 SEI Investments Co. 845,765
- --------------------------------------------------------------------------------
9,000 T. Rowe Price Group Inc. 501,930
- --------------------------------------------------------------------------------
2,281,075
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
CHEMICALS -- 2.7%
- --------------------------------------------------------------------------------
14,000 Arch Chemicals Inc. $ 396,900
- --------------------------------------------------------------------------------
6,500 Dow Chemical Co. 292,110
- --------------------------------------------------------------------------------
13,000 Eastman Chemical Company 617,110
- --------------------------------------------------------------------------------
7,500 FMC Corp.(1) 328,875
- --------------------------------------------------------------------------------
7,500 Georgia Gulf Corporation 339,525
- --------------------------------------------------------------------------------
17,500 H.B. Fuller Company 470,750
- --------------------------------------------------------------------------------
28,500 Hanwha Chem Corp. ORD 226,574
- --------------------------------------------------------------------------------
22,000 Headwaters Inc.(1) 693,000
- --------------------------------------------------------------------------------
15,000 Lubrizol Corp. 520,950
- --------------------------------------------------------------------------------
22,500 Millennium Chemicals Inc.(1) 483,300
- --------------------------------------------------------------------------------
22,000 NewMarket Corp.(1) 493,020
- --------------------------------------------------------------------------------
15,000 Nova Chemicals Corp. 583,500
- --------------------------------------------------------------------------------
5,500 Potash Corp. of Saskatchewan 367,345
- --------------------------------------------------------------------------------
5,500 PPG Industries, Inc. 350,625
- --------------------------------------------------------------------------------
6,163,584
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 2.9%
- --------------------------------------------------------------------------------
13,000 Associated Banc-Corp. 450,970
- --------------------------------------------------------------------------------
8,000 Bank of Hawaii Corporation 382,000
- --------------------------------------------------------------------------------
12,000 Capitol Bancorp Ltd. 368,280
- --------------------------------------------------------------------------------
10,000 Cathay General Bancorp 394,000
- --------------------------------------------------------------------------------
20,000 Central Pacific Financial Corp. 611,000
- --------------------------------------------------------------------------------
8,500 Chittenden Corp. 240,720
- --------------------------------------------------------------------------------
14,500 First State Bancorporation 511,850
- --------------------------------------------------------------------------------
25,000 FNB Corp. 513,250
- --------------------------------------------------------------------------------
7,500 Hanmi Financial Corp. 227,850
- --------------------------------------------------------------------------------
19,000 Hibernia Corp. Cl A 551,000
- --------------------------------------------------------------------------------
10,000 IBERIABANK Corp. 610,200
- --------------------------------------------------------------------------------
10,000 Summit Bancshares Inc. 339,900
- --------------------------------------------------------------------------------
13,500 Susquehanna Bancshares Inc. 335,745
- --------------------------------------------------------------------------------
14,000 United Community Banks Inc. 337,120
- --------------------------------------------------------------------------------
15,000 Valley National Bancorp 425,400
- --------------------------------------------------------------------------------
21,000 West Coast Bancorp 497,700
- --------------------------------------------------------------------------------
6,796,985
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 4.7%
- --------------------------------------------------------------------------------
15,000 Brady Corp. 813,450
- --------------------------------------------------------------------------------
15,000 Charles River Associates Inc.(1) 602,700
- --------------------------------------------------------------------------------
13,500 ChoicePoint Inc.(1) 562,005
- --------------------------------------------------------------------------------
31,500 DiamondCluster International Inc.(1) 383,828
- --------------------------------------------------------------------------------
22,000 Ennis Inc. 445,060
- --------------------------------------------------------------------------------
53,000 FTI Consulting, Inc.(1) 994,280
- --------------------------------------------------------------------------------
60,000 Kforce Inc.(1) 635,400
- --------------------------------------------------------------------------------
40,000 Monster Worldwide Inc.(1) 1,122,000
- --------------------------------------------------------------------------------
13,500 NCO Group, Inc.(1) 361,125
- --------------------------------------------------------------------------------
13,000 Pre-Paid Legal Services Inc.(1) 362,570
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
Veedot - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
20,500 Resources Connection, Inc.(1) $ 860,590
- --------------------------------------------------------------------------------
25,000 Robert Half International Inc. 663,250
- --------------------------------------------------------------------------------
22,500 Schawk Inc. 373,950
- --------------------------------------------------------------------------------
48,000 ServiceMaster Co. 616,320
- --------------------------------------------------------------------------------
62,000 Steelcase Inc. Cl A 812,200
- --------------------------------------------------------------------------------
3,000 Strayer Education Inc. 291,120
- --------------------------------------------------------------------------------
10,000 United Stationers Inc.(1) 445,000
- --------------------------------------------------------------------------------
20,000 Volt Information Sciences Inc.(1) 581,000
- --------------------------------------------------------------------------------
10,925,848
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 6.2%
- --------------------------------------------------------------------------------
245,000 Airspan Networks Inc.(1) 1,501,850
- --------------------------------------------------------------------------------
45,000 Avaya Inc.(1) 648,000
- --------------------------------------------------------------------------------
47,000 Comverse Technology, Inc.(1) 970,080
- --------------------------------------------------------------------------------
45,000 Corning Inc.(1) 515,250
- --------------------------------------------------------------------------------
52,400 Digi International Inc.(1) 717,356
- --------------------------------------------------------------------------------
84,500 Extreme Networks(1) 494,325
- --------------------------------------------------------------------------------
15,000 F5 Networks, Inc.(1) 599,250
- --------------------------------------------------------------------------------
50,000 FalconStor Software Inc.(1) 391,000
- --------------------------------------------------------------------------------
56,000 Harmonic Inc.(1) 465,920
- --------------------------------------------------------------------------------
20,000 Inter-Tel, Inc. 540,000
- --------------------------------------------------------------------------------
70,000 Ixia(1) 893,900
- --------------------------------------------------------------------------------
20,500 Juniper Networks, Inc.(1) 545,505
- --------------------------------------------------------------------------------
175,000 Lucent Technologies Inc.(1) 621,250
- --------------------------------------------------------------------------------
175,000 MRV Communications Inc.(1) 607,250
- --------------------------------------------------------------------------------
20,000 Netgear Inc.(1) 272,600
- --------------------------------------------------------------------------------
75,000 Network Equipment
Technologies, Inc.(1) 639,750
- --------------------------------------------------------------------------------
31,000 Nokia Oyj ADR 478,020
- --------------------------------------------------------------------------------
102,500 Powerwave Technologies Inc.(1) 765,675
- --------------------------------------------------------------------------------
25,000 QUALCOMM Inc. 1,045,250
- --------------------------------------------------------------------------------
19,000 SafeNet Inc.(1) 581,970
- --------------------------------------------------------------------------------
40,000 Spectralink Corporation 488,000
- --------------------------------------------------------------------------------
72,000 Symmetricom Inc.(1) 611,280
- --------------------------------------------------------------------------------
14,393,481
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 0.9%
- --------------------------------------------------------------------------------
10,000 Apple Computer, Inc.(1) 525,300
- --------------------------------------------------------------------------------
5,500 International Business
Machines Corp. 493,625
- --------------------------------------------------------------------------------
6,500 NCR Corp.(1) 366,275
- --------------------------------------------------------------------------------
37,000 Novatel Wireless Inc.(1) 767,750
- --------------------------------------------------------------------------------
2,152,950
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING -- 0.9%
- --------------------------------------------------------------------------------
22,000 Dycom Industries Inc.(1) 718,300
- --------------------------------------------------------------------------------
50,000 Insituform
Technologies, Inc. Cl A(1) 991,000
- --------------------------------------------------------------------------------
57,500 Quanta Services Inc.(1) 386,400
- --------------------------------------------------------------------------------
2,095,700
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 0.2%
- --------------------------------------------------------------------------------
21,500 First Cash Financial Services Inc.(1) 506,970
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 1.6%
- --------------------------------------------------------------------------------
32,000 Caraustar Industries Inc.(1) $ 475,840
- --------------------------------------------------------------------------------
32,000 Crown Holdings Inc.(1) 363,200
- --------------------------------------------------------------------------------
15,000 Greif Inc. 623,250
- --------------------------------------------------------------------------------
50,000 Longview Fibre Co. 770,000
- --------------------------------------------------------------------------------
26,000 Packaging Corp. of America 570,180
- --------------------------------------------------------------------------------
20,500 Smurfit-Stone Container Corp.(1) 355,880
- --------------------------------------------------------------------------------
22,000 Sonoco Products Co. 586,300
- --------------------------------------------------------------------------------
3,744,650
- --------------------------------------------------------------------------------
DISTRIBUTORS -- 0.4%
- --------------------------------------------------------------------------------
35,000 WESCO International Inc.(1) 877,800
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.5%
- --------------------------------------------------------------------------------
3,000 Chicago Mercantile Exchange
Holdings Inc. 527,190
- --------------------------------------------------------------------------------
15,000 Encore Capital Group Inc.(1) 281,625
- --------------------------------------------------------------------------------
7,500 Leucadia National Corp. 443,625
- --------------------------------------------------------------------------------
1,252,440
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.4%
- --------------------------------------------------------------------------------
21,500 AT&T Corp. 367,865
- --------------------------------------------------------------------------------
15,000 Verizon Communications 586,500
- --------------------------------------------------------------------------------
954,365
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.8%
- --------------------------------------------------------------------------------
30,000 El Paso Electric Co.(1) 499,500
- --------------------------------------------------------------------------------
7,500 Entergy Corp. 490,200
- --------------------------------------------------------------------------------
13,000 Hawaiian Electric Industries, Inc. 364,520
- --------------------------------------------------------------------------------
16,000 IDACORP, Inc. 495,680
- --------------------------------------------------------------------------------
1,849,900
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 2.3%
- --------------------------------------------------------------------------------
27,000 Acuity Brands Inc. 716,310
- --------------------------------------------------------------------------------
25,000 Ametek Inc. 823,000
- --------------------------------------------------------------------------------
25,000 Baldor Electric Co. 585,750
- --------------------------------------------------------------------------------
30,000 C&D Technologies, Inc. 537,000
- --------------------------------------------------------------------------------
10,000 Emerson Electric Co. 640,500
- --------------------------------------------------------------------------------
25,000 Intermagnetics
General Corporation(1) 637,250
- --------------------------------------------------------------------------------
35,000 Regal-Beloit Corp. 819,000
- --------------------------------------------------------------------------------
15,000 Rockwell Automation Inc. 625,350
- --------------------------------------------------------------------------------
5,384,160
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT
& INSTRUMENTS -- 3.2%
- --------------------------------------------------------------------------------
15,000 Agilent Technologies, Inc.(1) 375,900
- --------------------------------------------------------------------------------
20,500 ARGON ST Inc.(1) 500,200
- --------------------------------------------------------------------------------
16,000 Benchmark Electronics Inc.(1) 543,520
- --------------------------------------------------------------------------------
11,000 Coherent, Inc.(1) 265,430
- --------------------------------------------------------------------------------
27,500 ID Systems Inc.(1) 413,600
- --------------------------------------------------------------------------------
20,000 Itron Inc.(1) 418,800
- --------------------------------------------------------------------------------
20,000 Keithley Instruments Inc. 349,800
- --------------------------------------------------------------------------------
19,500 MTS Systems Corp. 503,003
- --------------------------------------------------------------------------------
26,000 Newport Corp.(1) 293,540
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
9
Veedot - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
180,000 Sanmina-SCI Corp.(1) $ 1,440,000
- --------------------------------------------------------------------------------
7,500 Scansource Inc.(1) 464,475
- --------------------------------------------------------------------------------
137,000 Thermogenesis(1) 765,145
- --------------------------------------------------------------------------------
120,000 Viisage Technology Inc.(1) 867,600
- --------------------------------------------------------------------------------
24,523 X-Rite Inc. 323,213
- --------------------------------------------------------------------------------
7,524,226
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 2.7%
- --------------------------------------------------------------------------------
14,000 Diamond Offshore Drilling, Inc. 473,200
- --------------------------------------------------------------------------------
14,500 ENSCO International Inc. 442,975
- --------------------------------------------------------------------------------
65,000 Grey Wolf Inc.(1) 336,700
- --------------------------------------------------------------------------------
45,000 Hanover Compressor Co.(1) 585,900
- --------------------------------------------------------------------------------
33,000 Lone Star Technologies, Inc.(1) 871,200
- --------------------------------------------------------------------------------
15,000 National-Oilwell, Inc.(1) 505,650
- --------------------------------------------------------------------------------
20,000 NS Group Inc.(1) 380,200
- --------------------------------------------------------------------------------
27,000 Oil States International, Inc.(1) 495,720
- --------------------------------------------------------------------------------
20,000 Rowan Companies, Inc.(1) 510,600
- --------------------------------------------------------------------------------
165,000 Stolt Offshore SA ADR(1) 839,850
- --------------------------------------------------------------------------------
25,000 Todco(1) 424,250
- --------------------------------------------------------------------------------
11,000 Unit Corporation(1) 407,990
- --------------------------------------------------------------------------------
6,274,235
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 0.3%
- --------------------------------------------------------------------------------
13,500 BJ's Wholesale Club Inc.(1) 391,905
- --------------------------------------------------------------------------------
14,000 Sobeys Inc. ORD 364,868
- --------------------------------------------------------------------------------
756,773
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.5%
- --------------------------------------------------------------------------------
27,000 Delta and Pine Land Company 710,640
- --------------------------------------------------------------------------------
14,000 Kraft Foods Inc. 466,340
- --------------------------------------------------------------------------------
1,176,980
- --------------------------------------------------------------------------------
GAS UTILITIES -- 0.2%
- --------------------------------------------------------------------------------
15,000 UGI Corp. 579,450
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.3%
- --------------------------------------------------------------------------------
45,000 Candela Corporation(1) 457,875
- --------------------------------------------------------------------------------
20,000 CNS Inc. 228,000
- --------------------------------------------------------------------------------
26,500 Digirad Corp.(1) 267,120
- --------------------------------------------------------------------------------
15,500 Haemonetics Corporation(1) 509,175
- --------------------------------------------------------------------------------
10,000 Immucor, Inc.(1) 308,500
- --------------------------------------------------------------------------------
21,000 Intuitive Surgical Inc.(1) 612,780
- --------------------------------------------------------------------------------
35,500 Matrixx Initiatives Inc.(1) 443,750
- --------------------------------------------------------------------------------
13,000 Mentor Corp. 452,400
- --------------------------------------------------------------------------------
34,500 Molecular Devices Corporation(1) 690,518
- --------------------------------------------------------------------------------
9,500 Respironics, Inc.(1) 485,355
- --------------------------------------------------------------------------------
14,000 SonoSite Inc.(1) 404,390
- --------------------------------------------------------------------------------
50,000 Vascular Solutions Inc.(1) 401,050
- --------------------------------------------------------------------------------
5,260,913
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 3.2%
- --------------------------------------------------------------------------------
4,000 Aetna Inc. 380,000
- --------------------------------------------------------------------------------
16,500 American Healthcorp, Inc.(1) 497,970
- --------------------------------------------------------------------------------
21,000 Computer Programs
& Systems Inc. 441,735
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
25,000 Covance Inc.(1) $ 993,000
- --------------------------------------------------------------------------------
82,500 CryoLife, Inc.(1) 568,425
- --------------------------------------------------------------------------------
22,500 Eclipsys Corporation(1) 381,825
- --------------------------------------------------------------------------------
10,000 Express Scripts, Inc. Cl A(1) 640,000
- --------------------------------------------------------------------------------
100,000 Hooper Holmes Inc. 525,000
- --------------------------------------------------------------------------------
18,500 IDX Systems Corp.(1) 620,398
- --------------------------------------------------------------------------------
20,000 Option Care Inc. 262,800
- --------------------------------------------------------------------------------
20,500 PacifiCare Health Systems, Inc.(1) 730,210
- --------------------------------------------------------------------------------
17,000 PDI Inc.(1) 486,370
- --------------------------------------------------------------------------------
70,000 Stewart Enterprises Inc.(1) 498,400
- --------------------------------------------------------------------------------
22,500 Ventiv Health Inc.(1) 389,250
- --------------------------------------------------------------------------------
7,415,383
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 2.3%
- --------------------------------------------------------------------------------
13,000 Boyd Gaming Corp. 435,370
- --------------------------------------------------------------------------------
14,500 Gaylord Entertainment Co.(1) 485,895
- --------------------------------------------------------------------------------
19,500 GTECH Holdings Corp. 461,565
- --------------------------------------------------------------------------------
6,500 Harrah's Entertainment, Inc. 380,380
- --------------------------------------------------------------------------------
10,000 Red Robin
Gourmet Burgers Inc.(1) 417,100
- --------------------------------------------------------------------------------
20,000 Shuffle Master, Inc.(1) 841,800
- --------------------------------------------------------------------------------
13,500 Speedway Motorsports Inc. 446,850
- --------------------------------------------------------------------------------
12,000 Starbucks Corporation(1) 634,560
- --------------------------------------------------------------------------------
12,500 Starwood Hotels & Resorts
Worldwide, Inc. 596,625
- --------------------------------------------------------------------------------
20,000 WMS Industries Inc.(1) 585,000
- --------------------------------------------------------------------------------
5,285,145
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 1.1%
- --------------------------------------------------------------------------------
43,000 Champion Enterprises Inc.(1) 468,270
- --------------------------------------------------------------------------------
15,594 Garmin Ltd. 779,700
- --------------------------------------------------------------------------------
20,000 Leggett & Platt, Inc. 562,600
- --------------------------------------------------------------------------------
15,500 Toll Brothers Inc.(1) 718,425
- --------------------------------------------------------------------------------
2,528,995
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.4%
- --------------------------------------------------------------------------------
15,000 Clorox Company 819,000
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.3%
- --------------------------------------------------------------------------------
10,000 Textron Inc. 681,500
- --------------------------------------------------------------------------------
INSURANCE -- 0.3%
- --------------------------------------------------------------------------------
12,000 American Physicians
Capital Inc.(1) 382,560
- --------------------------------------------------------------------------------
33,000 Phoenix Companies Inc. 348,150
- --------------------------------------------------------------------------------
730,710
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 0.8%
- --------------------------------------------------------------------------------
23,500 Coldwater Creek Inc.(1) 540,970
- --------------------------------------------------------------------------------
16,500 Sportsman's Guide Inc. (The)(1) 385,275
- --------------------------------------------------------------------------------
60,000 Stamps.com Inc.(1) 832,800
- --------------------------------------------------------------------------------
1,759,045
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 3.0%
- --------------------------------------------------------------------------------
20,000 Aptimus Inc.(1) 439,000
- --------------------------------------------------------------------------------
21,000 Ask Jeeves, Inc.(1) 541,380
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
10
Veedot - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
75,000 Cybersource Corp.(1) $ 490,500
- --------------------------------------------------------------------------------
15,000 Infospace Inc.(1) 787,500
- --------------------------------------------------------------------------------
93,000 Interwoven Inc.(1) 843,510
- --------------------------------------------------------------------------------
34,000 Keynote Systems Inc.(1) 478,210
- --------------------------------------------------------------------------------
83,000 Netegrity Inc.(1) 883,950
- --------------------------------------------------------------------------------
108,000 Retek Inc.(1) 596,160
- --------------------------------------------------------------------------------
12,000 Travelzoo Inc.(1) 831,000
- --------------------------------------------------------------------------------
17,500 VeriSign, Inc.(1) 469,525
- --------------------------------------------------------------------------------
15,000 Websense Inc.(1) 608,550
- --------------------------------------------------------------------------------
6,969,285
- --------------------------------------------------------------------------------
IT SERVICES -- 2.2%
- --------------------------------------------------------------------------------
56,000 BearingPoint, Inc.(1) 487,200
- --------------------------------------------------------------------------------
10,000 CACI International Inc.(1) 609,700
- --------------------------------------------------------------------------------
20,000 Checkfree Corp.(1) 620,000
- --------------------------------------------------------------------------------
146,500 Ciber Inc.(1) 1,324,360
- --------------------------------------------------------------------------------
8,000 Infosys Technologies Ltd. ADR 532,000
- --------------------------------------------------------------------------------
34,000 Intrado Inc.(1) 460,360
- --------------------------------------------------------------------------------
30,000 Keane Inc.(1) 474,300
- --------------------------------------------------------------------------------
50,000 MPS Group Inc.(1) 526,500
- --------------------------------------------------------------------------------
5,034,420
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.3%
- --------------------------------------------------------------------------------
45,000 Jakks Pacific Inc.(1) 709,200
- --------------------------------------------------------------------------------
MACHINERY -- 3.8%
- --------------------------------------------------------------------------------
60,000 Columbus McKinnon Corp.(1) 486,600
- --------------------------------------------------------------------------------
12,500 Dover Corp. 490,875
- --------------------------------------------------------------------------------
15,000 Eaton Corp. 959,250
- --------------------------------------------------------------------------------
10,000 ESCO Technologies Inc.(1) 698,000
- --------------------------------------------------------------------------------
40,000 Hurco Companies Inc.(1) 574,000
- --------------------------------------------------------------------------------
21,000 JLG Industries Inc. 350,280
- --------------------------------------------------------------------------------
14,000 Kaydon Corporation 414,400
- --------------------------------------------------------------------------------
13,000 Kennametal Inc. 604,890
- --------------------------------------------------------------------------------
20,000 Lincoln Electric Holdings Inc. 667,600
- --------------------------------------------------------------------------------
16,500 Manitowoc Co. 582,450
- --------------------------------------------------------------------------------
10,000 Paccar Inc. 693,100
- --------------------------------------------------------------------------------
8,000 Parker-Hannifin Corp. 565,040
- --------------------------------------------------------------------------------
6,000 Tecumseh Products Cl A 259,680
- --------------------------------------------------------------------------------
50,000 TurboChef Technologies Inc.(1) 220,000
- --------------------------------------------------------------------------------
21,500 Valmont Industries, Inc. 467,625
- --------------------------------------------------------------------------------
20,000 Wabash National Corp.(1) 491,600
- --------------------------------------------------------------------------------
20,000 Westinghouse Air Brake
Technologies Corp. 405,400
- --------------------------------------------------------------------------------
8,930,790
- --------------------------------------------------------------------------------
MEDIA -- 1.4%
- --------------------------------------------------------------------------------
16,000 Catalina Marketing Corp. 409,760
- --------------------------------------------------------------------------------
10,500 Dow Jones & Co. Inc. 464,625
- --------------------------------------------------------------------------------
14,000 Harte-Hanks Inc. 360,360
- --------------------------------------------------------------------------------
17,000 Modern Times
Group AB Cl B ORD(1) 378,370
- --------------------------------------------------------------------------------
6,000 NTL Inc.(1) 399,060
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
18,500 Pulitzer Inc. $ 975,320
- --------------------------------------------------------------------------------
27,000 Spanish Broadcasting System(1) 273,240
- --------------------------------------------------------------------------------
3,260,735
- --------------------------------------------------------------------------------
METALS & MINING -- 2.8%
- --------------------------------------------------------------------------------
95,000 AK Steel Holding Corp.(1) 905,350
- --------------------------------------------------------------------------------
60,500 Allegheny Technologies Inc. 1,017,005
- --------------------------------------------------------------------------------
34,500 Arch Coal Inc. 1,121,940
- --------------------------------------------------------------------------------
8,000 Carpenter Technology 379,680
- --------------------------------------------------------------------------------
10,500 Gibraltar Industries Inc. 367,605
- --------------------------------------------------------------------------------
17,500 IPSCO Inc. 469,175
- --------------------------------------------------------------------------------
7,000 Ispat International N.V.
New York Shares(1) 235,620
- --------------------------------------------------------------------------------
14,000 Nucor Corp. 591,220
- --------------------------------------------------------------------------------
30,000 Ryerson Tull Inc. 489,600
- --------------------------------------------------------------------------------
27,000 Steel Dynamics Inc. 896,400
- --------------------------------------------------------------------------------
6,473,595
- --------------------------------------------------------------------------------
MULTI-UTILITIES &
UNREGULATED POWER -- 0.2%
- --------------------------------------------------------------------------------
20,500 Duke Energy Corp. 502,865
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 0.4%
- --------------------------------------------------------------------------------
18,500 Kohl's Corp.(1) 939,060
- --------------------------------------------------------------------------------
OIL & GAS -- 10.2%
- --------------------------------------------------------------------------------
6,500 Anadarko Petroleum Corp. 438,425
- --------------------------------------------------------------------------------
11,500 BP Prudhoe Bay Royalty Trust 514,855
- --------------------------------------------------------------------------------
15,000 Burlington Resources, Inc. 622,500
- --------------------------------------------------------------------------------
45,000 Callon Petroleum Co.(1) 607,950
- --------------------------------------------------------------------------------
40,000 Carrizo Oil & Gas Inc.(1) 398,000
- --------------------------------------------------------------------------------
8,000 ChevronTexaco Corp. 424,480
- --------------------------------------------------------------------------------
40,000 Comstock Resources Inc.(1) 880,000
- --------------------------------------------------------------------------------
5,000 ConocoPhillips 421,550
- --------------------------------------------------------------------------------
28,500 Edge Petroleum Corp.(1) 432,345
- --------------------------------------------------------------------------------
20,000 Energy Transfer Partners L.P. 997,200
- --------------------------------------------------------------------------------
13,000 EOG Resources Inc. 865,280
- --------------------------------------------------------------------------------
90,000 Exploration Co
of Delaware Inc. (The)(1) 480,600
- --------------------------------------------------------------------------------
25,000 Exxon Mobil Corp. 1,230,499
- --------------------------------------------------------------------------------
16,000 Ferrellgas Partners L.P.(1) 337,280
- --------------------------------------------------------------------------------
25,000 Forest Oil Corporation(1) 762,500
- --------------------------------------------------------------------------------
22,000 Holly Corp. 540,100
- --------------------------------------------------------------------------------
5,000 Kaneb Pipeline Partners 253,800
- --------------------------------------------------------------------------------
56,500 KCS Energy Inc.(1) 768,965
- --------------------------------------------------------------------------------
12,500 Kinder Morgan
Energy Partners, L.P. 578,875
- --------------------------------------------------------------------------------
42,000 Magnum Hunter
Resources Inc.(1) 508,200
- --------------------------------------------------------------------------------
80,000 Meridian Resource Corp.(1) 644,000
- --------------------------------------------------------------------------------
10,000 Noble Energy, Inc. 580,000
- --------------------------------------------------------------------------------
16,000 Occidental Petroleum Corp. 893,280
- --------------------------------------------------------------------------------
27,500 OMI Corp. 493,625
- --------------------------------------------------------------------------------
24,000 Pacific Energy Partners L.P. 676,800
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
11
Veedot - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
86,000 Petroquest Energy Inc.(1) $ 423,120
- --------------------------------------------------------------------------------
12,000 Pogo Producing Co. 550,200
- --------------------------------------------------------------------------------
17,000 Quicksilver Resources Inc.(1) 537,710
- --------------------------------------------------------------------------------
17,000 Range Resources Corporation 266,900
- --------------------------------------------------------------------------------
15,000 Southwestern Energy
Company(1) 689,100
- --------------------------------------------------------------------------------
15,000 Spinnaker Exploration
Company(1) 478,800
- --------------------------------------------------------------------------------
50,500 Swift Energy Co.(1) 1,224,625
- --------------------------------------------------------------------------------
22,500 Tesoro Petroleum Corp.(1) 681,300
- --------------------------------------------------------------------------------
8,500 Unocal Corp. 354,875
- --------------------------------------------------------------------------------
25,000 Vintage Petroleum, Inc. 525,000
- --------------------------------------------------------------------------------
35,000 Western Gas Resources Inc. 1,025,150
- --------------------------------------------------------------------------------
20,000 Whiting Petroleum Corp.(1) 593,600
- --------------------------------------------------------------------------------
20,000 World Fuel Services Corp. 682,400
- --------------------------------------------------------------------------------
10,000 XTO Energy Inc. 333,800
- --------------------------------------------------------------------------------
23,717,689
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 0.4%
- --------------------------------------------------------------------------------
22,500 Wausau-Mosinee Paper Corp. 351,900
- --------------------------------------------------------------------------------
8,000 Weyerhaeuser Co. 501,120
- --------------------------------------------------------------------------------
853,020
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 0.3%
- --------------------------------------------------------------------------------
25,000 Mannatech Inc. 426,250
- --------------------------------------------------------------------------------
23,000 Natures Sunshine Products Inc. 347,990
- --------------------------------------------------------------------------------
774,240
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 2.3%
- --------------------------------------------------------------------------------
66,000 Antigenics Inc.(1) 446,820
- --------------------------------------------------------------------------------
15,500 Endo Pharmaceuticals
Holdings Inc.(1) 337,900
- --------------------------------------------------------------------------------
110,000 First Horizon
Pharmaceutical Corporation(1) 2,703,800
- --------------------------------------------------------------------------------
12,000 Forest Laboratories, Inc. Cl A(1) 535,200
- --------------------------------------------------------------------------------
8,500 Medicis Pharmaceutical Corp. Cl A 345,695
- --------------------------------------------------------------------------------
13,500 Taro Pharmaceuticals Industries(1) 358,695
- --------------------------------------------------------------------------------
25,000 Valeant Pharmaceuticals
International 600,000
- --------------------------------------------------------------------------------
5,328,110
- --------------------------------------------------------------------------------
REAL ESTATE -- 2.1%
- --------------------------------------------------------------------------------
32,000 Acadia Realty Trust 492,800
- --------------------------------------------------------------------------------
16,000 AMB Property Corp. 600,000
- --------------------------------------------------------------------------------
35,500 Equity Inns Inc. 337,250
- --------------------------------------------------------------------------------
50,000 Innkeepers USA Trust 692,500
- --------------------------------------------------------------------------------
25,000 Nationwide Health Properties Inc. 564,250
- --------------------------------------------------------------------------------
20,000 Ramco-Gershenson Properties 540,000
- --------------------------------------------------------------------------------
300 Recrm Research Co. Ltd. ORD 388,102
- --------------------------------------------------------------------------------
11,500 Universal Health Realty
Income Trust 361,330
- --------------------------------------------------------------------------------
32,500 US Restaurant Properties Inc. 575,900
- --------------------------------------------------------------------------------
10,000 Weingarten Realty Investors 361,600
- --------------------------------------------------------------------------------
4,913,732
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
ROAD & RAIL -- 2.0%
- --------------------------------------------------------------------------------
13,000 Arkansas Best Corporation $ 508,170
- --------------------------------------------------------------------------------
15,000 Burlington Northern
Santa Fe Corp. 627,150
- --------------------------------------------------------------------------------
15,000 Florida East Coast Industries 567,900
- --------------------------------------------------------------------------------
23,500 Kansas City Southern
Industries, Inc.(1) 398,325
- --------------------------------------------------------------------------------
15,000 Landstar System, Inc.(1) 1,019,100
- --------------------------------------------------------------------------------
25,000 Norfolk Southern Corp. 848,750
- --------------------------------------------------------------------------------
8,000 Overnite Corp. 258,880
- --------------------------------------------------------------------------------
24,000 US Xpress Enterprises, Inc. Cl A(1) 490,800
- --------------------------------------------------------------------------------
4,719,075
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 6.3%
- --------------------------------------------------------------------------------
41,500 Axcelis Technologies Inc.(1) 356,900
- --------------------------------------------------------------------------------
21,500 Brooks Automation, Inc.(1) 319,920
- --------------------------------------------------------------------------------
27,000 Cree, Inc.(1) 931,770
- --------------------------------------------------------------------------------
60,000 Entegris Inc.(1) 555,300
- --------------------------------------------------------------------------------
17,000 International Rectifier Corp.(1) 675,750
- --------------------------------------------------------------------------------
25,000 KLA-Tencor Corp.(1) 1,138,249
- --------------------------------------------------------------------------------
40,500 Lam Research Corp.(1) 1,054,215
- --------------------------------------------------------------------------------
45,000 Mattson Technology Inc.(1) 377,550
- --------------------------------------------------------------------------------
6,000 Maxim Integrated Products, Inc. 263,940
- --------------------------------------------------------------------------------
70,000 Microsemi Corporation(1) 1,087,800
- --------------------------------------------------------------------------------
50,000 MIPS Technologies Inc. Cl A(1) 407,500
- --------------------------------------------------------------------------------
17,000 Novellus Systems, Inc.(1) 440,470
- --------------------------------------------------------------------------------
65,000 PDF Solutions Inc.(1) 845,000
- --------------------------------------------------------------------------------
30,000 Photronics Inc.(1) 526,500
- --------------------------------------------------------------------------------
55,000 PLX Technology Inc.(1) 495,825
- --------------------------------------------------------------------------------
25,000 Rambus Inc.(1) 429,500
- --------------------------------------------------------------------------------
24,000 Rudolph Technologies Inc.(1) 361,920
- --------------------------------------------------------------------------------
54,500 Silicon Image Inc.(1) 746,650
- --------------------------------------------------------------------------------
95,000 Skyworks Solutions, Inc.(1) 844,550
- --------------------------------------------------------------------------------
29,500 Tessera Technologies Inc.(1) 823,935
- --------------------------------------------------------------------------------
30,000 Ultratech, Inc.(1) 510,600
- --------------------------------------------------------------------------------
25,000 Varian Semiconductor
Equipment Associates, Inc.(1) 865,250
- --------------------------------------------------------------------------------
30,000 Volterra Semiconductor Corp.(1) 510,000
- --------------------------------------------------------------------------------
14,569,094
- --------------------------------------------------------------------------------
SOFTWARE -- 6.1%
- --------------------------------------------------------------------------------
52,500 Activision, Inc.(1) 760,200
- --------------------------------------------------------------------------------
17,000 Advent Software Inc.(1) 354,620
- --------------------------------------------------------------------------------
50,000 Borland Software Corp.(1) 512,000
- --------------------------------------------------------------------------------
18,500 Business Objects SA ADR(1) 472,120
- --------------------------------------------------------------------------------
28,000 Cadence Design Systems, Inc.(1) 348,320
- --------------------------------------------------------------------------------
33,000 Check Point
Software Technologies(1) 746,493
- --------------------------------------------------------------------------------
30,000 Citrix Systems, Inc.(1) 723,900
- --------------------------------------------------------------------------------
75,000 Compuware Corp.(1) 434,250
- --------------------------------------------------------------------------------
70,000 Epicor Software Corporation(1) 1,075,900
- --------------------------------------------------------------------------------
64,500 Informatica Corporation(1) 503,745
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
12
Veedot - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- --------------------------------------------------------------------------------
45,000 Internet Security Systems(1) $ 979,200
- --------------------------------------------------------------------------------
10,000 MicroStrategy Inc.(1) 599,800
- --------------------------------------------------------------------------------
50,000 NetIQ Corp.(1) 634,000
- --------------------------------------------------------------------------------
37,000 Oracle Corp.(1) 468,420
- --------------------------------------------------------------------------------
35,000 PalmSource Inc.(1) 784,700
- --------------------------------------------------------------------------------
100,000 Parametric Technology Corp.(1) 519,000
- --------------------------------------------------------------------------------
38,500 RADWARE Limited(1) 950,950
- --------------------------------------------------------------------------------
11,500 RSA Security Inc.(1) 235,290
- --------------------------------------------------------------------------------
35,000 Serena Software, Inc.(1) 620,900
- --------------------------------------------------------------------------------
100,000 Smith Micro Software Inc.(1) 575,000
- --------------------------------------------------------------------------------
10,000 Symantec Corp.(1) 569,400
- --------------------------------------------------------------------------------
40,000 Ulticom Inc.(1) 687,600
- --------------------------------------------------------------------------------
45,000 Ultimate Software Group Inc.(1) 578,925
- --------------------------------------------------------------------------------
14,134,733
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.5%
- --------------------------------------------------------------------------------
20,000 Aeropostale Inc.(1) 631,000
- --------------------------------------------------------------------------------
25,000 American Eagle Outfitters, Inc. 1,022,000
- --------------------------------------------------------------------------------
19,500 Claire's Stores Inc. 507,390
- --------------------------------------------------------------------------------
25,000 Dress Barn, Inc.(1) 400,750
- --------------------------------------------------------------------------------
55,000 Guess? Inc.(1) 918,500
- --------------------------------------------------------------------------------
3,479,640
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 1.2%
- --------------------------------------------------------------------------------
21,500 Deckers Outdoor Corp.(1) 813,990
- --------------------------------------------------------------------------------
12,000 Liz Claiborne, Inc. 490,560
- --------------------------------------------------------------------------------
12,500 Reebok International Ltd. 462,500
- --------------------------------------------------------------------------------
8,000 Timberland Co. (The)(1) 491,200
- --------------------------------------------------------------------------------
129,000 Unifi Inc.(1) 419,250
- --------------------------------------------------------------------------------
2,677,500
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 2.1%
- --------------------------------------------------------------------------------
16,000 Bankunited Financial Corp.(1) 476,000
- --------------------------------------------------------------------------------
16,000 CharterMac 370,560
- --------------------------------------------------------------------------------
18,500 Fidelity Bankshares Inc. 719,280
- --------------------------------------------------------------------------------
12,000 First Federal Capital Corp. 399,600
- --------------------------------------------------------------------------------
5,000 FirstFed Financial Corp.(1) 257,000
- --------------------------------------------------------------------------------
20,000 Hudson City Bancorp Inc. 730,800
- --------------------------------------------------------------------------------
10,500 People's Bank of Bridgeport 393,645
- --------------------------------------------------------------------------------
40,000 Provident Bancorp Inc. 483,400
- --------------------------------------------------------------------------------
13,000 Radian Group Inc. 623,090
- --------------------------------------------------------------------------------
33,500 Sound Federal Bancorp Inc. 478,715
- --------------------------------------------------------------------------------
4,932,090
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS -- 0.6%
- --------------------------------------------------------------------------------
12,500 Applied Industrial Technologies Inc. 465,000
- --------------------------------------------------------------------------------
30,000 MSC Industrial Direct Co. 1,024,200
- --------------------------------------------------------------------------------
1,489,200
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $206,548,169) 226,832,097
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 2.7%
Repurchase Agreement, State Street Corp.,
(collateralized by various U.S. Treasury
obligations, 8.125%, 8/15/19, valued at
$6,328,383), in a joint trading account
at 1.75%, dated 10/29/04, due 11/1/04
(Delivery value $6,200,904)
(Cost $6,200,000) $ 6,200,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 100.4%
(Cost $212,748,169) 233,032,097
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.4)% (1,013,813)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $232,018,284
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
ORD = Foreign Ordinary Share
(1) Non-income producing.
See Notes to Financial Statements.
- ------
13
Statement of Assets and Liabilities
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $212,748,169) $233,032,097
- ----------------------------------------------------------------
Cash 1,731,983
- ----------------------------------------------------------------
Receivable for investments sold 18,195,189
- ----------------------------------------------------------------
Dividends and interest receivable 136,405
- --------------------------------------------------------------------------------
253,095,674
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for investments purchased 20,783,467
- ----------------------------------------------------------------
Accrued management fees 293,923
- --------------------------------------------------------------------------------
21,077,390
- --------------------------------------------------------------------------------
NET ASSETS $232,018,284
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 329,728,573
- ----------------------------------------------------------------
Accumulated net realized loss on investment
and foreign currency transactions (117,993,957)
- ----------------------------------------------------------------
Net unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 20,283,668
- --------------------------------------------------------------------------------
$ 232,018,284
================================================================================
INVESTOR CLASS, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $219,618,489
- ----------------------------------------------------------------
Shares outstanding 43,406,868
- ----------------------------------------------------------------
Net asset value per share $5.06
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $12,399,795
- ----------------------------------------------------------------
Shares outstanding 2,431,129
- ----------------------------------------------------------------
Net asset value per share $5.10
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
14
Statement of Operations
YEAR ENDED OCTOBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT LOSS
- --------------------------------------------------------------------------------
INCOME:
- ----------------------------------------------------------------
Dividends (net of foreign taxes withheld of $7,846) $ 2,210,960
- ----------------------------------------------------------------
Interest 52,298
- --------------------------------------------------------------------------------
2,263,258
- --------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------
Management fees 3,620,633
- ----------------------------------------------------------------
Directors' fees and expenses 3,459
- ----------------------------------------------------------------
Other expenses 2,055
- --------------------------------------------------------------------------------
3,626,147
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (1,362,889)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment
and foreign currency transactions 17,531,407
- ----------------------------------------------------------------
Change in net unrealized appreciation
on investments and translation
of assets and liabilities in foreign currencies (13,543,653)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 3,987,754
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,624,865
================================================================================
See Notes to Financial Statements.
- ------
15
Statement of Changes in Net Assets
YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2004 2003
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment loss $ (1,362,889) $ (1,366,055)
- -----------------------------------------------
Net realized gain 17,531,407 38,753,396
- -----------------------------------------------
Change in net unrealized appreciation (13,543,653) 22,021,528
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 2,624,865 59,408,869
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net decrease in net assets
from capital share transactions (11,788,635) (14,387,320)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (9,163,770) 45,021,549
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 241,182,054 196,160,505
- --------------------------------------------------------------------------------
End of period $232,018,284 $241,182,054
================================================================================
See Notes to Financial Statements.
- ------
16
Notes to Financial Statements
OCTOBER 31, 2004
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Veedot Fund (the fund) is one fund in a
series issued by the corporation. The fund is non-diversified under the 1940
Act. The fund's investment objective is to seek long-term capital growth. The
fund pursues its objective by investing primarily in common stocks that
management believes to have better than average prospects for appreciation. The
fund uses a systematic, highly automated approach to common stock investing
developed by American Century. This approach relies heavily on quantitative
tools to identify attractive investment opportunities, regardless of company
size, industry type or geographic location, on a disciplined, consistent basis.
The following is a summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue the Investor Class, the
Institutional Class and the Advisor Class. The share classes differ principally
in their respective shareholder servicing and distribution expenses and
arrangements. All shares of the fund represent an equal pro rata interest in the
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. Sale of the Advisor Class had not
commenced as of October 31, 2004.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. 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 close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
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.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. 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. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the fund. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially expressed
in foreign currencies are translated into U.S. dollars at prevailing exchange
rates at period end. Purchases and sales of investment securities, dividend and
interest income, and certain expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions. For assets and
liabilities, other than investments in securities, net realized and unrealized
gains and losses from foreign currency translations arise from changes in
currency exchange rates.
(continued)
- ------
17
Notes to Financial Statements
OCTOBER 31, 2004
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of investment securities are a component of realized
gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose taxes
on the contract amount of purchases and sales of foreign currency contracts in
their currency. The fund records the foreign tax expense, if any, as a reduction
to the net realized gain (loss) on foreign currency transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. 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 other registered investment
companies having management agreements with ACIM, 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. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
REDEMPTION -- The fund may impose a 2.00% redemption fee on shares held less
than five years. The redemption fee is recorded as a reduction in the cost of
shares redeemed. The redemption fee is retained by the fund and helps cover
transaction costs that long-term investors may bear when a fund sells securities
to meet investor redemptions.
USE OF ESTIMATES -- 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.
(continued)
- ------
18
Notes to Financial Statements
OCTOBER 31, 2004
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation 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 the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. For funds with a stepped fee schedule, the
rate of the fee is determined by applying a fee rate calculation formula. This
formula takes into account all of the investment manager's assets under
management in the fund's investment strategy (strategy assets) to calculate the
appropriate fee rate for the fund. The strategy assets include the fund's assets
and the assets of other clients of the investment manager that are not in the
American Century family of funds but that have the same investment team and
investment strategy.
The annual management fee schedule for each fund is as follows:
- --------------------------------------------------------------------------------
INVESTOR INSTITUTIONAL ADVISOR
CLASS CLASS CLASS
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $500 million 1.50% 1.30% 1.25%
- --------------------------------------------------------------------------------
Next $500 million 1.30% 1.10% 1.05%
- --------------------------------------------------------------------------------
Over $1 billion 1.10% 0.90% 0.85%
- --------------------------------------------------------------------------------
The effective annual management fee for the year ended October 31, 2004 was
1.50% and 1.30% for the Investor Class and Institutional Class, respectively.
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a Master
Distribution and Shareholder Services Plan (the plan) for the Advisor Class,
pursuant to Rule 12b-1 of the 1940 Act. The plan provides that the Advisor Class
will pay American Century Investment Services, Inc. (ACIS) an annual
distribution fee equal to 0.25% and an annual service fee equal to 0.25%. The
fees are computed and accrued daily based on the Advisor Class's daily net
assets, and paid monthly in arrears. The distribution fee provides compensation
for expenses incurred by financial intermediaries in connection with
distributing shares of the Advisor Class including, but not limited to, payments
to brokers, dealers, and financial institutions that have entered into sales
agreements with respect to shares of the fund. The service fee provides
compensation for shareholder and administrative services rendered by ACIS, its
affiliates or independent third party providers. No fees were incurred under the
plan during the year ended October 31, 2004, as sale of the Advisor Class had
not yet commenced.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
manager, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services Corporation.
During the year ended October 31, 2004, the fund invested in a money market fund
for temporary purposes, which was managed by J.P. Morgan Investment Management,
Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan Chase & Co.
(JPM). JPM is an equity investor in ACC. The fund has a bank line of credit
agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a custodian of the fund and
a wholly owned subsidiary of JPM.
(continued)
- ------
19
Notes to Financial Statements
OCTOBER 31, 2004
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the year ended October 31, 2004, were $820,363,706 and $837,524,477,
respectively.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 200,000,000
================================================================================
Sold 2,323,446 $ 12,087,754
- ----------------------------------------------
Redeemed (4,744,882) (23,667,811)(1)
- --------------------------------------------------------------------------------
Net decrease (2,421,436) $(11,580,057)
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 200,000,000
================================================================================
Sold 2,905,735 $ 12,117,434
- ----------------------------------------------
Redeemed (6,820,595) (27,227,637)(2)
- --------------------------------------------------------------------------------
Net decrease (3,914,860) $(15,110,203)
================================================================================
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 311,248 $ 1,665,622
- ----------------------------------------------
Redeemed (361,238) (1,874,200)(3)
- --------------------------------------------------------------------------------
Net decrease (49,990) $ (208,578)
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 648,297 $ 2,730,343
- ----------------------------------------------
Redeemed (467,938) (2,007,460)
- --------------------------------------------------------------------------------
Net increase 180,359 $ 722,883
================================================================================
ADVISOR CLASS
- --------------------------------------------------------------------------------
SHARES AUTHORIZED 50,000,000
================================================================================
(1) Net of redemption fees of $410,553.
(2) Net of redemption fees of $490,015.
(3) Net of redemption fees of $22,885.
(continued)
- ------
20
Notes to Financial Statements
OCTOBER 31, 2004
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650,000,000
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the year ended October 31, 2004.
6. RISK FACTORS
The Veedot Fund's investment process may involve high portfolio turnover and
high capital gains distributions. In addition, its investment approach may
involve higher volatility and risk.
7. FEDERAL TAX INFORMATION
The 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. There were no distributions made
during the years ended October 31, 2004 and October 31, 2003.
As of October 31, 2004, the components of distributable earnings on a tax-basis
and the federal tax cost of investments were as follows:
- --------------------------------------------------------------------------------
COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST
- --------------------------------------------------------------------------------
Federal tax cost of investments $214,965,168
================================================================================
Gross tax appreciation of investments $21,342,808
- ---------------------------------------------------------------
Gross tax depreciation of investments (3,275,879)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $18,066,929
================================================================================
Net tax appreciation (depreciation) of derivatives
and translation of assets and
liabilities in foreign currencies $ (1,125)
- --------------------------------------------------------------------------------
Net tax appreciation $18,065,804
================================================================================
Undistributed ordinary income --
- ---------------------------------------------------------------
Accumulated capital losses $(115,776,093)
- --------------------------------------------------------------------------------
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 and return of capital dividends received.
The accumulated capital losses listed above represent net capital loss
carryovers that may be used to offset future realized capital gains for federal
income tax purposes. Capital loss carryovers of $23,525,786, $59,932,855 and
$32,317,452 expire in 2008, 2009 and 2010, respectively.
- ------
21
Veedot - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $4.99 $3.77 $4.32 $5.92 $5.00
- --------------------------------------------------------------------------------
Income From
Investment
Operations
- ---------------------
Net Investment
Loss(2) (0.03) (0.03) (0.01) --(3) (0.06)
- ---------------------
Net Realized
and Unrealized
Gain (Loss) 0.09 1.24 (0.55) (1.60) 0.98
- --------------------------------------------------------------------------------
Total From
Investment
Operations 0.06 1.21 (0.56) (1.60) 0.92
- --------------------------------------------------------------------------------
Redemption Fees(4) 0.01 0.01 0.01 -- --
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $5.06 $4.99 $3.77 $4.32 $5.92
================================================================================
TOTAL RETURN(5) 1.40% 32.36% (12.73)% (27.03)% 18.40%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.50% 1.50% 1.50% 1.50% 1.50%(6)
- ---------------------
Ratio of Net
Investment Loss
to Average
Net Assets (0.57)% (0.68)% (0.31)% (0.09)% (0.92)%(6)
- ---------------------
Portfolio
Turnover Rate 344% 415% 330% 410% 250%
- ---------------------
Net Assets,
End of Period
(in thousands) $219,618 $228,724 $187,451 $231,108 $352,130
- --------------------------------------------------------------------------------
(1) November 30, 1999 (inception) through October 31, 2000.
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) The fund adopted the provisions of the revised AICPA Audit and Accounting
Guide for Investment Companies which requires the disclosure of the per-share
effect of redemption fees. Periods prior to November 1, 2001, have not been
restated to reflect this change. Amounts computed using average shares
outstanding throughout the period.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect any applicable redemption
fees. Total returns for periods less than one year are not annualized. The
total return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to two
decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is
made in accordance with SEC guidelines and does not result in any gain or
loss of value between one class and another.
(6) Annualized.
See Notes to Financial Statements.
- ------
22
Veedot - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
2004 2003 2002 2001 2000(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $5.02 $3.79 $4.33 $5.92 $6.12
- --------------------------------------------------------------------------------
Income From
Investment
Operations
- ---------------------
Net Investment
Income (Loss)(2) (0.02) (0.02) --(3) 0.01 (0.01)
- ---------------------
Net Realized
and Unrealized
Gain (Loss) 0.09 1.24 (0.55) (1.60) (0.19)
- --------------------------------------------------------------------------------
Total From
Investment
Operations 0.07 1.22 (0.55) (1.59) (0.20)
- --------------------------------------------------------------------------------
Redemption Fees(4) 0.01 0.01 0.01 -- --
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $5.10 $5.02 $3.79 $4.33 $5.92
================================================================================
TOTAL RETURN(5) 1.59% 32.45% (12.47)% (26.86)% (3.27)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.30% 1.30% 1.30% 1.30% 1.30%(6)
- ---------------------
Ratio of Net
Investment
Income (Loss)
to Average
Net Assets (0.37)% (0.48)% (0.11)% 0.11% (0.52)%(6)
- ---------------------
Portfolio
Turnover Rate 344% 415% 330% 410% 250%(7)
- ---------------------
Net Assets,
End of Period
(in thousands) $12,400 $12,458 $8,709 $9,659 $12,218
- --------------------------------------------------------------------------------
(1) August 1, 2000 (commencement of sale) through October 31, 2000.
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) The fund adopted the provisions of the revised AICPA Audit and Accounting
Guide for Investment Companies which requires the disclosure of the per-share
effect of redemption fees. Periods prior to November 1, 2001, have not been
restated to reflect this change. Amounts computed using average shares
outstanding throughout the period.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect any applicable redemption
fees. Total returns for periods less than one year are not annualized. The
total return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to two
decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is
made in accordance with SEC guidelines and does not result in any gain or
loss of value between one class and another.
(6) Annualized.
(7) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the period November 30, 1999 (inception of fund) through
October 31, 2000.
See Notes to Financial Statements.
- ------
23
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Veedot Fund, (the "Fund"), one of the funds
comprising American Century Mutual Funds, Inc., as of October 31, 2004, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Veedot
Fund as of October 31, 2004, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Kansas City, Missouri
December 15, 2004
- ------
24
Management
The individuals listed below serve as directors or officers of the fund. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the fund's investment advisor, American
Century Investment Management, Inc. (ACIM); the fund's principal underwriter,
American Century Investment Services, Inc. (ACIS); and the fund's transfer
agent, American Century Services Corporation (ACSC).
The other directors (more than three-fourths of the total numbers) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned subsidiaries, including
ACIM, ACIS, and ACSC. The directors serve in this capacity for six registered
investment companies in the American Century family of funds.
All persons named as officers of the fund also serve in a similar capacity for
the other 13 investment companies advised by ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated for
his or her service as an officer of the fund. The listed officers are interested
persons of the fund and are appointed or re-appointed on an annual basis.
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 23
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Strategic Account Implementation
Manager, Applied Industrial Technologies, Inc., a corporation engaged in the
sale of bearings and power transmission products
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, Midwest
Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Midwest Research Institute
- --------------------------------------------------------------------------------
D.D. (DEL) HOCK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1935
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 7
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Chairman, Public
Service Company of Colorado
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Allied Motion Technologies, Inc.
and J.D. Edwards & Company
- --------------------------------------------------------------------------------
(continued)
- ------
25
Management
INDEPENDENT DIRECTORS (CONTINUED)
- --------------------------------------------------------------------------------
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director, Vice Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Western Investments,
Inc.; Retired Chairman of the Board, Butler Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Atlas-Copco, North America Inc.
- --------------------------------------------------------------------------------
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive Officer,
and Founder, Sayers Computer Source
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Triad Hospitals, Inc.
- --------------------------------------------------------------------------------
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 9
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Chief
Integration Officer, Sprint Corporation (September 2003 to present); Senior Vice
President - Financial Services, Sprint Corporation (January 2003 to September
2003); Senior Vice President, Finance - Global Markets Group, Sprint Corporation
(November 1998 to January 2003)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.
- --------------------------------------------------------------------------------
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 2
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, American Italian Pasta Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JAMES E. STOWERS, JR.(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director, Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 45
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Director, and controlling
shareholder, ACC; Chairman, ACSC and other ACC subsidiaries; Director, ACIM,
ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
JAMES E. STOWERS III(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1959
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 13
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Co-Chairman, ACC (September 2000 to
present); Chief Executive Officer, ACC (June 1996 to September 2000); Director,
ACC, ACIM, ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
(1) James E. Stowers, Jr. is the father of James E. Stowers III.
(continued)
- ------
26
Management
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUND: President
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and
other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to
present); President, ACIM (September 2002 to present); President, ACIS (July
2003 to present); Chief Operating Officer, ACC (June 1996 to September 2000);
Also serves as: Executive Vice President, ACSC and other ACC subsidiaries
- --------------------------------------------------------------------------------
ROBERT T. JACKSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Executive Vice President
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC
(August 1997 to present); Chief Financial Officer, ACC (May 1995 to October
2002); President, ACSC (January 1999 to present); Executive Vice President, ACC
(May 1995 to present); Also serves as: Executive Vice President and Chief
Financial Officer, ACIM, ACIS and other ACC subsidiaries; and Treasurer, ACIM
- --------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer, and Chief
Accounting Officer
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President (April 1998
to present) and Assistant Treasurer, ACSC (September 1985 to present)
- --------------------------------------------------------------------------------
DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and General
Counsel, ACIM, ACIS, ACSC and other ACC subsidiaries (June 1998 to present);
Vice President and General Counsel, ACC (June 1998 to present)
- --------------------------------------------------------------------------------
DAVID H. REINMILLER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer
LENGTH OF TIME SERVED (YEARS): 3 and less than 1 year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACSC and
ACIM (March 2001 to present); Vice President, ACSC (March 2000 to present); Vice
President, ACIM (March 2002 to present); Vice President, ACIS (March 2003 to
present); Assistant General Counsel, ACSC (December 1996 to January 2001);
Associate General Counsel, ACSC (July 2001 to present)
- --------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Controller
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000
to present); Controller-Fund Accounting, ACSC (June 1997 to present)
- --------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC
(April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries
(April 1999 to present); President, American Century Employee Benefit Services,
Inc. (January 2000 to December 2000); Director, American Century Employee
Benefit Services, Inc. (February 2000 to December 2003); Treasurer, American
Century Employee Benefit Services, Inc. (December 2000 to December 2003);
Treasurer, American Century Ventures, Inc. (December 1999 to April 2001)
- --------------------------------------------------------------------------------
The SAI has additional information about the fund's directors and is available
without charge upon request by calling 1-800-345-2021.
- ------
27
Share Class Information
Three classes of shares are authorized for sale by the fund: Investor Class,
Institutional Class, and Advisor Class. The total expense ratio for
Institutional Class shares is lower than that of Investor Class shares. The
total expense ratio for Advisor Class shares is higher than that of Investor
Class shares.
INVESTOR CLASS shares are available for purchase in two ways: 1) directly from
American Century without any commissions or other fees; or 2) through a
broker-dealer, which may require payment of a transaction fee to the broker.
INSTITUTIONAL CLASS shares are available to large investors such as endowments,
foundations, and retirement plans, and to financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million ($3 million
for endowments and foundations) in an American Century fund or at least $10
million in multiple funds. In recognition of the larger investments and account
balances and comparatively lower transaction costs, the total expense ratio of
Institutional Class shares is 0.20% less than the total expense ratio of
Investor Class shares.
ADVISOR CLASS shares are sold primarily through institutions such as investment
advisors, banks, broker-dealers, insurance companies, and financial advisors.
Advisor Class shares are subject to a 0.50% annual Rule 12b-1 service and
distribution fee. The total expense ratio of Advisor Class shares is 0.25%
higher than the total expense ratio of Investor Class shares.
All classes of shares represent a pro rata interest in the fund and generally
have the same rights and preferences.
- ------
28
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b),
457 and qualified plans [those not eligible for rollover to an IRA or to another
qualified plan] 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. Even if you plan to roll over the amount you
withdraw to another tax-deferred account, the withholding rate still applies to
the withdrawn amount unless we have received notice not to withhold federal
income tax prior to the withdrawal. 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.
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 manager, 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 manager uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-345-2021. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
manager 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 form N-Q is available on the SEC's Web site 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 Web site at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
29
Index Definitions
The following indices are used to illustrate investment market, sector, or style
performance or to serve as fund performance comparisons. They are not investment
products available for purchase.
The DOW JONES INDUSTRIAL AVERAGE (DJIA) is a price-weighted average of 30
actively traded blue chip stocks, primarily industrials but including
service-oriented firms. Prepared and published by Dow Jones & Co., it is the
oldest and most widely quoted of all the market indicators.
The DOW JONES WILSHIRE 5000 TOTAL MARKET INDEX measures the performance of all
U.S. headquartered equity securities with readily available price data.
The NASDAQ COMPOSITE INDEX is a market value-weighted index of all domestic and
international common stocks listed on the Nasdaq stock market.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500 publicly
traded U.S. companies chosen for market size, liquidity, and industry group
representation that are considered to be leading firms in dominant industries.
Each stock's weight in the index is proportionate to its market value. Created
by Standard & Poor's, it is considered to be a broad measure of U.S. stock
market performance.
- ------
30
Notes
- ------
31
Notes
- ------
32
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
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1-800-345-2021 or 816-531-5575
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1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER:
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.
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
COMPANIES
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Services Corporation.
0412 American Century Investment Services, Inc.
SH-ANN-40959S (c)2004 American Century Services Corporation
[front cover]
OCTOBER 31, 2004
American Century Investments
Annual Report
[photo of market line chart]
[photo of starfish]
[photo of bridge]
Capital Value Fund
[american century logo and text logo]
Table of Contents
Our Message to You....................................................... 1
CAPITAL VALUE
Performance.............................................................. 2
Shareholder Fee Example.................................................. 4
Portfolio Commentary..................................................... 6
Top Ten Holdings...................................................... 6
Top Five Industries................................................... 7
Types of Investments in Portfolio..................................... 7
Schedule of Investments.................................................. 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities...................................... 10
Statement of Operations.................................................. 11
Statement of Changes in Net Assets....................................... 12
Notes to Financial Statements............................................ 13
Financial Highlights..................................................... 17
Report of Independent Registered Public Accounting Firm.................. 20
OTHER INFORMATION
Management............................................................... 21
Share Class Information.................................................. 24
Additional Information................................................... 25
Index Definitions........................................................ 26
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century 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
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century 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 by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
Our Message to You
[photo of James E. Stowers III and James E. Stowers, Jr.]
JAMES E. STOWERS III WITH JAMES E. STOWERS, JR.
We are pleased to provide you with the annual report for the Capital Value fund
for the year ended October 31, 2004.
The report includes comparative performance figures, portfolio and market
commentary, summary tables, a full list of portfolio holdings, and financial
statements and highlights. We hope you find this information helpful in
monitoring your investment.
Through our Web site, americancentury.com, we provide quarterly commentaries on
all American Century portfolios, the views of our senior investment officers,
and other communications about investments, portfolio strategy, and the markets.
Your next shareholder report for this fund will be the semiannual report dated
April 30, 2005, available in approximately six months.
As always, we deeply appreciate your investment with American Century
Investments.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER AND CHAIRMAN
/s/James E. Stowers III
James E. Stowers III
CO-CHAIRMAN OF THE BOARD
- ------
1
Capital Value - Performance
TOTAL RETURNS AS OF OCTOBER 31, 2004
----------------------
AVERAGE ANNUAL RETURNS
- ----------------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
- ----------------------------------------------------------------------------------------
INVESTOR CLASS 13.94% 6.25% 6.25% 3/31/99
Return After-Tax
on Distributions(1) 13.77% 5.81% 5.85%
Return After-Tax on
Distributions and Sale of Shares(1) 9.26% 5.11% 5.15%
- ----------------------------------------------------------------------------------------
RUSSELL 1000 VALUE INDEX 15.45% 3.49% 4.23% --
- ----------------------------------------------------------------------------------------
Institutional Class 14.15% -- 5.68% 3/1/02
Return After-Tax on Distributions(1) 13.94% -- 5.37%
Return After-Tax on
Distributions and Sale of Shares(1) 9.44% -- 4.68%
- ----------------------------------------------------------------------------------------
Advisor Class 13.60% -- 18.58% 5/14/03
Return After-Tax on
Distributions(1) 13.45% -- 18.38%
Return After-Tax on
Distributions and Sale of Shares(1) 9.01% -- 15.79%
- ----------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates, and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation
and may differ from those shown. After-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such
as 401(k) plans or individual retirement accounts.
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.
Data assumes reinvestment of dividends and capital gains. 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.
(continued)
- ------
2
Capital Value - Performance
GROWTH OF $10,000 OVER LIFE OF CLASS
$10,000 investment made March 31, 1999
ONE-YEAR RETURNS OVER LIFE OF CLASS
Periods ended October 31
- --------------------------------------------------------------------------------------------
1999* 2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------------------
Investor Class 3.60% 7.23% -0.47% -8.49% 21.67% 13.94%
- --------------------------------------------------------------------------------------------
Russell 1000 Value Index 6.15% 5.52% -11.86% -10.02% 22.87% 15.45%
- --------------------------------------------------------------------------------------------
* From 3/31/99, the Investor Class's inception date. Not annualized.
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.
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.
- ------
3
Shareholder Fee Example (Unaudited)
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 May 1, 2004 to October 31, 2004.
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 fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century 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 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
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
(continued)
- ------
4
Shareholder Fee Example (Unaudited)
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.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 5/1/04 - EXPENSE
5/1/04 10/31/01 10/31/04 RATIO*
CAPITAL VALUE SHAREHOLDER FEE EXAMPLE
- ----------------------------------------------------------------------------------------
ACTUAL
- ----------------------------------------------------------------------------------------
Investor Class $1,000 $1,045.90 $5.66 1.10%
- ----------------------------------------------------------------------------------------
Institutional Class $1,000 $1,045.80 $4.63 0.90%
- ----------------------------------------------------------------------------------------
Advisor Class $1,000 $1,044.30 $6.94 1.35%
- ----------------------------------------------------------------------------------------
HYPOTHETICAL
- ----------------------------------------------------------------------------------------
Investor Class $1,000 $1,019.61 $5.58 1.10%
- ----------------------------------------------------------------------------------------
Institutional Class $1,000 $1,020.61 $4.57 0.90%
- ----------------------------------------------------------------------------------------
Advisor Class $1,000 $1,018.35 $6.85 1.35%
- ----------------------------------------------------------------------------------------
*Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
184, the number of days in the most recent fiscal half-year, divided by 366, to
reflect the one-half year period.
- ------
5
Capital Value - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE CAPITAL VALUE INVESTMENT TEAM: BRENDAN HEALY, CHUCK
RITTER, AND MARK MALLON.
For the twelve months ended October 31, 2004, Capital Value gained 13.94%*,
underperforming the 15.45% return posted by its benchmark, the Russell 1000
Value Index. For the same time period, the S&P 500, considered representative of
the broader market, gained 9.42%.
Capital Value's long-term performance against its benchmark has been strong.
Since the portfolio's March 31, 1999, inception, it has posted an average
annualized return of 6.25%, outperforming both the 4.23% return posted by the
Russell 1000 Value Index and the 0.84% decline of the S&P 500.
EQUITIES BOOK RESPECTABLE GAINS
The major U.S. stock indices posted respectable gains in the fiscal year ended
October 31, 2004. Stocks rose in the first three months to levels not seen since
the third quarter of 2001 and the first half of 2002. They were boosted by
corporate earnings that reached 10-year highs in the fourth quarter of 2003 as
the government reported strong economic growth and low inflation. Those early
gains eroded, however, as oil prices jumped 78%, interest rates climbed, and the
real rate of economic growth slipped from 7.4% in the third quarter of 2003 to
3.3% and 3.9% in the second and third quarters of 2004. In that environment,
value stocks were the stronger performers, and Capital Value received positive
absolute contributions from each of the ten sectors in which it was invested.
ENERGY: THE STRONGEST FINISH
The energy sector was the biggest contributor to performance during the year.
While global demand increased, continued conflict in Iraq alongside political
turbulence in Nigeria, Africa's top oil exporter, generated anxiety about
tightening oil supply. These factors were powerful catalysts that sent oil
prices to record highs and underpinned gains for major oil and gas companies.
All of our holdings advanced, and Exxon Mobil was the portfolio's
top-contributing stock.
TOP TEN HOLDINGS
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Citigroup Inc. 4.5% 4.4%
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 4.1% 3.9%
- --------------------------------------------------------------------------------
Freddie Mac 3.8% 3.8%
- --------------------------------------------------------------------------------
Bank of America Corp. 3.2% 3.1%
- --------------------------------------------------------------------------------
Royal Dutch Petroleum
Co. New York Shares 2.7% 2.6%
- --------------------------------------------------------------------------------
Standard and Poor's 500
Depositary Receipt 2.1% 3.4%
- --------------------------------------------------------------------------------
Wells Fargo & Co. 2.1% 2.1%
- --------------------------------------------------------------------------------
Hewlett-Packard Co. 1.9% 1.7%
- --------------------------------------------------------------------------------
ChevronTexaco Corp. 1.8% 1.4%
- --------------------------------------------------------------------------------
J.P. Morgan Chase & Co. 1.7% --
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Investor Class shares.
(continued)
- ------
6
Capital Value - Portfolio Commentary
FINANCIALS PROVIDE LIFT
Financials, on average our largest single sector, provided considerable lift.
Much of this position was devoted to commercial banks, which produced a number
of contributors, including Bank of America. Thrifts and mortgage finance firms,
led by Freddie Mac, also bolstered results. Late in the period, several
insurance companies came under regulatory and legal scrutiny, which pressured
the industry. Marsh & McLennan declined sharply in the ensuing sell off and
ranked among the portfolio's top-detracting stocks. Nevertheless, all of our
other insurance holdings contributed to performance.
INDUSTRIALS: ANOTHER BRIGHT SPOT
The industrials sector was another bright spot, and industrial conglomerates
were the strongest performers. Our two investments there, Tyco International and
General Electric, both were contributors. Among aerospace and defense companies,
increased activity in its defense systems business contributed to top- and
bottom-line growth for Boeing Co. Honeywell International and Raytheon Co. also
were standouts. During the period, Raytheon settled class-action litigation and
announced strong sales of its defense systems. We sold Honeywell and Raytheon
when they no longer met our valuation criteria.
MINOR SETBACKS
Despite positive contributions overall from each of our sector positions, there
were individual setbacks along the way, and some of our investments retreated in
this otherwise upbeat environment. Hewlett-Packard, the world's largest consumer
Information Technology company, was one that fell short after they announced
third-quarter earnings that missed expectations.
OUR COMMITMENT
We remain committed to our investment discipline of searching for larger,
fundamentally sound businesses that, because of transitory issues, are selling
at prices we believe are below fair market value.
TOP FIVE INDUSTRIES
AS OF OCTOBER 31, 2004
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Commercial Banks 11.1% 12.2%
- --------------------------------------------------------------------------------
Oil & Gas 10.0% 10.1%
- --------------------------------------------------------------------------------
Diversified Financial
Services 6.2% 4.4%
- --------------------------------------------------------------------------------
Insurance 5.8% 6.2%
- --------------------------------------------------------------------------------
Thrifts & Mortgage
Finance 5.7% 5.8%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
10/31/04 4/30/04
- --------------------------------------------------------------------------------
Common Stocks 95.5% 95.7%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 4.9% 4.8%
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES 100.4% 100.5%
- --------------------------------------------------------------------------------
Other Assets and
Liabilities (0.4)% (0.5)%
- --------------------------------------------------------------------------------
- ------
7
Capital Value - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- -----------------------------------------------------------------------------
COMMON STOCKS - 95.5%
AEROSPACE & DEFENSE - 0.7%
- -----------------------------------------------------------------------------
39,100 Boeing Co. $ 1,951,090
- -----------------------------------------------------------------------------
AUTO COMPONENTS - 0.6%
- -----------------------------------------------------------------------------
31,500 Lear Corporation 1,698,480
- -----------------------------------------------------------------------------
AUTOMOBILES - 1.1%
- -----------------------------------------------------------------------------
35,800 General Motors Corp. 1,380,090
- -----------------------------------------------------------------------------
22,300 Toyota Motor Corp. ADR 1,730,257
- -----------------------------------------------------------------------------
3,110,347
- -----------------------------------------------------------------------------
BEVERAGES - 1.8%
- -----------------------------------------------------------------------------
21,100 Adolph Coors Company Cl B 1,407,370
- -----------------------------------------------------------------------------
42,000 Coca-Cola Company (The) 1,707,720
- -----------------------------------------------------------------------------
68,200 Pepsi Bottling Group Inc. 1,912,328
- -----------------------------------------------------------------------------
5,027,418
- -----------------------------------------------------------------------------
CAPITAL MARKETS - 2.8%
- -----------------------------------------------------------------------------
75,100 Merrill Lynch & Co., Inc. 4,050,894
- -----------------------------------------------------------------------------
75,900 Morgan Stanley 3,877,731
- -----------------------------------------------------------------------------
7,928,625
- ------------------------------------------------------------------------------
CHEMICALS - 1.2%
- -----------------------------------------------------------------------------
53,900 PPG Industries, Inc. 3,436,125
- -----------------------------------------------------------------------------
COMMERCIAL BANKS - 11.1%
- -----------------------------------------------------------------------------
207,500 Bank of America Corp. 9,293,925
- -----------------------------------------------------------------------------
68,800 KeyCorp 2,310,992
- -----------------------------------------------------------------------------
84,300 National City Corp. 3,285,171
- -----------------------------------------------------------------------------
59,600 PNC Financial Services Group 3,117,080
- -----------------------------------------------------------------------------
137,000 U.S. Bancorp 3,919,570
- -----------------------------------------------------------------------------
82,800 Wachovia Corp. 4,074,588
- -----------------------------------------------------------------------------
101,000 Wells Fargo & Co. 6,031,720
- -----------------------------------------------------------------------------
32,033,046
- ------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 1.3%
- -----------------------------------------------------------------------------
59,200 R.R. Donnelley & Sons Company 1,861,840
- -----------------------------------------------------------------------------
70,300 Waste Management, Inc. 2,002,144
- -----------------------------------------------------------------------------
3,863,984
- -----------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 2.7%
- -----------------------------------------------------------------------------
287,000 Hewlett-Packard Co. 5,355,420
- -----------------------------------------------------------------------------
27,600 International Business
Machines Corp. 2,477,100
- -----------------------------------------------------------------------------
7,832,520
- -----------------------------------------------------------------------------
DIVERSIFIED - 2.1%
- -----------------------------------------------------------------------------
54,000 Standard and Poor's 500
Depositary Receipt 6,123,060
- -----------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 6.2%
- -----------------------------------------------------------------------------
292,400 Citigroup Inc. 12,973,788
- -----------------------------------------------------------------------------
122,900 J.P. Morgan Chase & Co. 4,743,940
- -----------------------------------------------------------------------------
17,717,728
- -----------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 5.2%
- -----------------------------------------------------------------------------
43,700 ALLTEL Corp. $ 2,400,441
- -----------------------------------------------------------------------------
58,500 AT&T Corp. 1,000,935
- -----------------------------------------------------------------------------
111,300 BellSouth Corp. 2,968,371
- -----------------------------------------------------------------------------
152,900 SBC Communications Inc. 3,862,254
- -----------------------------------------------------------------------------
130,200 Sprint Corp. 2,727,690
- -----------------------------------------------------------------------------
50,300 Verizon Communications 1,966,730
- -----------------------------------------------------------------------------
14,926,421
- -----------------------------------------------------------------------------
ELECTRIC UTILITIES - 2.6%
- -----------------------------------------------------------------------------
105,800 Exelon Corporation 4,191,796
- -----------------------------------------------------------------------------
62,100 PPL Corporation 3,229,200
- -----------------------------------------------------------------------------
7,420,996
- -----------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 1.3%
- -----------------------------------------------------------------------------
44,000 CVS Corp. 1,912,240
- -----------------------------------------------------------------------------
128,100 Kroger Co. (The)(1) 1,935,591
- -----------------------------------------------------------------------------
3,847,831
- -----------------------------------------------------------------------------
FOOD PRODUCTS - 2.3%
- -----------------------------------------------------------------------------
66,200 H.J. Heinz Company 2,406,370
- -----------------------------------------------------------------------------
84,500 Sara Lee Corp. 1,967,160
- -----------------------------------------------------------------------------
39,300 Unilever N.V. New York Shares 2,290,797
- -----------------------------------------------------------------------------
6,664,327
- -----------------------------------------------------------------------------
GAS UTILITIES - 0.6%
- -----------------------------------------------------------------------------
80,000 NiSource Inc. 1,716,000
- -----------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.9%
- -----------------------------------------------------------------------------
80,600 Baxter International, Inc. 2,479,256
- -----------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 2.0%
- -----------------------------------------------------------------------------
34,900 AmerisourceBergen Corp. 1,920,896
- -----------------------------------------------------------------------------
27,700 CIGNA Corp. 1,757,842
- -----------------------------------------------------------------------------
52,400 HCA Inc. 1,924,652
- -----------------------------------------------------------------------------
5,603,390
- -----------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.1%
- -----------------------------------------------------------------------------
31,700 Harrah's Entertainment, Inc. 1,855,084
- -----------------------------------------------------------------------------
141,200 McDonald's Corporation 4,115,980
- -----------------------------------------------------------------------------
5,971,064
- -----------------------------------------------------------------------------
HOUSEHOLD DURABLES - 2.0%
- -----------------------------------------------------------------------------
17,000 Black & Decker Corporation 1,364,760
- -----------------------------------------------------------------------------
96,300 Newell Rubbermaid Inc. 2,076,228
- -----------------------------------------------------------------------------
26,700 Snap-on Incorporated 784,446
- -----------------------------------------------------------------------------
24,100 Whirlpool Corp. 1,415,875
- -----------------------------------------------------------------------------
5,641,309
- -----------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 2.1%
- -----------------------------------------------------------------------------
97,500 General Electric Co. 3,326,700
- -----------------------------------------------------------------------------
84,700 Tyco International Ltd. 2,638,405
- -----------------------------------------------------------------------------
5,965,105
- -----------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
Capital Value - Schedule of Investments
OCTOBER 31, 2004
Shares Value
- -----------------------------------------------------------------------------
INSURANCE - 5.8%
- -----------------------------------------------------------------------------
79,200 Allstate Corp. $ 3,808,728
- -----------------------------------------------------------------------------
47,100 American International
Group, Inc. 2,859,441
- ----------------------------------------------------------------------------
51,800 Hartford Financial
Services Group Inc. (The) 3,029,264
- -----------------------------------------------------------------------------
52,400 Loews Corp. 3,138,760
- -----------------------------------------------------------------------------
50,500 Marsh & McLennan
Companies Inc. 1,396,830
- -----------------------------------------------------------------------------
42,000 Torchmark Corp. 2,268,840
- -----------------------------------------------------------------------------
16,501,863
- -----------------------------------------------------------------------------
IT SERVICES - 2.1%
- -----------------------------------------------------------------------------
52,600 Computer Sciences Corp.(1) 2,612,642
- -----------------------------------------------------------------------------
83,600 Electronic Data Systems Corp. 1,778,172
- -----------------------------------------------------------------------------
51,300 Fiserv, Inc.(1) 1,823,202
- -----------------------------------------------------------------------------
6,214,016
- -----------------------------------------------------------------------------
MACHINERY - 2.3%
- -----------------------------------------------------------------------------
47,400 Dover Corp. 1,861,398
- -----------------------------------------------------------------------------
38,200 Ingersoll-Rand Company 2,614,408
- -----------------------------------------------------------------------------
31,000 Parker-Hannifin Corp. 2,189,530
- -----------------------------------------------------------------------------
6,665,336
- -----------------------------------------------------------------------------
MEDIA - 2.4%
- -----------------------------------------------------------------------------
35,500 Gannett Co., Inc. 2,944,725
- -----------------------------------------------------------------------------
240,800 Time Warner Inc.(1) 4,006,912
- -----------------------------------------------------------------------------
6,951,637
- -----------------------------------------------------------------------------
METALS & MINING - 1.4%
- -----------------------------------------------------------------------------
75,300 Alcoa Inc. 2,447,250
- -----------------------------------------------------------------------------
40,200 Nucor Corp. 1,697,646
- -----------------------------------------------------------------------------
4,144,896
- -----------------------------------------------------------------------------
MULTILINE RETAIL - 1.6%
- -----------------------------------------------------------------------------
122,200 May Department
Stores Co. (The) 3,184,532
- -----------------------------------------------------------------------------
42,900 Sears, Roebuck & Co. 1,501,500
- -----------------------------------------------------------------------------
4,686,032
- -----------------------------------------------------------------------------
OIL & GAS - 10.0%
- -----------------------------------------------------------------------------
96,200 ChevronTexaco Corp. 5,104,372
- -----------------------------------------------------------------------------
51,700 ConocoPhillips 4,358,827
- -----------------------------------------------------------------------------
238,400 Exxon Mobil Corp. 11,734,048
- -----------------------------------------------------------------------------
140,500 Royal Dutch Petroleum Co.
New York Shares 7,620,720
- -----------------------------------------------------------------------------
28,817,967
- -----------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.2%
- -----------------------------------------------------------------------------
57,100 Weyerhaeuser Co. 3,576,744
- -----------------------------------------------------------------------------
PHARMACEUTICALS - 3.5%
- -----------------------------------------------------------------------------
79,800 Abbott Laboratories 3,401,874
- -----------------------------------------------------------------------------
108,600 Bristol-Myers Squibb Co. 2,544,498
- -----------------------------------------------------------------------------
57,800 Johnson & Johnson 3,374,364
- -----------------------------------------------------------------------------
23,300 Merck & Co., Inc. 729,523
- -----------------------------------------------------------------------------
10,050,259
- -----------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT - 0.6%
- -----------------------------------------------------------------------------
75,500 Intel Corp. $ 1,680,630
- -----------------------------------------------------------------------------
SOFTWARE - 1.5%
- -----------------------------------------------------------------------------
151,000 Microsoft Corporation 4,226,490
- -----------------------------------------------------------------------------
SPECIALTY RETAIL - 0.8%
- -----------------------------------------------------------------------------
74,000 Blockbuster Inc. Cl B(1) 479,520
- -----------------------------------------------------------------------------
68,300 Limited Brands 1,692,474
- -----------------------------------------------------------------------------
2,171,994
- -----------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS - 1.8%
- -----------------------------------------------------------------------------
47,100 Liz Claiborne, Inc. 1,925,448
- -----------------------------------------------------------------------------
38,300 Reebok International Ltd. 1,417,100
- -----------------------------------------------------------------------------
34,700 VF Corp. 1,867,901
- -----------------------------------------------------------------------------
5,210,449
- -----------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 5.7%
- -----------------------------------------------------------------------------
162,700 Freddie Mac 10,835,820
- -----------------------------------------------------------------------------
25,600 MGIC Investment Corp. 1,646,336
- -----------------------------------------------------------------------------
97,200 Washington Mutual, Inc. 3,762,612
- -----------------------------------------------------------------------------
16,244,768
- ------------------------------------------------------------------------------
TOBACCO - 1.4%
- -----------------------------------------------------------------------------
81,100 Altria Group Inc. 3,930,106
- -----------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.7%
- -----------------------------------------------------------------------------
76,600 Vodafone Group plc ADR 1,975,514
- -----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $245,500,099) 274,006,823
- -----------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS - 4.9%
Repurchase Agreement, Deutsche
Bank Securities, Inc., (collateralized
by various U.S. Treasury obligations,
2.00% - 6.50%, 5/15/06 - 10/15/06, valued
at $14,343,798), in a joint trading account
at 1.74%, dated 10/29/04, due
11/1/04 (Delivery value $14,002,030)
(Cost $14,000,000) 14,000,000
- -----------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 100.4%
(Cost $259,500,099) 288,006,823
- -----------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES - (0.4)% (1,030,288)
- -----------------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% $286,976,535
=============================================================================
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements.
- ------
9
Statement of Assets and Liabilities
OCTOBER 31, 2004
ASSETS
Investment securities, at value (cost of $259,500,099) $288,006,823
- ----------------------------------------------------------------
Cash 1,088,975
- ----------------------------------------------------------------
Receivable for capital shares sold 789,436
- ----------------------------------------------------------------
Dividends and interest receivable 500,152
- --------------------------------------------------------------------------------
290,385,386
- --------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 3,160,934
- ----------------------------------------------------------------
Accrued management fees 244,795
- ----------------------------------------------------------------
Distribution fees payable 1,561
- ----------------------------------------------------------------
Service fees payable 1,561
- --------------------------------------------------------------------------------
3,408,851
- --------------------------------------------------------------------------------
NET ASSETS $286,976,535
================================================================================
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $258,099,824
- ----------------------------------------------------------------
Undistributed net investment income 2,252,611
- ----------------------------------------------------------------
Accumulated net realized loss on investment transactions (1,882,624)
- ----------------------------------------------------------------
Net unrealized appreciation on investments 28,506,724
- --------------------------------------------------------------------------------
$286,976,535
================================================================================
INVESTOR CLASS, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $255,504,268
- ----------------------------------------------------------------
Shares outstanding 38,645,675
- ----------------------------------------------------------------
Net asset value per share $6.61
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $23,449,008
- ----------------------------------------------------------------
Shares outstanding 3,541,796
- ----------------------------------------------------------------
Net asset value per share $6.62
- --------------------------------------------------------------------------------
ADVISOR CLASS, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $8,023,259
- ----------------------------------------------------------------
Shares outstanding 1,216,197
- ----------------------------------------------------------------
Net asset value per share $6.60
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
10
Statement of Operations
YEAR ENDED OCTOBER 31, 2004
INVESTMENT INCOME
INCOME:
- ----------------------------------------------------------------
Dividends $ 4,444,690
- ----------------------------------------------------------------
Interest 106,460
- --------------------------------------------------------------------------------
4,551,150
- --------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------
Management fees 1,927,559
- ----------------------------------------------------------------
Distribution fees - Advisor Class 9,275
- ----------------------------------------------------------------
Service fees - Advisor Class 9,275
- ----------------------------------------------------------------
Directors' fees and expenses 2,593
- ----------------------------------------------------------------
Other expenses 879
- --------------------------------------------------------------------------------
1,949,581
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,601,569
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
Net realized gain on investment transactions 1,571,934
- ----------------------------------------------------------------
Change in net unrealized appreciation on investments 15,422,276
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 16,994,210
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,595,779
================================================================================
See Notes to Financial Statements.
- ------
11
Statement of Changes in Net Assets
YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2004 2003
OPERATIONS
Net investment income $ 2,601,569 $ 1,173,333
- ---------------------------------------------
Net realized gain (loss) 1,571,934 (879,865)
- ---------------------------------------------
Change in net unrealized appreciation 15,422,276 15,606,843
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 19,595,779 15,900,311
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
- ---------------------------------------------
Investor Class (1,108,582) (722,398)
- ---------------------------------------------
Institutional Class (149,309) (55,069)
- ---------------------------------------------
Advisor Class (4,126) --
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (1,262,017) (777,467)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets from capital
share transactions 165,237,330 34,078,256
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 183,571,092 49,201,100
NET ASSETS
Beginning of period 103,405,443 54,204,343
- --------------------------------------------------------------------------------
End of period $286,976,535 $103,405,443
================================================================================
Undistributed net investment income $2,252,611 $923,819
================================================================================
See Notes to Financial Statements.
- ------
12
Notes to Financial Statements
OCTOBER 31, 2004
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Capital Value Fund (the fund) is one
fund in a series issued by the corporation. The fund is diversified under the
1940 Act. The fund's investment objective is to seek long-term capital growth.
The fund pursues this objective by investing primarily in common stocks of
medium to large companies that management believes to be undervalued at the time
of purchase. The fund also seeks to minimize the impact of federal taxes on
shareholder returns by attempting to minimize taxable distributions to
shareholders. The following is a summary of the fund's significant accounting
policies.
MULTIPLE CLASS -- The fund is authorized to issue the Investor Class, the
Institutional Class and the Advisor Class. The share classes differ principally
in their respective shareholder servicing and distribution expenses and
arrangements. All shares of the fund represent an equal pro rata interest in the
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. Sale of the Advisor Class commenced
on May 14, 2003.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. 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 close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
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.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. 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 other registered investment
companies having management agreements with ACIM, 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. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
USE OF ESTIMATES -- 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.
(continued)
- ------
13
Notes to Financial Statements
OCTOBER 31, 2004
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation 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 the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. For funds with a stepped fee schedule, the
rate of the fee is determined by applying a fee rate calculation formula. This
formula takes into account all of the investment manager's assets under
management in the fund's investment strategy (strategy assets) to calculate the
appropriate fee rate for the fund. The strategy assets include the fund's assets
and the assets of other clients of the investment manager that are not in the
American Century family of funds, but that have the same investment team and
investment strategy.
The annual management fee schedule for each class is as follows:
- --------------------------------------------------------------------------------
INVESTOR INSTITUTIONAL ADVISOR
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $500 million 1.10% 0.90% 0.85%
- --------------------------------------------------------------------------------
Next $500 million 1.00% 0.80% 0.75%
- --------------------------------------------------------------------------------
Over $1 billion 0.90% 0.70% 0.65%
- --------------------------------------------------------------------------------
The effective annual management fee for the year ended October 31, 2004 was
1.10%, 0.90%, and 0.85%, for the Investor Class, Institutional Class and Advisor
Class, respectively.
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a Master
Distribution and Shareholder Services Plan (the plan) for the Advisor Class,
pursuant to Rule 12b-1 of the 1940 Act. The plan provides that the Advisor Class
will pay American Century Investment Services, Inc. (ACIS) an annual
distribution fee equal to 0.25% and an annual service fee equal to 0.25%. The
fees are computed and accrued daily based on the Advisor Class's daily net
assets, and paid monthly in arrears. The distribution fee provides compensation
for expenses incurred by financial intermediaries in connection with
distributing shares of the Advisor Class including, but not limited to, payments
to brokers, dealers, and financial institutions that have entered into sales
agreements with respect to shares of the fund. The service fee provides
compensation for shareholder and administrative services rendered by ACIS, its
affiliates or independent third party providers. Fees incurred under the plan
during the year ended October 31, 2004, are detailed in the Statement of
Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
manager, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services Corporation.
During the year ended October 31, 2004, the fund invested in a money market fund
for temporary purposes, which was managed by J.P. Morgan Investment Management,
Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan Chase & Co.
(JPM). JPM is an equity investor in ACC. The fund has a bank line of credit
agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a custodian of the fund and
a wholly owned subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the year ended October 31, 2004, were $183,126,765 and $25,359,142,
respectively.
(continued)
- ------
14
Notes to Financial Statements
OCTOBER 31, 2004
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
SHARES AMOUNT
- --------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 150,000,000
================================================================================
Sold 26,313,159 $168,670,638
- ------------------------------------------------
Issued in reinvestment of distributions 176,012 1,077,190
- ------------------------------------------------
Redeemed (3,525,710) (22,477,617)
- --------------------------------------------------------------------------------
Net increase 22,963,461 $147,270,211
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 150,000,000
================================================================================
Sold 7,059,686 $36,556,988
- ------------------------------------------------
Issued in reinvestment of distributions 122,823 606,746
- ------------------------------------------------
Redeemed (1,839,155) (9,565,446)
- --------------------------------------------------------------------------------
Net increase 5,343,354 $27,598,288
================================================================================
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 15,000,000
================================================================================
Sold 1,955,252 $12,475,027
- ------------------------------------------------
Issued in reinvestment of distributions 24,242 148,362
- ------------------------------------------------
Redeemed (352,410) (2,239,342)
- --------------------------------------------------------------------------------
Net increase 1,627,084 $10,384,047
================================================================================
YEAR ENDED OCTOBER 31, 2003
SHARES AUTHORIZED 15,000,000
================================================================================
Sold 1,478,545 $8,030,416
- ------------------------------------------------
Issued in reinvestment of distributions 10,959 54,137
- ------------------------------------------------
Redeemed (348,587) (1,796,602)
- --------------------------------------------------------------------------------
Net increase 1,140,917 $6,287,951
================================================================================
ADVISOR CLASS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 1,354,281 $8,693,206
- ------------------------------------------------
Issued in reinvestment of distributions 674 4,126
- ------------------------------------------------
Redeemed (173,090) (1,114,260)
- --------------------------------------------------------------------------------
Net increase 1,181,865 $7,583,072
================================================================================
PERIOD ENDED OCTOBER 31, 2003(1)
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 34,332 $192,017
================================================================================
(1) May 14, 2003 (commencement of sale) through October 31, 2003.
(continued)
- ------
15
Notes to Financial Statements
OCTOBER 31, 2004
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650,000,000
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the year ended October 31, 2004.
6. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years ended October 31, 2004
and October 31, 2003 were as follows:
- ------------------------------------------------------------------------
2004 2003
- ------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM
- ------------------------------------------------------------------------
Ordinary income $1,262,017 $777,467
- ------------------------------------------------------------------------
Long-term capital gains -- --
- ------------------------------------------------------------------------
The 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 October 31, 2004, the components of distributable earnings on a tax-basis
and the federal tax cost of investments were as follows:
- --------------------------------------------------------------------------------
Federal tax cost of investments $260,327,868
================================================================================
Gross tax appreciation of investments $30,074,527
- -----------------------------------------------------------------
Gross tax depreciation of investments (2,395,572)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $27,678,955
================================================================================
Undistributed ordinary income $ 2,252,611
- -----------------------------------------------------------------
Accumulated capital losses $(1,054,855)
- --------------------------------------------------------------------------------
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 accumulated capital losses listed above represent net capital loss
carryovers that may be used to offset future realized capital gains for federal
income tax purposes. Capital loss carryovers of $520,483 and $534,372 expire in
2009 and 2011, respectively.
7. OTHER TAX INFORMATION (UNAUDITED)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
The fund hereby designates $1,262,017 of qualified dividend income for the
fiscal year ended October 31, 2004.
For corporate taxpayers, 100.00% of the ordinary income distributions paid
during the fiscal year ended October 31, 2004, qualify for the corporate
dividends received deduction.
- ------
16
Capital Value - Financial Highlights
For a Share Outstanding Throughout the Years Ended October 31
- ---------------------------------------------------------------------------------------------
INVESTOR CLASS
- ---------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
PER-SHARE DATA
Net Asset Value, Beginning of Period $5.86 $4.88 $5.39 $5.50 $5.18
- ---------------------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------
Net Investment Income 0.09(1) 0.08(1) 0.07(1) 0.06 0.08
- -----------------------------------
Net Realized and
Unrealized Gain (Loss) 0.72 0.97 (0.52) (0.09) 0.29
- ---------------------------------------------------------------------------------------------
Total From Investment Operations 0.81 1.05 (0.45) (0.03) 0.37
- ---------------------------------------------------------------------------------------------
Distributions
- -----------------------------------
From Net Investment Income (0.06) (0.07) (0.06) (0.08) (0.05)
- ---------------------------------------------------------------------------------------------
Net Asset Value, End of Period $6.61 $5.86 $4.88 $5.39 $5.50
=============================================================================================
TOTAL RETURN(2) 13.94% 21.67% (8.49)% (0.47)% 7.23%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.10% 1.10% 1.10% 1.10% 1.10%
- -----------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.44% 1.54% 1.32% 1.18% 1.56%
- -----------------------------------
Portfolio Turnover Rate 15% 22% 42% 56% 73%
- -----------------------------------
Net Assets, End of Period
(in thousands) $255,504 $91,960 $50,425 $47,542 $39,135
- ---------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset values
were calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC guidelines
and does not result in any gain or loss of value between one class and
another.
See Notes to Financial Statements.
- ------
17
Capital Value - Financial Highlights
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
- --------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------------
2004 2003 2002(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $5.87 $4.88 $5.87
- --------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------
Net Investment Income(2) 0.10 0.09 0.06
- --------------------------------------------------------------------------------------
Net Realized and
Unrealized Gain (Loss) 0.72 0.97 (1.05)
- --------------------------------------------------------------------------------------
Total From Investment Operations 0.82 1.06 (0.99)
- --------------------------------------------------------------------------------------
Distributions
- ---------------------------------------
From Net Investment Income (0.07) (0.07) --
- --------------------------------------------------------------------------------------
Net Asset Value, End of Period $6.62 $5.87 $4.88
======================================================================================
TOTAL RETURN(3) 14.15% 22.07% (16.87)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 0.90% 0.90% 0.90%(4)
- ---------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.64% 1.74% 1.56%(4)
- ---------------------------------------
Portfolio Turnover Rate 15% 22% 42%(5)
- ---------------------------------------
Net Assets, End of Period
(in thousands) $23,449 $11,244 $3,779
- --------------------------------------------------------------------------------------
(1) March 1, 2002 (commencement of sale) through October 31, 2002.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2002.
See Notes to Financial Statements.
- ------
18
Capital Value - Financial Highlights
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
2004 2003(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $5.86 $5.19
- --------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------------------
Net Investment Income(2) 0.08 0.03
- -----------------------------------------------
Net Realized and Unrealized Gain 0.71 0.64
- --------------------------------------------------------------------------------
Total From Investment Operations 0.79 0.67
- --------------------------------------------------------------------------------
Distributions
- -----------------------------------------------
From Net Investment Income (0.05) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $6.60 $5.86
================================================================================
TOTAL RETURN(3) 13.60% 12.91%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.35% 1.35%(4)
- -----------------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.19% 1.03%(4)
- -----------------------------------------------
Portfolio Turnover Rate 15% 22%(5)
- -----------------------------------------------
Net Assets, End of Period (in thousands) $8,023 $201
- --------------------------------------------------------------------------------
(1) May 14, 2003 (commencement of sale) through October 31, 2003.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2003.
See Notes to Financial Statements.
- ------
19
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Capital Value Fund, (the "Fund"), one of the
funds comprising American Century Mutual Funds, Inc., as of October 31, 2004,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
preasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capital Value Fund as of October 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Kansas City, Missouri
December 15, 2004
- ------
20
Management
The individuals listed below serve as directors or officers of the fund. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the fund's investment advisor, American
Century Investment Management, Inc. (ACIM); the fund's principal underwriter,
American Century Investment Services, Inc. (ACIS); and the fund's transfer
agent, American Century Services Corporation (ACSC).
The other directors (more than three-fourths of the total numbers) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned subsidiaries, including
ACIM, ACIS, and ACSC. The directors serve in this capacity for six registered
investment companies in the American Century family of funds.
All persons named as officers of the fund also serve in a similar capacity for
the other 13 investment companies advised by ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated for
his or her service as an officer of the fund. The listed officers are interested
persons of the fund and are appointed or re-appointed on an annual basis.
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 23
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Strategic Account Implementation
Manager, Applied Industrial Technologies, Inc., a corporation engaged in the
sale of bearings and power transmission products
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, Midwest
Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Midwest Research Institute
- --------------------------------------------------------------------------------
D.D. (DEL) HOCK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1935
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 7
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Chairman, Public
Service Company of Colorado
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Allied Motion Technologies, Inc.
and J.D. Edwards & Company
- --------------------------------------------------------------------------------
(continued)
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21
Management
INDEPENDENT DIRECTORS (CONTINUED)
- --------------------------------------------------------------------------------
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director, Vice Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Western Investments,
Inc.; Retired Chairman of the Board, Butler Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Atlas-Copco, North America Inc.
- --------------------------------------------------------------------------------
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive Officer,
and Founder, Sayers Computer Source
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Triad Hospitals, Inc.
- --------------------------------------------------------------------------------
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 9
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Chief
Integration Officer, Sprint Corporation (September 2003 to present); Senior Vice
President - Financial Services, Sprint Corporation (January 2003 to September
2003); Senior Vice President, Finance - Global Markets Group, Sprint Corporation
(November 1998 to January 2003)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.
- --------------------------------------------------------------------------------
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 2
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, American Italian Pasta Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JAMES E. STOWERS, JR.,(1) 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director, Chairman of the Board
LENGTH OF TIME SERVED (YEARS): 45
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Director, and controlling
shareholder, ACC; Chairman, ACSC and other ACC subsidiaries; Director, ACIM,
ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
JAMES E. STOWERS III,(1) 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1959
POSITION(S) HELD WITH FUND: Director
LENGTH OF TIME SERVED (YEARS): 13
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Co-Chairman, ACC (September 2000 to
present); Chief Executive Officer, ACC (June 1996 to September 2000); Director,
ACC, ACIM, ACSC and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 41
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- --------------------------------------------------------------------------------
(1) James E. Stowers, Jr. is the father of James E. Stowers III.
(continued)
- ------
22
Management
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUND: President
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and
other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to
present); President, ACIM (September 2002 to present); President, ACIS (July
2003 to present); Chief Operating Officer, ACC (June 1996 to September 2000);
Also serves as: Executive Vice President, ACSC and other ACC subsidiaries
- --------------------------------------------------------------------------------
ROBERT T. JACKSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Executive Vice President
LENGTH OF TIME SERVED (YEARS): 8
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC
(August 1997 to present); Chief Financial Officer, ACC (May 1995 to October
2002); President, ACSC (January 1999 to present); Executive Vice President, ACC
(May 1995 to present); Also serves as: Executive Vice President and Chief
Financial Officer, ACIM, ACIS and other ACC subsidiaries; and Treasurer, ACIM
- --------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer, and Chief
Accounting Officer
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President (April 1998
to present) and Assistant Treasurer, ACSC (September 1985 to present)
- --------------------------------------------------------------------------------
DAVID C. TUCKER 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel
LENGTH OF TIME SERVED (YEARS): 3
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and General
Counsel, ACIM, ACIS, ACSC and other ACC subsidiaries (June 1998 to present);
Vice President and General Counsel, ACC (June 1998 to present)
- --------------------------------------------------------------------------------
DAVID H. REINMILLER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer
LENGTH OF TIME SERVED (YEARS): 3 and less than 1 year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACSC and
ACIM (March 2001 to present); Vice President, ACSC (March 2000 to present); Vice
President, ACIM (March 2002 to present); Vice President, ACIS (March 2003 to
present); Assistant General Counsel, ACSC (December 1996 to January 2001);
Associate General Counsel, ACSC (July 2001 to present)
- --------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Controller
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000
to present); Controller-Fund Accounting, ACSC (June 1997 to present)
- --------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer
LENGTH OF TIME SERVED (YEARS): 6
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC
(April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries
(April 1999 to present); President, American Century Employee Benefit Services,
Inc. (January 2000 to December 2000); Director, American Century Employee
Benefit Services, Inc. (February 2000 to December 2003); Treasurer, American
Century Employee Benefit Services, Inc. (December 2000 to December 2003);
Treasurer, American Century Ventures, Inc. (December 1999 to April 2001)
The SAI has additional information about the fund's directors and is available
without charge upon request by calling 1-800-345-2021.
- ------
23
Share Class Information
Three classes of shares are authorized for sale by the fund: Investor Class,
Institutional Class, and Advisor Class. The total expense ratio of Institutional
Class shares is lower than that of Investor Class shares. The total expense
ratio of Advisor Class shares is higher than that of Investor Class shares.
INVESTOR CLASS shares are available for purchase in two ways: 1) directly from
American Century without any commissions or other fees; or 2) through a
broker-dealer, which may require payment of a transaction fee to the broker.
INSTITUTIONAL CLASS shares are available to large investors such as endowments,
foundations, and retirement plans, and to financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million ($3 million
for endowments and foundations) in an American Century fund or at least $10
million in multiple funds. In recognition of the larger investments and account
balances and comparatively lower transaction costs, the total expense ratio of
Institutional Class shares is 0.20% less than the total expense ratio of
Investor Class shares.
ADVISOR CLASS shares are sold primarily through institutions such as investment
advisors, banks, broker-dealers, insurance companies, and financial advisors.
Advisor Class shares are subject to a 0.50% annual Rule 12b-1 service and
distribution fee. The total expense ratio of Advisor Class shares is 0.25%
higher than the total expense ratio of Investor Class shares.
All classes of shares represent a pro rata interest in the fund and generally
have the same rights and preferences.
- ------
24
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b),
457 and qualified plans [those not eligible for rollover to an IRA or to another
qualified plan] 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. Even if you plan to roll over the amount you
withdraw to another tax-deferred account, the withholding rate still applies to
the withdrawn amount unless we have received notice not to withhold federal
income tax prior to the withdrawal. 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.
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 manager, 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 manager uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-345-2021. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
manager 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 Form N-Q is available on the SEC's Web site 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 Web site at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
25
Index Definitions
The following indices are used to illustrate investment market, sector, or style
performance or to serve as fund performance comparisons. They are not investment
products available for purchase.
The RUSSELL 1000 VALUE INDEX measures the performance of those Russell 1000
companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book ratios
and lower forecasted growth rates.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500 publicly
traded U.S. companies chosen for market size, liquidity, and industry group
representation that are considered to be leading firms in dominant industries.
Each stock's weight in the index is proportionate to its market value. Created
by Standard & Poor's, it is considered to be a broad measure of U.S. stock
market performance.
- ------
26
Notes
- ------
27
Notes
- ------
28
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR RELATIONS:
1-800-345-2021 or 816-531-5575
BUSINESS, NOT-FOR-PROFIT,
EMPLOYER-SPONSORED RETIREMENT PLANS:
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER:
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.
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Services Corporation.
0411 American Century Investment Services, Inc.
SH-ANN-40960N (c)2004 American Century Services Corporation
ITEM 2. CODE OF ETHICS.
a. The registrant has adopted a Code of Ethics for Senior Financial
Officers that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer, and persons
performing similar functions.
b. No response required.
c. None.
d. None.
e. Not applicable.
f. The registrant's Code of Ethics for Senior Financial Officers was
filed as Exhibit 10(a) to American Century Mutual Fund, Inc.'s Annual
Certified Shareholder Report on Form N-CSR, File No. 811-0816, on
December 23, 2003, and is incorporated herein by reference.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The registrant's board has determined that the registrant has at least
one audit committee financial expert serving on its audit committee.
(a)(2) D.D. (Del) Hock, Donald H. Pratt, M. Jeannine Strandjord and Timothy
Webster are the registrant's designated audit committee financial
experts. They are "independent" as defined in Item 3 of Form N-CSR.
(a)(3) Not applicable.
(b) No response required.
(c) No response required.
(d) No response required.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees.
The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the audit of the
registrant's annual financial statements or services that are normally provided
by the accountant in connection with statutory and regulatory filings or
engagements for those fiscal years were as follows:
FY 2003: $162,293
FY 2004: $170,049
(b) Audit-Related Fees.
The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are reasonably
related to the performance of the audit of the registrant's financial statements
and are not reported under paragraph (a) of this Item were as follows:
For services rendered to the registrant:
FY 2003: $0
FY 2004: $0
Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X (relating to certain engagements for non-audit services
with the registrant's investment adviser and its affiliates):
FY 2003: $0
FY 2004: $0
(c) Tax Fees.
The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning were as follows:
For services rendered to the registrant:
FY 2003: $19,431
FY 2004: $21,496
These services included review of federal and state income tax forms
and federal excise tax forms.
Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X (relating to certain engagements for non-audit services
with the registrant's investment adviser and its affiliates):
FY 2003: $0
FY 2004: $0
(d) All Other Fees.
The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than the
services reported in paragraphs (a) through (c) of this Item were as follows:
For services rendered to the registrant:
FY 2003: $0
FY 2004: $0
Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X (relating to certain engagements for non-audit services
with the registrant's investment adviser and its affiliates):
FY 2003: $0
FY 2004: $0
(e)(1) In accordance with paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation
S-X, before the accountant is engaged by the registrant to render
audit or non-audit services, the engagement is approved by the
registrant's audit committee. Pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X, the registrant's audit committee also
pre-approves its accountant's engagements for non-audit services with
the registrant's investment adviser, its parent company, and any
entity controlled by, or under common control with the investment
adviser that provides ongoing services to the registrant, if the
engagement relates directly to the operations and financial reporting
of the registrant.
(e)(2) All services described in each of paragraphs (b) through (d) of this
Item were pre-approved before the engagement by the registrant's audit
committee pursuant to paragraph (c)(7)(i)(A) of Rule 2-01 of
Regulation S-X. Consequently, none of such services were required to
be approved by the audit committee pursuant to paragraph (c)(7)(i)(C).
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was less than 50%.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen
by another investment adviser), and any entity controlling, controlled
by, or under common control with the adviser that provides ongoing
services to the registrant for each of the last two fiscal years of
the registrant were as follows:
FY 2003: $488,799
FY 2004: $462,717
(h) The registrant's investment adviser and accountant have notified the
registrant's audit committee of all non-audit services that were
rendered by the registrant's accountant to the registrant's investment
adviser, its parent company, and any entity controlled by, or under
common control with the investment adviser that provides services to
the registrant, which services were not required to be pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The
notification provided to the registrant's audit committee included
sufficient details regarding such services to allow the registrant's
audit committee to consider the continuing independence of its
principal accountant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedule of investments is included as part of the report to
stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant does not currently have in place procedures by which
shareholders may recommend nominees to the registrant's board.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940) are effective based on their evaluation of these controls
and procedures as of a date within 90 days of the filing date of this
report.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940) that occurred during the registrant's second
fiscal quarter of the period covered by this report that have
materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Registrant's Code of Ethics for Senior Financial Officers, which is
the subject of the disclosure required by Item 2 of Form N-CSR, was
filed as Exhibit 10(a) to American Century Mutual Fund, Inc.'s
Certified Shareholder Report on Form N-CSR, File No. 811-3706, on
December 23, 2003.
(a)(2) Separate certifications by the registrant's principal executive
officer and principal financial officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940, are filed and attached hereto as Exhibit
99.302CERT.
(a)(3) Not applicable.
(b) A certification by the registrant's chief executive officer and chief
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, is furnished and attached hereto as Exhibit 99.906CERT.
SIGNATURES
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.
Registrant: AMERICAN CENTURY MUTUAL FUNDS, INC.
--------------------------------------------
By: /s/ William M. Lyons
------------------------------------------------
Name: William M. Lyons
Title: President
Date: December 27, 2004
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.
By: /s/ William M. Lyons
------------------------------------------------
Name: William M. Lyons
Title: President
(principal executive officer)
Date: December 27, 2004
By: /s/ Maryanne L. Roepke
------------------------------------------------
Name: Maryanne L. Roepke
Title: Sr. Vice President, Treasurer, and
Chief Accounting Officer
(principal financial officer)
Date: December 27, 2004