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
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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)
CHARLES A. ETHERINGTON, 4500 MAIN STREET, 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: 10-31
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Date of reporting period: 10-31-2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
[front cover]
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter]
Ultra® Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century® Ultra Fund for
the 12 months ended October 31, 2007. I am honored to be addressing you in the
"Our Message" space long devoted to company founder Jim Stowers, Jr. and his
son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
ULTRA
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 9
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 12
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 14
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 15
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 16
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 22
Report of Independent Registered Public Accounting Firm . . . . . . . 28
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 29
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Approval of Management Agreement for Ultra. . . . . . . . . . . . . . 34
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 39
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 41
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 42
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Steve Lurito, Chief Investment Officer, U.S. Growth Equity
STOCK RETURNS, VOLATILITY UP
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007. Stocks rallied for much of the first half of the fiscal year, touching
record highs in July, as the worldwide economic expansion drove strong
corporate earnings. But the sub-prime mortgage crisis blossomed in late July
and early August in the form of massive losses for banks, residential lenders,
and firms that securitized these subprime loans. This crisis caused a sharp
tightening of lending standards, removing the easy credit that propelled
strong consumer spending and funded a record amount of leveraged buyouts. As a
result, the U.S. stock market came under pressure late in the fiscal year.
By October, stock market volatility surged and credit markets seized up. To
relieve the pressure, the Federal Reserve (the Fed) lowered its benchmark
federal funds rate target in September and again in October--the Fed's first
rate cuts since June 2003. Markets rallied briefly at fiscal year-end, though
there were concerns heading into November about the future course of corporate
earnings.
GROWTH SHARES LED
Growth stocks led the market during the 12 months, outpacing value-oriented
shares across all market capitalizations. That's because the deceleration in
corporate earnings cast a brighter spotlight on the relative earnings power of
growth companies, providing a favorable context for our growth portfolios and
growth stocks in general. We took advantage of this favorable backdrop,
enjoying a solid year of outperformance.
Looking at returns by sector, energy and materials performed best, supported
by booming global demand for commodities. In contrast, the aforementioned
credit crisis weakened consumer discretionary and financial shares--the only
two segments of the S&P 500 Index to decline during the period.
We expect a continued favorable environment for growth-stock investing:
interest rates are low, global growth continues to provide new markets for
goods and services, and inflation remains contained.
U.S. Stock Index Returns
For the 12 months ended October 31, 2007
RUSSELL 1000 INDEX (LARGE-CAP) 15.03%
Russell 1000 Growth Index 19.23%
Russell 1000 Value Index 10.83%
RUSSELL MIDCAP INDEX 15.24%
Russell Midcap Growth Index 19.72%
Russell Midcap Value Index 9.73%
RUSSELL 2000 INDEX (SMALL-CAP) 9.27%
Russell 2000 Growth Index 16.73%
Russell 2000 Value Index 2.05%
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2
PERFORMANCE
Ultra
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years 10 years Inception Date
INVESTOR CLASS 25.89% 10.57% 5.79% 13.04% 11/2/81
RUSSELL 1000 GROWTH INDEX(1) 19.23% 12.61% 4.81% 11.71%(2) --
S&P 500 INDEX(1) 14.56% 13.88% 7.10% 13.34%(2) --
Institutional Class 26.14% 10.78% 6.00% 6.83% 11/14/96
A Class(3)
No sales charge* 25.56% 10.30% 5.54% 6.69%
With sales charge* 18.36% 9.00% 4.92% 6.12% 10/2/96
B Class
No sales charge* -- -- -- 5.75%(4)
With sales charge* -- -- -- 0.75%(4) 9/28/07
C Class 24.64% 9.49% -- 4.87% 10/29/01
R Class 25.26% -- -- 8.72% 8/29/03
* Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a 5.75% maximum 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) Data provided by Lipper Inc. -- A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(2) Since 10/31/81, the date nearest the Investor Class's inception for which
data are available.
(3) Prior to September 4, 2007, the A Class was referred to as the Advisor
Class. Performance, with sales charge, prior to that date has been adjusted to
reflect the A Class's current sales charge.
(4) Total 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. International investing involves special risks, such as
political instability and currency fluctuations.
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
Growth of $10,000 Over 10 Years
$10,000 investment made October 31, 1997
One-Year Returns Over 10 Years
Periods ended October 31
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investor
Class 17.61% 37.94% 9.81% -31.44% -12.99% 19.50% 4.46% 6.81% -1.51% 25.89%
Russell
1000
Growth
Index 24.64% 34.25% 9.33% -39.95% -19.62% 21.81% 3.38% 8.81% 10.84% 19.23%
S&P 500
Index 21.99% 25.67% 6.09% -24.90% -15.11% 20.80% 9.42% 8.72% 16.34% 14.56%
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. International investing involves special risks, such as
political instability and currency fluctuations.
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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4
PORTFOLIO COMMENTARY
Ultra
Portfolio Managers: Tom Telford and Steve Lurito
In August 2007, co-portfolio manager Wade Slome left American Century to
pursue another career opportunity. Steve Lurito, who joined the company in
July 2007 as chief investment officer of U.S. Growth Equity, became
co-portfolio manager with Tom Telford.
PERFORMANCE SUMMARY
Ultra returned 25.89%* for the fiscal year ended October 31, 2007, comfortably
outpacing the 19.23% return of its benchmark, the Russell 1000 Growth Index.
The S&P 500 Index, a broad measure of the stock market, returned 14.56%.
The reporting period was a favorable one for Ultra's investment approach.
Large-cap growth stocks returned to favor after a multi-year drought,
outperforming large-cap value issues by a wide margin over the past 12 months.
In addition, companies with improving business fundamentals, accelerating
earnings and revenue growth, and price momentum were well rewarded.
Ultra's outperformance of the Russell 1000 Growth Index followed process
enhancements implemented in August 2006. Security selection was also a key
factor, adding to performance in seven of ten market sectors.
TECHNOLOGY AND CONSUMER STOCKS BOOSTED RESULTS
Information technology and consumer discretionary stocks contributed the most
to Ultra's outperformance of the index; six of the top ten relative
performance contributors came from these two sectors of the portfolio.
The top contributor was handheld wireless products maker Research in Motion,
which produces the wildly popular Blackberry devices. Research in Motion
delivered consistently strong earnings results driven by multiple product
cycles and growing global demand for smart phones. Consumer electronics makers
Apple and Nintendo were also substantial contributors, thanks to robust sales
of Apple's iMac, iPhone, and iPod product lines, as well as Nintendo's Wii
game console.
In the consumer discretionary sector, the best contributor was global
positioning system devices maker Garmin, which reported earnings well above
expectations as global sales of personal navigation devices surged.
One characteristic prevalent in a number of portfolio holdings was improving
business fundamentals driven by exposure to healthier economic conditions
overseas. Some of these companies--including Research in Motion and Nintendo,
as well as wireless services provider America Movil and metals producer BHP
Billiton--are headquartered outside the U.S. and were significant contributors
to performance.
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Google Inc. Cl A 4.3% 1.7%
Cisco Systems Inc. 3.7% 4.2%
Apple Inc. 3.5% 2.6%
PepsiCo, Inc. 2.9% 2.3%
Intel Corp. 2.9% --
Hewlett-Packard Co. 2.6% 1.8%
Research In Motion Ltd. 2.1% --
Emerson Electric Co. 2.0% 2.4%
Coca-Cola Company (The) 2.0% --
T. Rowe Price Group Inc. 1.9% 1.4%
* All fund returns referenced in this commentary are for Investor Class shares.
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5
Ultra
HEALTH CARE AND MATERIALS ALSO ADDED VALUE
The portfolio's health care and materials holdings also contributed favorably
to relative results. Pharmacy benefits manager Express Scripts posted a strong
return thanks to an industry-wide shift toward more efficient and
cost-effective generic drugs and mail order prescriptions. Seed maker Monsanto
was the top contributor in the materials sector as the company benefited from
growing global market share, increased adoption of its innovative seed
technology, and greater corn planting driven by the ethanol boom.
INDUSTRIALS DETRACTED
Industrials stocks performed well during the reporting period, but the
portfolio's holdings in this sector underperformed their counterparts in the
benchmark index. Airline company US Airways was the biggest detractor among
the portfolio's industrials stocks. Soaring energy prices put downward
pressure on profit margins for the entire airline industry, and US Airways
faced a series of challenges integrating its merger with America West.
Coal mining equipment manufacturer Joy Global also weighed on relative
results. While most energy and commodity prices rose sharply during the
reporting period, softness in coal prices led many coal producers to hold back
on orders for new equipment. As a result, Joy Global's earnings fell short of
expectations. We eliminated both Joy Global and US Airways from the portfolio.
A LOOK AHEAD
We expect large-cap growth stocks to remain in favor as the overall slowdown
in the U.S. economy casts a brighter spotlight on the relative earnings power
of large, growth-oriented companies. In addition, our theme of identifying
businesses in the best position to take advantage of global growth and
innovation trends provides a favorable context for our portfolio.
Our focus, as always, is to invest in larger-cap companies with the best
combination of improving business fundamentals, sustainability of future
growth, and attractive risk/reward characteristics.
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Communications Equipment 7.4% 5.2%
Internet Software & Services 6.5% 3.5%
Computers & Peripherals 6.3% 4.4%
Semiconductors &
Semiconductor Equipment 5.8% 2.2%
Software 5.6% 6.5%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 87.4% 90.0%
Foreign Common Stocks(1) 11.6% 9.5%
TOTAL COMMON STOCKS 99.0% 99.5%
Temporary Cash
Investments 2.3% 0.7%
Other Assets
and Liabilities(2) (1.3)% (0.2)%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes securities lending collateral and other assets and liabilities.
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6
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, 2007 to October 31, 2007
(except as noted).
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.
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.
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7
Expenses Paid
Beginning During
Account Ending Period(1) Annualized
Value Account Value 5/1/07 - Expense
5/1/07 10/31/07 10/31/07 Ratio(1)
ACTUAL
Investor Class $1,000 $1,187.20 $5.46 0.99%
Institutional Class $1,000 $1,188.50 $4.36 0.79%
A Class $1,000 $1,186.00 $6.83 1.24%
B Class $1,000 $1,057.50(2) $1.85(3) 1.99%
C Class $1,000 $1,181.30 $10.94 1.99%
R Class $1,000 $1,184.50 $8.20 1.49%
HYPOTHETICAL
Investor Class $1,000 $1,020.21 $5.04 0.99%
Institutional Class $1,000 $1,021.22 $4.02 0.79%
A Class $1,000 $1,018.95 $6.31 1.24%
B Class $1,000 $1,015.17(4) $10.11(4) 1.99%
C Class $1,000 $1,015.17 $10.11 1.99%
R Class $1,000 $1,017.69 $7.58 1.49%
(1) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
(2) Ending account value based on actual return from September 28, 2007
(commencement of sale) through October 31, 2007.
(3) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 33, the number of days in the period from September 28, 2007
(commencement of sale) through October 31, 2007, divided by 365, to reflect
the period. Had the class been available for the full period, the expenses
paid during the period would have been higher.
(4) Ending account value and expenses paid during period assumes the class had
been available throughout the entire period and are calculated using the
class's annualized expense ratio listed in the table above.
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8
SCHEDULE OF INVESTMENTS
Ultra
OCTOBER 31, 2007
Shares ($ IN THOUSANDS) Value
Common Stocks -- 99.0%
AEROSPACE & DEFENSE -- 5.3%
815,000 Boeing Co. $ 80,351
1,007,000 Lockheed Martin Corp. 110,810
1,004,601 Precision Castparts Corp. 150,500
1,225,000 Raytheon Company 77,922
1,875,315 United Technologies Corp. 143,630
-----------
563,213
-----------
BEVERAGES -- 4.9%
3,418,021 Coca-Cola Company (The) 211,097
4,166,000 PepsiCo, Inc. 307,117
-----------
518,214
-----------
BIOTECHNOLOGY -- 1.7%
741,573 Celgene Corp.(1) 48,944
2,822,946 Gilead Sciences, Inc.(1) 130,392
-----------
179,336
-----------
CAPITAL MARKETS -- 3.8%
8,465,795 Schwab (Charles) Corp. 196,745
3,212,940 T. Rowe Price Group Inc. 206,399
-----------
403,144
-----------
CHEMICALS -- 2.7%
2,100,486 Monsanto Co. 205,071
1,148,257 Mosaic Co. (The)(1) 80,148
-----------
285,219
-----------
COMMUNICATIONS EQUIPMENT -- 7.4%
11,922,454 Cisco Systems Inc.(1) 394,155
3,619,000 Corning Inc. 87,833
2,327,000 Juniper Networks, Inc.(1) 83,772
1,804,000 Research In Motion Ltd.(1) 224,616
-----------
790,376
-----------
COMPUTERS & PERIPHERALS -- 6.3%
1,963,628 Apple Inc.(1) 372,991
967,441 EMC Corp.(1) 24,563
5,255,000 Hewlett-Packard Co. 271,578
-----------
669,132
-----------
DIVERSIFIED CONSUMER SERVICES -- 1.3%
1,769,466 Apollo Group, Inc. Cl A(1) 140,248
-----------
DIVERSIFIED FINANCIAL SERVICES -- 1.6%
247,398 CME Group Inc. 164,829
-----------
ELECTRICAL EQUIPMENT -- 3.4%
3,203,000 ABB Ltd. ORD 96,847
4,139,692 Emerson Electric Co. 216,382
659,000 Roper Industries Inc. 46,664
-----------
359,893
-----------
Shares ($ IN THOUSANDS) Value
ENERGY EQUIPMENT & SERVICES -- 4.3%
688,000 Baker Hughes Inc. $ 59,663
1,453,000 Halliburton Co. 57,277
1,730,807 Schlumberger Ltd. 167,144
1,467,856 Transocean Inc.(1) 175,219
-----------
459,303
-----------
FOOD & STAPLES RETAILING -- 1.2%
1,972,921 Costco Wholesale Corp. 132,699
-----------
FOOD PRODUCTS -- 1.9%
1,854,264 Kellogg Co. 97,887
3,246,763 Unilever N.V. CVA 105,763
-----------
203,650
-----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.2%
317,000 Becton, Dickinson & Co. 26,457
-----------
HEALTH CARE PROVIDERS & SERVICES -- 2.8%
2,495,000 Express Scripts, Inc.(1) 157,435
1,496,000 Medco Health Solutions Inc.(1) 141,192
-----------
298,627
-----------
HOTELS, RESTAURANTS & LEISURE -- 2.7%
427,005 Chipotle Mexican Grill Inc. Cl A(1)(2) 59,354
2,139,667 McDonald's Corporation 127,738
2,398,644 Yum! Brands, Inc. 96,593
-----------
283,685
-----------
HOUSEHOLD PRODUCTS -- 2.1%
2,392,910 Colgate-Palmolive Co. 182,508
378,000 Energizer Holdings Inc.(1) 39,425
-----------
221,933
-----------
INDUSTRIAL CONGLOMERATES -- 1.8%
869,662 3M Co. 75,104
1,715,000 Textron Inc. 118,695
-----------
193,799
-----------
INSURANCE -- 1.5%
2,606,017 Aflac Inc. 163,606
-----------
INTERNET SOFTWARE & SERVICES -- 6.5%
3,015,985 eBay Inc.(1) 108,877
647,468 Google Inc. Cl A(1) 457,759
4,046,000 Yahoo! Inc.(1) 125,831
-----------
692,467
-----------
IT SERVICES -- 3.4%
974,747 DST Systems, Inc.(1)(2) 82,571
1,497,003 International Business Machines Corp. 173,832
555,800 MasterCard Inc. Cl A(2) 105,352
-----------
361,755
-----------
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9
Ultra
Shares ($ IN THOUSANDS) Value
LIFE SCIENCES TOOLS & SERVICES -- 3.1%
743,704 Covance Inc.(1) $ 61,356
2,653,000 Thermo Fisher Scientific Inc.(1) 156,022
1,457,000 Waters Corp.(1) 112,160
-----------
329,538
-----------
METALS & MINING -- 2.4%
3,086,000 BHP Billiton Ltd. ORD 134,330
1,043,240 Freeport-McMoRan Copper & Gold, Inc. 122,768
-----------
257,098
-----------
MULTILINE RETAIL -- 0.7%
1,160,472 Target Corp. 71,207
-----------
OIL, GAS & CONSUMABLE FUELS -- 3.9%
2,107,000 Exxon Mobil Corp. 193,823
524,000 Noble Energy Inc. 40,107
794,000 StatoilHydro ASA ORD 26,901
2,372,842 XTO Energy Inc. 157,509
-----------
418,340
-----------
PHARMACEUTICALS -- 5.5%
2,066,000 Abbott Laboratories 112,845
2,165,738 Allergan, Inc. 146,361
2,665,000 Bristol-Myers Squibb Co. 79,923
1,229,000 Johnson & Johnson 80,094
1,376,000 Merck & Co., Inc. 80,166
2,629,000 Schering-Plough Corp. 80,237
-----------
579,626
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.8%
11,375,797 Intel Corp. 306,009
1,152,018 MEMC Electronic Materials Inc.(1) 84,351
5,586,165 NVIDIA Corp.(1) 197,639
721,000 Varian Semiconductor Equipment Associates,
Inc.(1) 33,180
-----------
621,179
-----------
SOFTWARE -- 5.6%
3,194,116 Adobe Systems Inc.(1) 152,998
1,450,430 Electronic Arts Inc.(1) 88,650
3,127,123 Microsoft Corporation 115,109
313,000 Nintendo Co., Ltd. ORD 197,319
295,238 VMware, Inc. Cl A(1)(2) 36,855
-----------
590,931
-----------
SPECIALTY RETAIL -- 1.7%
1,741,705 GameStop Corp. Cl A(1) 103,144
2,508,323 TJX Companies, Inc. (The) 72,566
-----------
175,710
-----------
Shares ($ IN THOUSANDS) Value
TEXTILES, APPAREL & LUXURY GOODS -- 0.8%
1,355,091 NIKE, Inc. Cl B $ 89,788
-----------
WIRELESS TELECOMMUNICATION SERVICES -- 2.7%
1,622,000 America Movil, SAB de CV ADR 106,063
1,886,000 Rogers Communications Inc. Cl B ORD 96,178
21,070,000 Vodafone Group plc ORD 83,100
-----------
285,341
-----------
TOTAL COMMON STOCKS
(Cost $7,653,711) 10,530,343
-----------
Principal Amount
Temporary Cash Investments -- 2.3%
$25,500 FHLB Discount Notes, 4.40%, 11/1/07(3) 25,500
Repurchase Agreement, Bank of America Securities, LLC,
(collateralized by various U.S. Treasury obligations,
2.375%-3.875%, 1/15/09-1/15/25, valued at $90,715), in a joint
trading account at 4.47%, dated 10/31/07, due 11/1/07 (Delivery
value $81,910) 81,900
Repurchase Agreement, Merrill Lynch & Co., Inc., (collateralized by
various U.S. Treasury obligations, 6.25%-8.125%, 8/15/21-8/15/23,
valued at $139,830), in a joint trading account at 4.40%, dated
10/31/07, due 11/1/07 (Delivery value $137,217) 137,200
-----------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $244,600) 244,600
-----------
Temporary Cash Investments -- Securities Lending Collateral(4) -- 1.8%
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Government Agency obligations in a
pooled account at the lending agent), 4.83%, dated 10/31/07, due
11/1/07 (Delivery value $100,013) 100,000
Repurchase Agreement, Deutsche Bank AG, (collateralized by various
U.S. Government Agency obligations in a pooled account at the
lending agent), 4.82%, dated 10/31/07, due 11/1/07 (Delivery value
$23,921) 23,918
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 4.89%, dated 10/31/07, due 11/1/07 (Delivery
value $65,009) 65,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS --
SECURITIES LENDING COLLATERAL
(Cost $188,918) 188,918
-----------
- ------
10
Ultra
Shares ($ IN THOUSANDS) Value
TOTAL INVESTMENT SECURITIES -- 103.1%
(Cost $8,087,229) $10,963,861
-----------
OTHER ASSETS AND LIABILITIES -- (3.1)% (329,725)
-----------
TOTAL NET ASSETS -- 100.0% $10,634,136
===========
Forward Foreign Currency Exchange Contracts
($ IN THOUSANDS)
Unrealized Gain
Contracts to Sell Settlement Date Value (Loss)
70,607,680 AUD for USD 11/30/07 $ 65,665 $ (734)
45,254,570 CAD for USD 11/30/07 47,943 (554)
55,475,960 CHF for USD 11/30/07 47,985 (257)
36,688,421 Euro for USD 11/30/07 53,178 (279)
28,554,064 GBP for USD 11/30/07 59,314 (517)
10,837,625,000 JPY for USD 11/30/07 94,290 463
72,571,600 NOK for USD 11/30/07 13,524 3
-------- --------
$381,899 $(1,875)
======== ========
(Value on Settlement Date $380,024)
Notes to Schedule of Investments
ADR = American Depositary Receipt
AUD = Australian Dollar
CAD = Canadian Dollar
CHF = Swiss Franc
CVA = Certificaten Van Aandelen
FHLB = Federal Home Loan Bank
GBP = British Pound
JPY = Japanese Yen
NOK = Norwegian Krona
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, 2007.
(3) The rate indicated is the yield to maturity at purchase.
(4) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
As of October 31, 2007, securities with an aggregate value of $644,260 (in
thousands), which represented 6.1% of total net assets, were valued in
accordance with alternative pricing procedures adopted by the Board of
Directors.
See Notes to Financial Statements.
- ------
11
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
ASSETS
Investment securities, at value (cost of $7,898,311) -- including
$188,417 of securities on loan $10,774,943
Investments made with cash collateral received for securities on
loan, at value (cost of $188,918) 188,918
-----------
Total investment securities, at value (cost of $8,087,229) 10,963,861
Cash 11,469
Receivable for investments sold 240,019
Receivable for capital shares sold 1,719
Receivable for forward foreign currency exchange contracts 466
Dividends and interest receivable 2,821
-----------
11,220,355
-----------
LIABILITIES
Payable for collateral received for securities on loan 188,918
Payable for investments purchased 218,059
Payable for capital shares redeemed 168,096
Payable for forward foreign currency exchange contracts 2,341
Accrued management fees 8,750
Service fees (and distribution fees -- A Class and R Class) payable 55
-----------
586,219
-----------
NET ASSETS $10,634,136
===========
See Notes to Financial Statements.
- ------
12
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS EXCEPT AS NOTED)
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 5,339,306
Undistributed net investment income 1,874
Undistributed net realized gain on investment and foreign
currency transactions 2,418,202
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 2,874,754
-----------
$10,634,136
===========
INVESTOR CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
Net assets $10,065,758,723
Shares outstanding 300,657,109
Net asset value per share $33.48
INSTITUTIONAL CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
Net assets $325,034,836
Shares outstanding 9,564,412
Net asset value per share $33.98
A CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
Net assets $235,217,085
Shares outstanding 7,163,774
Net asset value per share $32.83
Maximum offering price (net asset value divided by 0.9425) $34.83
B CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
Net assets $26,429
Shares outstanding 790
Net asset value per share $33.45
C CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
Net assets $2,128,883
Shares outstanding 67,504
Net asset value per share $31.54
R CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
Net assets $5,970,524
Shares outstanding 182,017
Net asset value per share $32.80
See Notes to Financial Statements.
- ------
13
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $430) $ 102,844
Interest 8,531
Securities lending 4,692
----------
116,067
----------
EXPENSES:
Management fees 118,309
Distribution fees:
A Class 637
C Class 18
Service fees:
A Class 637
C Class 6
Distribution and service fees:
A Class 104
R Class 30
Directors' fees and expenses 249
Other expenses 93
----------
120,083
----------
NET INVESTMENT INCOME (LOSS) (4,016)
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment and foreign currency
transactions (including $148,097 from affiliates) 3,112,565
Change in net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign currencies (479,634)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 2,632,931
----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,628,915
==========
See Notes to Financial Statements.
- ------
14
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006 (AMOUNTS IN THOUSANDS)
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ (4,016) $ (26,022)
Net realized gain (loss) 3,112,565 1,792,838
Change in net unrealized appreciation (depreciation) (479,634) (1,994,803)
----------- -----------
Net increase (decrease) in net assets resulting from
operations 2,628,915 (227,987)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class -- (22,728)
Institutional Class -- (4,891)
From net realized gains:
Investor Class (903,905) --
Institutional Class (69,893) --
A Class (26,545) --
C Class (211) --
R Class (579) --
----------- -----------
Decrease in net assets from distributions (1,001,133) (27,619)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions (5,966,540) (5,789,519)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS (4,338,758) (6,045,125)
NET ASSETS
Beginning of period 14,972,894 21,018,019
----------- -----------
End of period $10,634,136 $14,972,894
=========== ===========
Undistributed net investment income $1,874 $47
=========== ===========
See Notes to Financial Statements.
- ------
15
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007 (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 (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 equity securities of large
companies, but may invest in companies of any size. 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, the A Class (formerly Advisor Class), the B Class, the C
Class and the R Class. The A Class may incur an initial sales charge. The A
Class, B Class and C Class may be subject to a contingent deferred sales
charge. The share classes differ principally in their respective sales charges
and distribution and shareholder servicing expenses and arrangements. All
shares of the fund represent an equal pro rata interest in the net assets of
the class to which such shares belong, and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except for
class specific expenses and exclusive rights to vote on matters affecting only
individual classes. Income, non-class specific expenses, and realized and
unrealized capital gains and losses of the fund are allocated to each class of
shares based on their relative net assets. Sale of the B Class commenced on
September 28, 2007.
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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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.
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.
- ------
16
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
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 American Century Investment Management, Inc. (ACIM) (the
investment advisor) 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 or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions that would materially impact the financial statements.
Accordingly, no provision has been made for federal or state income taxes.
Interest and penalties associated with any federal or state income tax
obligations, if any, are recorded as interest expense.
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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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.
- ------
17
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
On July 27, 2007, the A Class (formerly Advisor Class) shareholders of the
fund approved a change in the class's fee structure. The change was approved
by the Board of Directors on November 29, 2006 and March 7, 2007. Effective
September 4, 2007, the fee structure change resulted in an increase of 0.25%
in the unified management fee and a simultaneous decrease of 0.25% in the
total distribution and service fee, resulting in no change to the total
operating expense ratio of the class.
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. 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 advisor'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 advisor 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 the fund ranges from 0.80% to
1.00% for the Investor Class, A Class, B Class, C Class and R Class. The
Institutional Class is 0.20% less at each point within the range. Prior to
September 4, 2007, the A Class was 0.25% less at each point within the range.
The effective annual management fee for each class of the fund for the year
ended October 31, 2007 was 0.99% for the Investor Class, B Class, C Class and
R Class, 0.77% for the Institutional Class and 0.79% for the A Class.
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a separate
Master Distribution and Individual Shareholder Services Plan for each of the A
Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule
12b-1 of the 1940 Act. The plans provide that the A Class will pay American
Century Investment Services, Inc. (ACIS) an annual distribution and service
fee of 0.25%. The plans provide that the B Class and the C Class will each pay
ACIS an annual distribution fee of 0.75% and service fee of 0.25%. The plans
provide that the R Class will pay ACIS an annual distribution and service fee
of 0.50%. Prior to September 4, 2007, the Board of Directors had adopted a
Master Distribution and Shareholder Services Plan for the A Class, pursuant to
Rule 12b-1 of the 1940 Act, in which the A Class paid ACIS an annual
distribution fee of 0.25% 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 individual shareholder services rendered by
broker/dealers or other independent financial intermediaries for A Class, B
Class, C Class and R Class shares. Prior to September 4, 2007, the service fee
provided compensation for shareholder and administrative services rendered by
ACIS, its affiliates or independent third party providers for A Class shares.
Fees incurred under the plans during the year ended October 31, 2007, 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 advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
Beginning in December 2006, the fund is eligible to invest in a money market
fund for temporary purposes, which is managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan 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.
- ------
18
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended October 31, 2007, were $11,172,426 and
$17,985,731, respectively.
For the year ended October 31, 2007, the fund incurred net realized gains of
$100,827 from redemptions in kind. A redemption in kind occurs when a fund
delivers securities from its portfolio in lieu of cash as payment to a
redeeming shareholder.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Year ended October 31, Year ended October 31,
2007(1) 2006
Shares Amount Shares Amount
INVESTOR CLASS/SHARES
AUTHORIZED 3,500,000 3,500,000
========= =========
Sold 15,640 $ 449,268 29,695 $ 873,712
Issued in reinvestment
of distributions 31,578 862,401 700 21,649
Redeemed (218,773) (6,268,935) (209,516) (6,089,943)
--------- ------------ --------- ------------
(171,555) (4,957,266) (179,121) (5,194,582)
--------- ------------ --------- ------------
INSTITUTIONAL
CLASS/SHARES AUTHORIZED 200,000 200,000
========= =========
Sold 5,102 149,551 9,336 278,796
Issued in reinvestment
of distributions 2,452 67,877 152 4,743
Redeemed (35,145) (1,017,688) (22,047) (649,002)
--------- ------------ --------- ------------
(27,591) (800,260) (12,559) (365,463)
--------- ------------ --------- ------------
A CLASS/SHARES AUTHORIZED 100,000 100,000
========= =========
Sold 1,554 44,554 3,456 100,324
Issued in reinvestment
of distributions 962 25,823 -- --
Redeemed (9,767) (274,241) (11,402) (328,494)
--------- ------------ --------- ------------
(7,251) (203,864) (7,946) (228,170)
--------- ------------ --------- ------------
B CLASS/SHARES AUTHORIZED 50,000 N/A
========= =========
Sold 1 25
--------- ------------ --------- ------------
C CLASS/SHARES AUTHORIZED 50,000 100,000
========= =========
Sold 7 191 23 663
Issued in reinvestment
of distributions 7 195 -- --
Redeemed (69) (1,880) (100) (2,821)
--------- ------------ --------- ------------
(55) (1,494) (77) (2,158)
--------- ------------ --------- ------------
R CLASS/SHARES AUTHORIZED 50,000 50,000
========= =========
Sold 81 2,327 164 4,791
Issued in reinvestment
of distributions 21 552 -- --
Redeemed (237) (6,560) (138) (3,937)
--------- ------------ --------- ------------
(135) (3,681) 26 854
--------- ------------ --------- ------------
Net increase (decrease) (206,586) $(5,966,540) (199,677) $(5,789,519)
========= ============ ========= ============
(1) September 28, 2007 (commencement of sale) through October 31, 2007 for the
B Class.
- ------
19
OCTOBER 31, 2007 (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, 2007 follows:
October 31, 2007
Share Realized
Balance Purchase Sales Gain Dividend Share Market
10/31/06 Cost Cost (Loss) Income Balance Value
CarMax,
Inc.(1)(2) 5,052,195 -- $124,985 $120,351 -- -- --
Digital
River
Inc.(1)(2) 2,256,000 -- 90,481 27,746 -- -- --
-- -------- -------- -- --
-- $215,466 $148,097 -- --
== ======== ======== == ==
(1) Company was not an affiliate at October 31, 2007.
(2) Non-income producing.
6. SECURITIES LENDING
As of October 31, 2007, securities in the fund valued at $188,417 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 $188,918. 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.
7. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a $500
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 0.40%. The fund did not borrow from the line during the year ended
October 31, 2007.
8. RISK FACTORS
There are certain risks involved in investing in foreign securities. These
risks include those resulting from future adverse political, social, and
economic developments, fluctuations in currency exchange rates, the possible
imposition of exchange controls, and other foreign laws or restrictions.
9. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years ended October 31,
2007 and October 31, 2006 were as follows:
2007 2006
DISTRIBUTIONS PAID FROM
Ordinary income -- $27,619
Long-term capital gains $1,001,133 --
- ------
20
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
Reclassification of $5,843, $(681,775), and $675,932 between undistributed net
investment income, accumulated net realized loss, and capital paid in,
respectively, include the difference in character of realized gains on
redemptions in kind and net operating losses. The gain or loss generated from
redemption in kinds are not taxable to the fund and are not distributed to
existing fund shareholders. The fund may consider a portion of its earnings as
already having been distributed in the case of shareholder redemptions in
order to satisfy its distribution requirements. Therefore such amounts are
reclassified from accumulated net gain or loss to capital paid in and in
addition, reduce the total distributions paid to current shareholders.
As of October 31, 2007, the components of distributable earnings on a
tax-basis and the federal tax cost of investments were as follows:
Federal tax cost of investments $8,099,375
==========
Gross tax appreciation of investments $2,884,247
Gross tax depreciation of investments (19,761)
----------
Net tax appreciation (depreciation) of investments $2,864,486
==========
Net tax appreciation (depreciation) of derivatives and translation
of assets and liabilities in foreign currencies $(4)
----------
Net tax appreciation (depreciation) $2,864,482
==========
Undistributed ordinary income --
Accumulated long-term gains $2,430,348
----------
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales and the realization for tax purposes of unrealized gains
on certain forward foreign currency contracts.
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
11. OTHER TAX INFORMATION (UNAUDITED) ($ IN FULL)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
The fund hereby designates long-term capital gains dividends of $209,402,773
as distributions paid to shareholders who redeemed shares of the fund during
the fiscal year ended October 31, 2007. The fund hereby further designates as
long-term capital gains dividends $1,001,133,226 as distributions paid in cash
to shareholders of the fund during the fiscal year ended October 31, 2007.
The fund hereby designates short-term capital gain dividends of $366,518,588
as distributions paid to shareholders who redeemed shares of the fund during
the fiscal year ended October 31, 2007. These short-term capital gain
dividends are designated as qualified distributions for purposes of Internal
Revenue Code Section 871.
- ------
21
FINANCIAL HIGHLIGHTS
Ultra
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $28.55 $29.02 $27.17 $26.01 $21.83
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income
(Loss)(1) (0.01) (0.06) 0.02 (0.05) (0.02)
Net Realized and Unrealized
Gain (Loss) 6.95 (0.37) 1.83 1.21 4.26
------ ------ ------ ------ ------
Total From Investment
Operations 6.94 (0.43) 1.85 1.16 4.24
------ ------ ------ ------ ------
Distributions
From Net Investment Income -- (0.04) -- -- (0.06)
From Net Realized Gains (2.01) -- -- -- --
------ ------ ------ ------ ------
Total Distributions (2.01) (0.04) -- -- (0.06)
------ ------ ------ ------ ------
Net Asset Value, End of Period $33.48 $28.55 $29.02 $27.17 $26.01
====== ====== ====== ====== ======
TOTAL RETURN(2) 25.89% (1.51)% 6.81% 4.46% 19.50%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 0.99% 0.99% 0.99% 0.99% 1.00%
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.04)% (0.15)% 0.09% (0.20)% (0.09)%
Portfolio Turnover Rate 93% 62% 33% 34% 82%
Net Assets, End of Period (in
millions) $10,066 $13,482 $18,904 $20,708 $21,341
(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.
- ------
22
Ultra
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $28.90 $29.38 $27.44 $26.22 $22.02
------ ------ ------ ------ ------
Income From
Investment Operations
Net Investment
Income (Loss)(1) 0.05 --(2) 0.07 --(2) 0.02
Net Realized and
Unrealized Gain
(Loss) 7.04 (0.38) 1.87 1.22 4.29
------ ------ ------ ------ ------
Total From
Investment
Operations 7.09 (0.38) 1.94 1.22 4.31
------ ------ ------ ------ ------
Distributions
From Net
Investment Income -- (0.10) -- -- (0.11)
From Net Realized
Gains (2.01) -- -- -- --
------ ------ ------ ------ ------
Total
Distributions (2.01) (0.10) -- -- (0.11)
------ ------ ------ ------ ------
Net Asset Value, End
of Period $33.98 $28.90 $29.38 $27.44 $26.22
====== ====== ====== ====== ======
TOTAL RETURN(3) 26.14% (1.33)% 7.07% 4.65% 19.66%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets 0.79% 0.79% 0.79% 0.79% 0.80%
Ratio of Net
Investment Income
(Loss) to Average Net
Assets 0.16% 0.05% 0.29% 0.00% 0.11%
Portfolio Turnover
Rate 93% 62% 33% 34% 82%
Net Assets, End of
Period (in thousands) $325,035 $1,073,767 $1,460,343 $1,055,145 $822,333
(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.
- ------
23
Ultra
A Class(1)
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning
of Period $28.11 $28.61 $26.85 $25.77 $21.62
------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income
(Loss)(2) (0.08) (0.13) (0.05) (0.12) (0.08)
Net Realized and
Unrealized Gain (Loss) 6.81 (0.37) 1.81 1.20 4.24
------ ------ ------ ------ ------
Total From Investment
Operations 6.73 (0.50) 1.76 1.08 4.16
------ ------ ------ ------ ------
Distributions
From Net Investment
Income -- -- -- -- (0.01)
From Net Realized Gains (2.01) -- -- -- --
------ ------ ------ ------ ------
Total Distributions (2.01) -- -- -- (0.01)
------ ------ ------ ------ ------
Net Asset Value, End of
Period $32.83 $28.11 $28.61 $26.85 $25.77
====== ====== ====== ====== ======
TOTAL RETURN(3) 25.56% (1.75)% 6.55% 4.19% 19.24%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.24% 1.24% 1.24% 1.24% 1.25%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.29)% (0.40)% (0.16)% (0.45)% (0.34)%
Portfolio Turnover Rate 93% 62% 33% 34% 82%
Net Assets, End of Period
(in thousands) $235,217 $405,173 $639,792 $738,032 $643,144
(1) Prior to September 4, 2007, the A Class was referred to as the Advisor
Class.
(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.
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.
- ------
24
Ultra
B Class
For a Share Outstanding Throughout the Period Indicated
2007(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $31.63
------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.04)
Net Realized and Unrealized Gain (Loss) 1.86
------
Total From Investment Operations 1.82
------
Net Asset Value, End of Period $33.45
======
TOTAL RETURN(3) 5.75%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.99%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets (1.53)%(4)
Portfolio Turnover Rate 93%(5)
Net Assets, End of Period (in thousands) $26
(1) September 28, 2007 (commencement of sale) through October 31, 2007.
(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, 2007.
See Notes to Financial Statements.
- ------
25
Ultra
C Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $27.26 $27.96 $26.44 $25.57 $21.59
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income
(Loss)(1) (0.29) (0.34) (0.26) (0.32) (0.26)
Net Realized and Unrealized
Gain (Loss) 6.58 (0.36) 1.78 1.19 4.24
------ ------ ------ ------ ------
Total From Investment
Operations 6.29 (0.70) 1.52 0.87 3.98
------ ------ ------ ------ ------
Distributions
From Net Realized Gains (2.01) -- -- -- --
------ ------ ------ ------ ------
Net Asset Value, End of Period $31.54 $27.26 $27.96 $26.44 $25.57
====== ====== ====== ====== ======
TOTAL RETURN(2) 24.64% (2.50)% 5.75% 3.40% 18.43%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.99% 1.99% 1.99% 1.99% 2.00%
Ratio of Net Investment Income
(Loss) to Average Net Assets (1.04)% (1.15)% (0.91)% (1.20)% (1.09)%
Portfolio Turnover Rate 93% 62% 33% 34% 82%
Net Assets, End of Period (in
thousands) $2,129 $3,342 $5,601 $4,836 $2,232
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
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.
- ------
26
Ultra
R Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006 2005 2004 2003(1)
PER-SHARE DATA
Net Asset Value, Beginning
of Period $28.15 $28.72 $27.01 $25.99 $24.87
------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income
(Loss)(2) (0.15) (0.21) (0.12) (0.22) (0.04)
Net Realized and
Unrealized Gain (Loss) 6.81 (0.36) 1.83 1.24 1.16
------ ------ ------ ------ ------
Total From Investment
Operations 6.66 (0.57) 1.71 1.02 1.12
------ ------ ------ ------ ------
Distributions
From Net Realized
Gains (2.01) -- -- -- --
------ ------ ------ ------ ------
Net Asset Value, End of
Period $32.80 $28.15 $28.72 $27.01 $25.99
====== ====== ====== ====== ======
TOTAL RETURN(3) 25.26% (1.98)% 6.33% 3.92% 4.50%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average Net
Assets 1.49% 1.49% 1.44%(4) 1.49% 1.50%(5)
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.54)% (0.65)% (0.36)%(4) (0.70)% (0.81)%(5)
Portfolio Turnover Rate 93% 62% 33% 34% 82%(6)
Net Assets, End of Period
(in thousands) $5,971 $8,922 $8,367 $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) During the year ended October 31, 2005, the class received a partial
reimbursement of its distribution and service fee. Had fees not been
reimbursed the annualized ratio of operating expenses to average net assets
and annualized ratio of net investment income (loss) to average net assets
would have been 1.49% and (0.41)%, respectively.
(5) Annualized.
(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.
- ------
27
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 Ultra Fund (the "Fund"), one of the
mutual funds comprising American Century Mutual Funds, Inc., as of October 31,
2007, and the related statement 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
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. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of October 31, 2007,
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. 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
Ultra Fund as of October 31, 2007, 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 12, 2007
- ------
28
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007, to vote on the
following proposals. The proposals received the required number of votes of
the American Century Mutual Funds, Inc. or the applicable fund, depending on
the proposal, and were adopted. A summary of voting results is listed below
each proposal.
PROPOSAL 1:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
- ------
29
PROPOSAL 2:
To approve a change in the fee structure of the Advisor Class. This proposal
was voted on by the Advisor Class shareholders of the fund.
For: 114,465,199
Against: 6,020,095
Abstain: 2,833,793
Broker Non-Vote: 22,284,769
- ------
30
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 directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, 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, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the fund also serve in similar capacities for
the other 14 investment companies in the American Century family of funds
advised by ACIM, or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the fund. The listed officers are
interested persons of the fund and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- ------
31
INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
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 (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUND: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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32
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUND: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the fund's directors and is available
without charge, upon request, by calling 1-800-345-2021.
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33
APPROVAL OF MANAGEMENT AGREEMENT
Ultra
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors (the "Directors") each year. At
American Century, this process is referred to as the "15(c) Process." As a
part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning Ultra (the "fund") and the services
provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund under the management
agreement;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the fund and its shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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34
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
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35
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information for the fund, together with comparative information
for appropriate benchmarks and peer groups of funds managed similarly to the
fund. The Directors also review detailed performance information during the
15(c) Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance fell below the median for both the one-
and three- year periods during the past year. The board discussed the fund's
performance with the advisor and was satisfied with the efforts being
undertaken by the advisor.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the fund, its profitability in managing the fund, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
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36
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was below the median of the total expense ratios
of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
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37
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, assisted by the advice
of legal counsel independent of the advisor, taking into account all of the
factors discussed above and the information provided by the advisor,
negotiated changes to the breakpoint schedule used to calculate the management
fee. These changes were proposed by the Directors based on their review of the
competitive changes in the mutual fund marketplace and their review of
financial information provided by the advisor. The new schedule, effective
August 1, 2007, contains lower management fees at certain asset levels than
under the existing structure. Following these negotiations with the advisor,
the independent directors concluded that the investment management agreement
between the fund and the advisor is fair and reasonable in light of the
services provided and should be renewed.
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38
SHARE CLASS INFORMATION
Six classes of shares are authorized for sale by the fund: Investor Class,
Institutional Class, A Class, B Class, C Class and R Class. The total expense
ratio of Institutional Class shares is lower than that of Investor Class
shares. The total expense ratios of A Class, B Class, C Class 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; and/or 2) through
certain financial intermediaries (such as banks, broker-dealers, insurance
companies and investment advisors), which may require payment of a transaction
fee to the financial intermediary. The fund's prospectus contains additional
information regarding eligibility for Investor Class shares.
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 unified
management fee of Institutional Class shares is 0.20% less than the unified
management fee of Investor Class shares.
A CLASS shares are sold primarily through employer-sponsored retirement plans
and 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. The unified management fee for A Class shares is
the same as for Investor Class shares. A Class shares also are subject to a
0.25% annual Rule 12b-1 distribution and service fee.
B CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as 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% after the sixth year. There is no CDSC on shares acquired
through reinvestment of dividends or capital gains. The unified management fee
for B Class shares is the same as for Investor Class shares. B Class shares
also are subject to a 1.00% annual Rule 12b-1 distribution and service 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
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 CDSC of 1.00%. There is no CDSC on shares acquired through
reinvestment of dividends or capital gains. The unified management fee for C
Class shares is the same as for Investor Class shares. C Class shares also are
subject to a Rule 12b-1 distribution and service fee of 1.00%.
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39
R CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as investment advisors, banks, broker-dealers,
and insurance companies. The unified management fee for R Class shares is the
same as for Investor Class shares. R Class shares are subject to a 0.50%
annual Rule 12b-1 distribution and service fee.
All classes of shares represent a pro rata interest in the fund and generally
have the same rights and preferences.
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40
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 advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at americancentury.com and, upon request, by calling
1-800-345-2021.
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41
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® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
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 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 MIDCAP® VALUE 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 lower price-to-book
ratios and lower forecasted growth values.
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.
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42
NOTES
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43
NOTES
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44
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
1-800-345-2021 or 816-531-5575
INVESTORS USING ADVISORS:
1-800-378-9878
BUSINESS, NOT-FOR-PROFIT,
EMPLOYER-SPONSORED RETIREMENT PLANS:
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL PROFESSIONALS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investments
P.O. Box 419200
Kansas City, MO 64141-6200
PRSRT STD
U.S. POSTAGE PAID
AMERICAN CENTURY
COMPANIES
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0712
SH-ANN-57610S
[front cover]
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter]
Growth Fund
Vista(SM) Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century® Growth and
Vista funds for the 12 months ended October 31, 2007. I am honored to be
addressing you in the "Our Message" space long devoted to company founder Jim
Stowers, Jr. and his son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
GROWTH
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 7
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. . . . . . . . . . . . . . . . . . . . . . . . . 30
Report of Independent Registered Public Accounting Firm . . . . . . . 40
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 41
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Approval of Management Agreements for Growth and Vista. . . . . . . . 46
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 51
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 52
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 53
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Steve Lurito, Chief Investment Officer, U.S. Growth Equity
STOCK RETURNS, VOLATILITY UP
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007. Stocks rallied for much of the first half of the fiscal year, touching
record highs in July, as the worldwide economic expansion drove strong
corporate earnings. But the subprime mortgage crisis blossomed in late July
and early August in the form of massive losses for banks, residential lenders,
and firms that securitized these subprime loans. This crisis caused a sharp
tightening of lending standards, removing the easy credit that propelled
strong consumer spending and funded a record amount of leveraged buyouts. As a
result, the U.S. stock market came under pressure late in the fiscal year.
By October, stock market volatility surged and credit markets seized up. To
relieve the pressure, the Federal Reserve (the Fed) lowered its benchmark
federal funds rate target in September and again in October -- the Fed's first
rate cuts since June 2003. Markets rallied briefly at fiscal year-end, though
there were concerns heading into November about the future course of corporate
earnings.
GROWTH SHARES LED
Growth stocks led the market during the 12 months, outpacing value-oriented
shares across all market capitalizations. That's because the deceleration in
corporate earnings cast a brighter spotlight on the relative earnings power of
growth companies, providing a favorable context for our growth portfolios and
growth stocks in general. We took advantage of this favorable backdrop,
enjoying a solid year of outperformance.
Looking at returns by sector, energy and materials performed best, supported
by booming global demand for commodities. In contrast, the aforementioned
credit crisis weakened consumer discretionary and financial shares -- the only
two segments of the S&P 500 Index to decline during the period.
We expect a continued favorable environment for growth-stock investing:
interest rates are low, global growth continues to provide new markets for
goods and services, and inflation remains contained.
U.S. Stock Index Returns
For the 12 months ended October 31, 2007
RUSSELL 1000 INDEX (LARGE-CAP) 15.03%
Russell 1000 Growth Index 19.23%
Russell 1000 Value Index 10.83%
RUSSELL MIDCAP INDEX 15.24%
Russell Midcap Growth Index 19.72%
Russell Midcap Value Index 9.73%
RUSSELL 2000 INDEX (SMALL-CAP) 9.27%
Russell 2000 Growth Index 16.73%
Russell 2000 Value Index 2.05%
- ------
2
PERFORMANCE
Growth
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years 10 years Inception Date
INVESTOR CLASS 21.86% 12.70% 5.99% 14.90% 6/30/71(1)
RUSSELL 1000 GROWTH INDEX(2) 19.23% 12.61% 4.81% N/A(3) --
Institutional Class 22.13% 12.93% 6.21% 6.79% 6/16/97
Advisor Class 21.59% 12.43% 5.70% 6.84% 6/4/97
C Class 20.72% 11.61% -- 4.67% 11/28/01
R Class 21.30% -- -- 11.79% 8/29/03
(1) Although the fund's actual inception date was 10/31/58, this inception
date corresponds with the investment advisor's implementation of its current
investment philosophy and practices.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(3) 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.
- ------
3
Growth
Growth of $10,000 Over 10 Years
$10,000 investment made October 31, 1997
One-Year Returns Over 10 Years
Periods ended October 31
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investor
Class 18.53% 36.31% 11.49% -34.14% -17.09% 16.62% 6.78% 7.47% 11.51% 21.86%
Russell
1000 Growth
Index 24.64% 34.25% 9.33% -39.95% -19.62% 21.81% 3.38% 8.81% 10.84% 19.23%
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.
- ------
4
PORTFOLIO COMMENTARY
Growth
Portfolio Managers: Greg Woodhams and Prescott LeGard
PERFORMANCE SUMMARY
Growth's Investor Class shares gained 21.86%* during the 12 months ended
October 31, 2007. That compares with the 19.23% return of its benchmark, the
Russell 1000 Growth Index.
Looking at the portfolio's absolute return, performance was driven by holdings
in information technology, health care, and industrials; utilities and
telecommunication services contributed the least. In terms of Growth's
performance relative to the Russell 1000 Growth Index, outperformance was
driven by stock selection among health care stocks; consumer staples shares
were the leading detractors.
HEALTH CARE LED RELATIVE CONTRIBUTORS
In health care, stock selection among pharmaceutical names was the leading
source of outperformance. Schering-Plough, the portfolio's largest overweight
position during the period, was helped by market share gains and category
growth for its cholesterol franchise. In addition, it significantly helped
relative results to avoid Johnson & Johnson, which suffered from challenges in
some of its leading drug and medical device businesses.
Positioning in health care equipment & supplies firms was another source of
relative strength. The leading contributor to return in this space was medical
device maker Intuitive Surgical, benefiting from heavy demand for its new,
less-invasive robotic surgery system. Overweight positions in Baxter
International, DENTSPLY International, Cytyc, and Idexx Laboratories also
helped relative results.
IT A SOURCE OF STRENGTH
In the information technology sector, stock picks contributed most in the
communication equipment industry behind an overweight position in Research in
Motion, maker of the Blackberry handheld device. Juniper Networks -- a maker
of computer networking equipment benefiting from the surging demand for
bandwidth required to move video and data over the Internet -- was another key
contributor. That said, no stock helped relative results more than Apple,
which continued to enjoy margin expansion and revenue growth thanks to new
product launches and a redesign of existing products.
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Apple Inc. 4.1% 2.7%
Cisco Systems Inc. 4.0% 3.2%
Microsoft Corporation 3.7% 0.7%
PepsiCo, Inc. 3.6% 2.0%
Procter & Gamble Co. (The) 3.1% 1.8%
Google Inc. Cl A 3.1% 1.8%
Coca-Cola Company (The) 2.6% --
Becton, Dickinson & Co. 2.3% 1.4%
Janus Capital Group Inc. 2.2% --
XTO Energy Inc. 2.1% 1.4%
* All fund returns referenced in this commentary are for Investor Class shares.
- ------
5
Growth
OTHER KEY CONTRIBUTORS
Stock selection drove outperformance among consumer discretionary names,
though it also helped to have an underweight position in this lagging sector.
The leading contributor in this space was specialty retailer GameStop, which
sells video game products and entertainment software for computers. The
company is seeing revenues, same-store sales, and other metrics improve as a
result of several new hardware and software gaming product cycles. Positioning
in the multiline retail, media, auto components, and specialty retail industry
segments also helped relative performance.
Industrial shares were another key source of strength, as stock selection
contributed to relative results across a number of industries, including
electrical equipment and machinery. An overweight position in agricultural
equipment maker AGCO was a notable contributor for the year. The company
continues to benefit from exposure to growing agriculture markets globally. In
energy, Cameron International was a key contributor, benefiting from spending
on exploration with oil supplies tight and prices at record highs.
STAPLES LED DETRACTORS
At the other end of the spectrum, consumer staples shares limited the
portfolio's performance compared with the benchmark. Food products names
detracted most from performance behind overweight positions in Campbell Soup
and ConAgra Foods. These shares underperformed because of higher costs
associated with growth initiatives and rising input costs. Stock selection
also detracted in food and staples retailing, where Wal-Mart was the leading
detractor. Though the company continued to turn around its business, the
difficult environment for consumers in the U.S. slowed progress.
STARTING POINT FOR NEXT REPORTING PERIOD
We work to keep the portfolio fully invested in large companies exhibiting
sustainable improvement in their businesses. It is our belief that owning such
companies will generate outperformance over time versus the Russell 1000
Growth Index and the other funds in our large-growth peer group. As a result,
our sector and industry selection as well as capitalization range decisions
are primarily a result of identifying what we believe to be superior
individual securities. As of October 31, 2007, the top sector overweights were
in consumer staples, telecommunication services, and information technology.
The most notable sector underweights were in consumer discretionary,
industrials, and utilities shares.
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Health Care Equipment & Supplies 8.8% 5.6%
Software 8.0% 3.0%
Communications Equipment 7.2% 5.6%
Oil, Gas & Consumable Fuels 7.1% 3.2%
Beverages 6.2% 3.0%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 95.1% 93.8%
Foreign Common Stocks(1) 4.3% 6.1%
TOTAL COMMON STOCKS 99.4% 99.9%
Temporary Cash Investments 0.7% 0.8%
Other Assets and Liabilities(2) (0.1)% (0.7)%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes securities lending collateral and other assets and liabilities.
- ------
6
SCHEDULE OF INVESTMENTS
Growth
OCTOBER 31, 2007
Shares ($ IN THOUSANDS) Value
Common Stocks -- 99.4%
AEROSPACE & DEFENSE -- 3.1%
902,700 Honeywell International Inc. $ 54,532
1,176,000 United Technologies Corp. 90,070
----------
144,602
----------
AUTO COMPONENTS -- 2.0%
886,100 BorgWarner, Inc. 93,670
----------
BEVERAGES -- 6.2%
1,942,700 Coca-Cola Company (The) 119,981
2,236,600 PepsiCo, Inc. 164,882
----------
284,863
----------
CAPITAL MARKETS -- 5.7%
2,911,500 Janus Capital Group Inc. 100,476
1,216,313 Northern Trust Corp. 91,479
3,020,697 Schwab (Charles) Corp. 70,201
----------
262,156
----------
CHEMICALS -- 1.5%
720,784 Monsanto Co. 70,370
----------
COMMERCIAL SERVICES & SUPPLIES -- 0.5%
572,400 Waste Management, Inc. 20,830
----------
COMMUNICATIONS EQUIPMENT -- 7.2%
1,588,305 ADC Telecommunications, Inc.(1) 29,701
5,542,057 Cisco Systems Inc.(1) 183,221
930,900 Juniper Networks, Inc.(1) 33,512
939,547 QUALCOMM Inc. 40,147
361,900 Research In Motion Ltd.(1) 45,060
----------
331,641
----------
COMPUTERS & PERIPHERALS -- 5.7%
988,400 Apple Inc.(1) 187,746
2,417,600 Dell Inc.(1) 73,979
----------
261,725
----------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.3%
1,491,693 AT&T Inc. 62,338
----------
ELECTRICAL EQUIPMENT -- 3.9%
941,539 Cooper Industries, Ltd. Cl A 49,327
1,676,200 Emerson Electric Co. 87,615
606,900 Roper Industries Inc.(2) 42,975
----------
179,917
----------
ENERGY EQUIPMENT & SERVICES -- 1.7%
270,000 Cameron International Corp.(1) 26,287
3,385,158 Grey Wolf Inc.(1)(2) 19,058
337,100 Schlumberger Ltd. 32,554
----------
77,899
----------
Shares ($ IN THOUSANDS) Value
FOOD & STAPLES RETAILING -- 1.2%
1,256,200 Wal-Mart Stores, Inc. $ 56,793
----------
FOOD PRODUCTS -- 2.0%
1,538,300 Wm. Wrigley Jr. Co. 94,867
----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 8.8%
512,700 Alcon, Inc. 78,038
1,472,100 Baxter International Inc. 88,341
1,278,900 Becton, Dickinson & Co. 106,736
952,446 DENTSPLY International Inc. 39,507
113,234 Idexx Laboratories, Inc.(1) 13,790
181,300 Intuitive Surgical Inc.(1) 59,262
531,109 Mentor Corp.(2) 22,609
----------
408,283
----------
HEALTH CARE PROVIDERS & SERVICES -- 1.1%
962,489 Patterson Companies, Inc.(1) 37,643
329,487 VCA Antech Inc.(1) 15,173
----------
52,816
----------
HOUSEHOLD PRODUCTS -- 3.1%
2,075,500 Procter & Gamble Co. (The) 144,289
----------
INDUSTRIAL CONGLOMERATES -- 1.6%
1,787,200 General Electric Co. 73,561
----------
INSURANCE -- 1.0%
852,000 Chubb Corp. 45,454
----------
INTERNET & CATALOG RETAIL -- 2.0%
640,300 Amazon.com, Inc.(1) 57,083
364,600 Priceline.com Inc.(1)(2) 33,944
----------
91,027
----------
INTERNET SOFTWARE & SERVICES -- 4.1%
1,273,200 eBay Inc.(1) 45,963
200,200 Google Inc. Cl A(1) 141,541
----------
187,504
----------
IT SERVICES -- 1.2%
656,900 DST Systems, Inc.(1) 55,646
----------
LIFE SCIENCES TOOLS & SERVICES -- 2.3%
390,700 Illumina, Inc.(1)(2) 21,938
1,470,396 Thermo Fisher Scientific Inc.(1) 86,474
----------
108,412
----------
MACHINERY -- 2.2%
872,975 Eaton Corp. 80,820
229,500 Valmont Industries, Inc.(2) 21,968
----------
102,788
----------
MEDIA -- 1.4%
1,563,700 Viacom Inc. Cl B(1) 64,565
----------
- ------
7
Growth
Shares ($ IN THOUSANDS) Value
METALS & MINING -- 0.8%
304,100 Freeport-McMoRan Copper & Gold, Inc. $ 35,786
----------
OIL, GAS & CONSUMABLE FUELS -- 7.1%
870,400 Apache Corp. 90,356
869,700 Devon Energy Corporation 81,230
620,900 Exxon Mobil Corp. 57,117
1,492,100 XTO Energy Inc. 99,045
----------
327,748
----------
PHARMACEUTICALS -- 3.5%
928,726 Allergan, Inc. 62,763
346,300 Novo Nordisk AS Cl B ORD 43,183
1,887,200 Schering-Plough Corp. 57,597
----------
163,543
----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.4%
1,490,700 Broadcom Corp. Cl A(1) 48,522
1,739,500 Intersil Corp. Cl A 52,777
424,600 MEMC Electronic Materials Inc.(1) 31,089
2,745,500 PMC-Sierra, Inc.(1) 24,737
----------
157,125
----------
SOFTWARE -- 8.0%
807,355 Electronic Arts Inc.(1) 49,346
4,651,000 Microsoft Corporation 171,203
4,359,300 Oracle Corp.(1) 96,646
432,300 VMware, Inc. Cl A(1) 53,964
----------
371,159
----------
SPECIALTY RETAIL -- 4.6%
1,424,601 GameStop Corp. Cl A(1) 84,365
1,668,000 Home Depot, Inc. (The) 52,559
2,633,468 TJX Companies, Inc. (The) 76,186
----------
213,110
----------
WIRELESS TELECOMMUNICATION SERVICES -- 1.2%
1,206,300 American Tower Corp. Cl A(1) 53,294
----------
TOTAL COMMON STOCKS
(Cost $3,675,873) 4,597,781
----------
Shares ($ IN THOUSANDS) Value
Temporary Cash Investments -- 0.7%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized by
various U.S. Treasury obligations, 7.125%-7.625%, 2/15/23-2/15/25
valued at $34,417), in a joint trading account at 4.50%, dated
10/31/07, due 11/1/07 (Delivery value $33,804) (Cost $33,800) $ 33,800
----------
Temporary Cash Investments -
Securities Lending Collateral(3) -- 2.0%
Repurchase Agreement, Deutsche Bank AG, (collateralized by various
U.S. Government Agency obligations in a pooled account at the
lending agent), 4.82%, dated 10/31/07, due 11/1/07 (Delivery value
$48,956) 48,949
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 4.89%, dated 10/31/07, due 11/1/07 (Delivery
value $45,006) 45,000
----------
TOTAL TEMPORARY CASH INVESTMENTS -
SECURITIES LENDING COLLATERAL
(Cost $93,949) 93,949
----------
TOTAL INVESTMENT SECURITIES -- 102.1%
(Cost $3,803,622) 4,725,530
----------
OTHER ASSETS AND LIABILITIES -- (2.1)% (97,438)
----------
TOTAL NET ASSETS -- 100.0% $4,628,092
==========
- ------
8
Growth
Forward Foreign Currency Exchange Contracts
($ IN THOUSANDS)
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
114,280,560 DKK for USD 11/30/07 $22,247 $(161)
======= ======================
(Value on Settlement Date $22,086)
Notes to Schedule of Investments
DKK = Danish Krone
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, 2007.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
As of October 31, 2007, securities with an aggregate value of $43,183, which
represented 0.9% of total net assets, were valued in accordance with
alternative pricing procedures adopted by the Board of Directors.
See Notes to Financial Statements.
- ------
9
PERFORMANCE
Vista
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years 10 years Inception Date
INVESTOR CLASS 49.39% 21.42% 10.45% 11.88% 11/25/83
RUSSELL MIDCAP
GROWTH INDEX(1) 19.72% 19.21% 8.30% N/A(2) --
Institutional Class 49.68% 21.66% 10.67% 9.71% 11/14/96
Advisor Class 48.94% 21.13% 10.18% 8.44% 10/2/96
C Class 47.90% 20.26% -- 10.76% 7/18/01
R Class 48.71% -- -- 22.37% 7/29/05
(1) Data provided by Lipper Inc. - A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(2) 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. International investing involves special risks, such as
political instability and currency fluctuations.
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
Vista
Growth of $10,000 Over 10 Years
$10,000 investment made October 31, 1997
One-Year Returns Over 10 Years
Periods ended October 31
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investor
Class -31.94% 66.24% 66.16% -37.48% -12.90% 29.41% 9.77% 14.08% 9.07% 49.39%
Russell
Midcap
Growth
Index 2.43% 37.66% 38.67% -42.78% -17.61% 39.30% 8.77% 15.91% 14.51% 19.72%
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. International investing involves special risks, such as
political instability and currency fluctuations.
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
PORTFOLIO COMMENTARY
Vista
Portfolio Managers: Glenn Fogle, David Hollond, and Brad Eixmann
In February 2007, senior investment analyst Brad Eixmann was promoted to
co-portfolio manager for Vista. He joined American Century in 2002 and has
served exclusively on the Vista team since that time.
PERFORMANCE SUMMARY
Vista gained 49.39%* for the year ended October 31, 2007, surpassing the
19.72% return of its benchmark, the Russell Midcap Growth Index.
As discussed in the Market Perspective on page 2, better-than-expected
corporate earnings growth, robust merger activity, and a change in Federal
Reserve (Fed) rate policy contributed to sound stock index gains for the
period. Markets faced extreme volatility in the final months of the period,
though, as mounting troubles among subprime mortgage lenders led to a credit
crisis, and rising energy costs sparked fears of inflation. In this
environment, large- and mid-cap stocks generally outpaced their small-cap
counterparts, and growth-oriented shares outperformed value stocks.
Effective stock selection accounted for the vast majority of Vista's strong
performance relative to the Russell Midcap Growth Index, particularly within
the industrials, information technology, and consumer discretionary sectors.
Foreign holdings also contributed significantly to fund performance.
INDUSTRIALS LED GAINS
The portfolio's biggest sector contribution came from the industrials sector,
where an overweight position and stock selection within the aerospace and
defense industry group aided fund performance. The share prices of portfolio
overweights Precision Castparts and BE Aerospace, the fund's two largest
holdings, soared 120% and 97%, respectively, as both companies benefited from
a replacement cycle and expanding orders in global aviation. Together,
Precision Castparts and BE Aerospace represented 9% of the portfolio's average
weight. Both companies reflect Vista's focus on companies with accelerating
financial growth and share price momentum.
Within the industrials sector, we also benefited from an overweight stake and
stock selection within the construction and engineering industry. Notably,
Foster Wheeler, a builder of power plants and refineries, contributed
substantially to fund performance as its share price surged 230%.
TECHNOLOGY, CONSUMER DISCRETIONARY CONTRIBUTED
Within the technology sector, Nintendo was the largest single contributor to
portfolio performance. Strong demand for the company's Wii interactive game
system continued to outstrip supply, helping Nintendo's share price jump 212%
during the reporting period.
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Precision Castparts Corp. 4.7% 5.2%
BE Aerospace, Inc. 4.5% 4.1%
Nintendo Co., Ltd. ORD 3.8% 3.0%
Thermo Fisher Scientific Inc. 3.4% 4.0%
NII Holdings, Inc. 3.3% 5.8%
GameStop Corp. Cl A 2.9% 2.0%
Express Scripts, Inc. 2.9% 2.5%
Quanta Services, Inc. 2.8% 1.8%
AGCO Corp. 2.5% 2.1%
SBA Communications Corp. Cl A 2.4% 2.9%
* All fund returns referenced in this commentary are for Investor Class shares.
- ------
12
Vista
Fund overweight Apple also contributed to absolute and relative gains. The
computer and peripherals maker, which introduced the iPhone during the
reporting period, experienced a 134% gain in its share price.
An underweight position and effective stock selection within the consumer
discretionary group boosted gains. An overweight stake in GameStop benefited
fund performance, as the video game retailer gained 132% on the heels of a
robust video game cycle.
GOOD CALLS IN TELECOM
Although we held an overweight position in telecom relative to the fund's
benchmark, we recently trimmed our weighting to reflect increased competition
in international cellular markets. Nevertheless, the portfolio reaped rewards
from the wireless telecommunications industry for the one-year period.
Overweights Leap Wireless International and Millicom International both
contributed to relative and absolute performance.
UNDERWEIGHT IN FINANCIALS HELPED AVOID PAIN
An underweight position and successful stock selection in the financials
sector contributed to performance relative to the benchmark, helping the
portfolio to avoid the losses associated with the subprime lending industry.
Within the sector, the portfolio had no holdings in either the consumer
finance or thrifts and mortgage finance industries, which both slumped during
the period.
STARTING POINT FOR NEXT REPORTING PERIOD
Our investment process focuses on medium-sized and smaller companies with
accelerating earnings growth rates and share price momentum. We believe that
active investing in such companies will generate outperformance over time
compared with the Russell Midcap Growth Index.
Despite recent market volatility, we find the current environment
accommodating to our disciplined, consistent style. An environment of steady
rates and strong corporate earnings growth complements our process of
identifying companies with accelerating growth and price momentum. Our process
continues to successfully guide us to companies with strong fundamentals,
regardless of market "noise."
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Aerospace & Defense 9.6% 9.3%
Wireless Telecommunication Services 6.6% 16.7%
Semiconductors & Semiconductor Equipment 6.2% 2.0%
Energy Equipment & Services 5.7% 4.0%
Machinery 5.3% 4.8%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 87.8% 85.4%
Foreign Common Stocks(1) 10.1% 13.2%
TOTAL COMMON STOCKS 97.9% 98.6%
Temporary Cash Investments 2.8% 0.8%
Other Assets and Liabilities (0.7)% 0.6%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
- ------
13
SCHEDULE OF INVESTMENTS
Vista
OCTOBER 31, 2007
Shares ($ IN THOUSANDS) Value
Common Stocks -- 97.9%
AEROSPACE & DEFENSE -- 9.6%
152,000 Alliant Techsystems Inc.(1) $ 16,779
3,207,000 BE Aerospace, Inc.(1) 159,420
1,114,000 Precision Castparts Corp. 166,888
---------
343,087
---------
BEVERAGES -- 0.7%
621,000 Pepsi Bottling Group Inc. 26,753
---------
BIOTECHNOLOGY -- 2.9%
112,000 Alexion Pharmaceuticals Inc.(1) 8,568
658,000 BioMarin Pharmaceutical Inc.(1) 18,246
349,000 Celgene Corp.(1) 23,034
294,000 Myriad Genetics Inc.(1) 16,276
783,000 Onyx Pharmaceuticals, Inc.(1) 36,574
---------
102,698
---------
CAPITAL MARKETS -- 2.5%
88,000 BlackRock, Inc. 18,212
289,000 GFI Group Inc.(1) 24,946
785,000 Janus Capital Group Inc. 27,091
576,000 SEI Investments Co. 18,213
---------
88,462
---------
CHEMICALS -- 3.8%
425,000 Flotek Industries Inc.(1) 21,590
768,000 Monsanto Co. 74,980
294,000 Mosaic Co. (The)(1) 20,521
530,000 Terra Industries Inc.(1) 19,552
---------
136,643
---------
COMMUNICATIONS EQUIPMENT -- 4.0%
360,000 Blue Coat Systems, Inc.(1) 14,612
572,000 Ciena Corp.(1) 27,376
1,322,000 Foundry Networks, Inc.(1) 27,947
1,761,000 Juniper Networks, Inc.(1) 63,397
322,000 Riverbed Technology, Inc.(1) 10,880
---------
144,212
---------
COMPUTERS & PERIPHERALS -- 1.9%
360,000 Apple Inc.(1) 68,382
---------
CONSTRUCTION & ENGINEERING -- 5.2%
578,000 Foster Wheeler Ltd.(1) 85,689
3,009,000 Quanta Services, Inc.(1) 99,297
---------
184,986
---------
Shares ($ IN THOUSANDS) Value
CONTAINERS & PACKAGING -- 2.2%
1,755,000 Owens-Illinois Inc.(1) $ 77,957
---------
DIVERSIFIED CONSUMER SERVICES -- 1.7%
413,000 Apollo Group, Inc. Cl A(1) 32,734
147,000 Strayer Education, Inc. 27,410
---------
60,144
---------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.5%
636,000 Cogent Communications Group, Inc.(1) 17,604
---------
ELECTRIC UTILITIES -- 1.5%
309,000 Allegheny Energy, Inc.(1) 18,744
1,297,000 Reliant Energy, Inc.(1) 35,693
---------
54,437
---------
ELECTRICAL EQUIPMENT -- 4.6%
320,000 First Solar Inc.(1) 50,819
373,000 General Cable Corp.(1) 26,852
316,000 JA Solar Holdings Co., Ltd. ADR(1) 18,202
374,000 SunPower Corp. Cl A(1) 47,296
218,000 Vestas Wind Systems AS ORD(1) 19,661
---------
162,830
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.8%
254,000 Itron Inc.(1) 27,302
---------
ENERGY EQUIPMENT & SERVICES -- 5.7%
623,000 Acergy SA ORD 18,045
215,000 Cameron International Corp.(1) 20,932
208,000 Core Laboratories N.V.(1) 30,356
218,000 Dawson Geophysical Co.(1) 17,399
2,106,000 Dresser-Rand Group Inc.(1) 81,502
492,000 National Oilwell Varco, Inc.(1) 36,034
---------
204,268
---------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.6%
333,000 Inverness Medical Innovations, Inc.(1) 20,010
---------
HEALTH CARE PROVIDERS & SERVICES -- 5.0%
1,644,000 Express Scripts, Inc.(1) 103,737
772,000 Medco Health Solutions Inc.(1) 72,861
---------
176,598
---------
- ------
14
Vista
Shares ($ IN THOUSANDS) Value
HOTELS, RESTAURANTS & LEISURE -- 3.3%
879,000 Bally Technologies, Inc.(1) $ 35,450
497,000 Las Vegas Sands Corp.(1) 65,957
497,000 WMS Industries Inc.(1) 17,231
---------
118,638
---------
HOUSEHOLD DURABLES -- 0.5%
491,000 Tempur-Pedic International Inc. 17,676
---------
INDUSTRIAL CONGLOMERATES -- 0.7%
432,000 McDermott International, Inc.(1) 26,378
---------
INSURANCE -- 0.5%
371,000 AON Corp. 16,814
---------
INTERNET & CATALOG RETAIL -- 0.5%
183,000 Amazon.com, Inc.(1) 16,314
---------
INTERNET SOFTWARE & SERVICES -- 0.6%
179,000 Equinix Inc.(1) 20,882
---------
IT SERVICES -- 0.9%
171,000 MasterCard Inc. Cl A 32,413
---------
LIFE SCIENCES TOOLS & SERVICES -- 4.9%
412,000 Invitrogen Corp.(1) 37,438
584,000 PerkinElmer, Inc. 16,072
2,034,000 Thermo Fisher Scientific Inc.(1) 119,620
---------
173,130
---------
MACHINERY -- 5.3%
1,483,000 AGCO Corp.(1) 88,506
543,000 Flowserve Corp. 42,875
47,000 Hyundai Mipo Dockyard Co., Ltd. ORD 21,022
390,000 Manitowoc Co., Inc. (The) 19,211
308,000 Samsung Heavy Industries Co., Ltd. ORD 18,680
---------
190,294
---------
MARINE -- 0.5%
149,000 DryShips Inc. 17,561
---------
MEDIA -- 1.8%
1,671,000 Liberty Global, Inc. Series A(1) 65,587
---------
PHARMACEUTICALS -- 1.9%
2,657,000 Shire plc ORD 66,474
---------
Shares ($ IN THOUSANDS) Value
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 6.2%
648,000 Intersil Corp. Cl A $ 19,660
243,000 MEMC Electronic Materials Inc.(1) 17,792
875,000 Microsemi Corp.(1) 23,284
1,897,000 NVIDIA Corp.(1) 67,117
1,418,000 OmniVision Technologies, Inc.(1) 31,409
2,042,000 ON Semiconductor Corp.(1) 20,828
1,328,000 Semtech Corp.(1) 22,722
389,000 Silicon Laboratories Inc.(1) 16,999
---------
219,811
---------
SOFTWARE -- 4.5%
1,128,000 Activision, Inc.(1) 26,677
213,000 Nintendo Co., Ltd. ORD 134,277
---------
160,954
---------
SPECIALTY RETAIL -- 5.2%
1,768,000 GameStop Corp. Cl A(1) 104,701
1,290,000 Guess?, Inc. 66,293
294,000 Tiffany & Co. 15,929
---------
186,923
---------
TEXTILES, APPAREL & LUXURY GOODS -- 0.8%
378,000 Crocs, Inc.(1) 28,256
---------
WIRELESS TELECOMMUNICATION SERVICES -- 6.6%
432,000 Crown Castle International Corp.(1) 17,742
116,000 Millicom International Cellular SA(1) 13,628
2,004,000 NII Holdings, Inc.(1) 116,232
2,441,000 SBA Communications Corp. Cl A(1) 86,900
---------
234,502
---------
TOTAL COMMON STOCKS
(Cost $2,307,760) 3,488,980
---------
- ------
15
Vista
Principal Amount Value
Temporary Cash Investments -- 2.8%
FHLB Discount Notes, 4.40%,
$100,000 11/1/07(2)
(Cost $100,000) $ 100,000
----------
TOTAL INVESTMENT SECURITIES -- 100.7%
(Cost $2,407,760) 3,588,980
----------
OTHER ASSETS AND LIABILITIES -- (0.7)% (23,244)
----------
TOTAL NET ASSETS -- 100.0% $3,565,736
==========
Forward Foreign Currency Exchange Contracts
($ IN THOUSANDS)
Unrealized
Contracts to Sell Settlement Date Value Gain (Loss)
80,398,400 DKK for USD 11/30/07 $ 15,651 $(113)
25,060,824 GBP for USD 11/30/07 52,057 (454)
7,375,125,000 JPY for USD 11/30/07 64,165 316
77,252,000 NOK for USD 11/30/07 14,397 2
-------- ------------
$146,270 $(249)
======== ============
(Value on Settlement Date $146,021)
Notes to Schedule of Investments
ADR = American Depositary Receipt
DKK = Danish Krone
FHLB = Federal Home Loan Bank
GBP = British Pound
JPY = Japanese Yen
NOK = Norwegian Krona
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
(2) The rate indicated is the yield to maturity at purchase.
As of October 31, 2007, securities with an aggregate value of $278,159, which
represented 7.8% of total net assets, were valued in accordance with
alternative pricing procedures adopted by the Board of Directors.
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, 2007 to October 31, 2007.
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.
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.
- ------
17
Beginning Expenses Paid
Account Ending During Period* Annualized
Value Account Value 5/1/07 - Expense
5/1/07 10/31/07 10/31/07 Ratio*
Growth
ACTUAL
Investor Class $1,000 $1,143.00 $5.40 1.00%
Institutional
Class $1,000 $1,144.40 $4.32 0.80%
Advisor Class $1,000 $1,141.60 $6.75 1.25%
C Class $1,000 $1,137.50 $10.78 2.00%
R Class $1,000 $1,140.60 $8.09 1.50%
HYPOTHETICAL
Investor Class $1,000 $1,020.16 $5.09 1.00%
Institutional Class $1,000 $1,021.17 $4.08 0.80%
Advisor Class $1,000 $1,018.90 $6.36 1.25%
C Class $1,000 $1,015.12 $10.16 2.00%
R Class $1,000 $1,017.64 $7.63 1.50%
Vista
ACTUAL
Investor Class $1,000 $1,267.10 $5.71 1.00%
Institutional Class $1,000 $1,268.30 $4.57 0.80%
Advisor Class $1,000 $1,265.50 $7.14 1.25%
C Class $1,000 $1,260.80 $11.40 2.00%
R Class $1,000 $1,264.10 $8.56 1.50%
HYPOTHETICAL
Investor Class $1,000 $1,020.16 $5.09 1.00%
Institutional Class $1,000 $1,021.17 $4.08 0.80%
Advisor Class $1,000 $1,018.90 $6.36 1.25%
C Class $1,000 $1,015.12 $10.16 2.00%
R Class $1,000 $1,017.64 $7.63 1.50%
* Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
- ------
18
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
Growth Vista
ASSETS
Investment securities, at value (cost of
$3,709,673 and $2,407,760, respectively) --
including $93,484 and $- of securities on loan,
respectively $4,631,581 $3,588,980
Investments made with cash collateral received
for securities on loan, at value (cost of
$93,949 and $-, respectively) 93,949 --
------------ ------------
Total investment securities, at value (cost of
$3,803,622 and $2,407,760, respectively) 4,725,530 3,588,980
Cash -- 2,057
Receivable for investments sold 114,857 15,722
Receivable for forward foreign currency exchange
contracts -- 318
Receivable for capital shares sold -- 8
Dividends and interest receivable 2,276 424
------------ ------------
4,842,663 3,607,509
------------ ------------
LIABILITIES
Payable for collateral received for securities
on loan 93,949 --
Disbursements in excess of demand deposit cash 1,911 --
Payable for investments purchased 114,693 38,278
Payable for forward foreign currency exchange
contracts 161 567
Accrued management fees 3,768 2,846
Distribution fees payable 44 --
Service fees (and distribution fees -- Advisor
Class) payable -- 80
Service fees (and distribution fees --
R Class) payable 45 2
------------ ------------
214,571 41,773
------------ ------------
NET ASSETS $4,628,092 $3,565,736
============ ============
See Notes to Financial Statements.
- ------
19
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS EXCEPT AS NOTED)
Growth Vista
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $3,871,607 $2,077,687
Undistributed net investment income 5,778 136
Accumulated undistributed net realized
gain (loss) on investment and foreign currency
transactions (171,052) 306,942
Net unrealized appreciation on investments and
translation of assets and liabilities in
foreign currencies 921,759 1,180,971
------------ ------------
$4,628,092 $3,565,736
============ ============
INVESTOR CLASS, $0.01 PAR VALUE
($ AND SHARES IN FULL)
Net assets $4,132,570,240 $2,920,907,965
Shares outstanding 154,301,029 120,498,359
Net asset value per share $26.78 $24.24
INSTITUTIONAL CLASS, $0.01 PAR VALUE
($ AND SHARES IN FULL)
Net assets $284,695,097 $254,527,701
Shares outstanding 10,533,196 10,294,702
Net asset value per share $27.03 $24.72
ADVISOR CLASS, $0.01 PAR VALUE
($ AND SHARES IN FULL)
Net assets $206,836,884 $380,555,281
Shares outstanding 7,845,279 16,060,921
Net asset value per share $26.36 $23.69
C CLASS, $0.01 PAR VALUE
($ AND SHARES IN FULL)
Net assets $1,606,376 $7,346,170
Shares outstanding 63,246 322,619
Net asset value per share $25.40 $22.77
R CLASS, $0.01 PAR VALUE
($ AND SHARES IN FULL)
Net assets $2,383,237 $2,398,424
Shares outstanding 90,390 100,038
Net asset value per share $26.37 $23.98
See Notes to Financial Statements.
- ------
20
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
Growth Vista
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $319 and
$550, respectively) $ 53,701 $ 8,266
Interest 1,889 2,452
Securities lending 203 --
-------- ----------
55,793 10,718
-------- ----------
EXPENSES:
Management fees 46,402 26,029
Distribution fees:
Advisor Class 342 483
C Class 9 32
Service fees:
Advisor Class 342 483
C Class 3 11
Distribution and service fees:
Advisor Class -- 144
R Class 8 7
Directors' fees and expenses 96 58
Other expenses 25 9
-------- ----------
47,227 27,256
-------- ----------
NET INVESTMENT INCOME (LOSS) 8,566 (16,538)
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions 740,792 335,221
Foreign currency transactions (3,170) (7,213)
-------- ----------
737,622 328,008
-------- ----------
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION) ON:
Investments 214,718 795,619
Translation of assets and liabilities in foreign
currencies 317 4
-------- ----------
215,035 795,623
-------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 952,657 1,123,631
-------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $961,223 $1,107,093
======== ==========
See Notes to Financial Statements.
- ------
21
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006 (AMOUNTS IN THOUSANDS)
Growth Vista
Increase (Decrease) in Net
Assets 2007 2006 2007 2006
OPERATIONS
Net investment income (loss) $8,566 $5,384 $(16,538) $(5,829)
Net realized gain (loss) 737,622 481,327 328,008 89,964
Change in net unrealized
appreciation (depreciation) 215,035 34,838 795,623 110,029
Net increase (decrease) in
net assets resulting from
operations 961,223 521,549 1,107,093 194,164
----------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class (2,635) (17,117) -- --
Institutional Class (2,057) (4,228) -- --
Advisor Class -- (173) -- --
From net realized gains:
Investor Class -- -- (15,549) --
Institutional Class -- -- (1,009) --
Advisor Class -- -- (1,650) --
C Class -- -- (27) --
R Class -- -- (3) --
----------- ---------- ---------- ----------
Decrease in net assets from
distributions (4,692) (21,518) (18,238) --
----------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in
net assets from capital share
transactions (1,121,481) (491,814) 165,576 (76,189)
----------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN
NET ASSETS (164,950) 8,217 1,254,431 117,975
NET ASSETS
Beginning of period 4,793,042 4,784,825 2,311,305 2,193,330
----------- ---------- ---------- ----------
End of period $4,628,092 $4,793,042 $3,565,736 $2,311,305
=========== ========== ========== ==========
Undistributed net investment
income $5,778 $4,582 $136 $252
=========== ========== ========== ==========
See Notes to Financial Statements.
- ------
22
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007 (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. Growth Fund (Growth) and Vista Fund
(Vista) (collectively, the funds) are two funds in a series issued by the
corporation. Growth and Vista 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. Growth invests in
larger companies that management believes will increase in value but may
purchase companies of any size. Vista invests in companies that are
medium-sized and smaller at the time of purchase that management believes will
increase in value. The following is a summary of the funds' significant
accounting policies.
MULTIPLE CLASS -- The funds are 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 distribution and
shareholder servicing 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.
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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the funds determine that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
funds to use alternative procedures to value a security such as: a security
has been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will
commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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 -- Growth may lend portfolio securities through their
lending agent to certain approved borrowers in order to earn additional
income. Growth continues to recognize any gain or loss in the market price of
the securities loaned and record 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 recongnize 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
- ------
23
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
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 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 American Century Investment Management, Inc. (ACIM) (the
investment advisor) 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 or American
Century Global Investment Management, Inc. (ACGIM), 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. The funds are no longer subject to examination by tax
authorities for years prior to 2004. At this time, management has not
identified any uncertain tax positions that would materially impact the
financial statements. Accordingly, no provision has been made for federal or
state income taxes. Interest and penalties associated with any federal or
state income tax obligations, if any, are recorded as interest expense.
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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the funds. In addition, in the normal
course of business, the funds enter into contracts that provide general
indemnifications. The funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the
funds. The risk of material loss from such claims is considered by management
to be remote.
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.
- ------
24
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
On July 27, 2007, the Advisor Class shareholders of Vista approved a change to
the class's fee structure. The change was approved by the Board of Directors
on November 29, 2006 and March 7, 2007. Effective September 4, 2007, the fee
structure change resulted in an increase of 0.25% in the unified management
fee and a simultaneous decrease of 0.25% in the total distribution and service
fee, resulting in no change to the total operation expense ratio of the class.
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 advisor'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 advisor 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 Growth ranges from 0.80% to 1.00% for the
Investor Class, C Class and R Class. The Advisor Class is 0.25% less at each
point within the range for Growth. The annual management fee schedule for
Vista is 1.00% for the Investor Class, Advisor Class, C Class and R Class. The
Institutional Class is 0.20% less at each point within the range for the
funds. Prior to September 4, 2007, the Advisor Class was 0.25% less at each
point within the range for Vista.
The effective annual management fee for each class of each fund for the year
ended October 31, 2007 was as follows:
Growth Vista
Investor Class 1.00% 1.00%
Institutional Class 0.80% 0.80%
Advisor Class 0.75% 0.80%
C Class 1.00% 1.00%
R Class 1.00% 1.00%
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a Master
Distribution and Shareholder Services Plan for the Advisor Class of Growth and
a separate Master Distribution and Individual Shareholder Services Plan for
each of the Advisor Class of Vista, C Class and R Class (collectively the
plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the
Advisor Class of Growth will pay American Century Investment Services, Inc.
(ACIS) an annual distribution fee of 0.25% and service fee of 0.25%. The plans
provide that the Advisor Class of Vista will pay ACIS an annual distribution
and service fee of 0.25%. Prior to September 4, 2007, the Board of Directors
had adopted a Master Distribution and Shareholder Services Plan for the
Advisor Class of Vista, pursuant to Rule 12b-1 of the 1940 Act, which provided
that the Advisor Class of Vista would pay ACIS an annual distribution fee of
0.25% and service fee of 0.25%. The plans provide that the C Class will pay
ACIS an annual distribution fee of 0.75% and service fee of 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, 2007, 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 advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
- ------
25
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
Beginning in December 2006, the funds are eligible to invest in a money market
fund for temporary purposes, which is managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan Chase
& Co. (JPM). JPM is an equity investor in ACC. The funds have a bank line of
credit agreement and Growth 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, 2007, were as follows:
Growth Vista
Purchases $5,377,344 $3,299,670
Proceeds from sales $6,510,476 $3,214,204
For the year ended October 31, 2007, Growth incurred net realized gains of
$132,951 from a redemption in kind. A redemption in kind occurs when a fund
delivers securities from its portfolio in lieu of cash as payment to a
redeeming shareholder.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows:
Year ended Year ended
October 31, 2007 October 31, 2006
Shares Amount Shares Amount
Growth
INVESTOR CLASS/SHARES
AUTHORIZED 800,000 800,000
========= =========
Sold 16,977 $ 399,135 14,450 $ 302,102
Issued in reinvestment of
distributions 108 2,426 775 16,259
Redeemed (42,268) (1,005,444) (38,164) (795,254)
--------- ------------ --------- ---------
(25,183) (603,883) (22,939) (476,893)
--------- ------------ --------- ---------
INSTITUTIONAL CLASS/SHARES
AUTHORIZED 150,000 150,000
========= =========
Sold 10,007 248,497 5,106 107,366
Issued in reinvestment of
distributions 91 2,057 200 4,228
Redeemed (33,807) (861,253) (5,605) (117,555)
--------- ------------ --------- ---------
(23,709) (610,699) (299) (5,961)
--------- ------------ --------- ---------
ADVISOR CLASS/SHARES AUTHORIZED 210,000 210,000
========= =========
Sold 5,729 134,470 1,219 25,034
Issued in reinvestment of
distributions -- -- 8 162
Redeemed (1,848) (43,504) (1,681) (34,467)
--------- ------------ --------- ---------
3,881 90,966 (454) (9,271)
--------- ------------ --------- ---------
C CLASS/SHARES AUTHORIZED 100,000 100,000
========= =========
Sold 33 762 16 327
Redeemed (15) (349) (12) (247)
--------- ------------ --------- ---------
18 413 4 80
--------- ------------ --------- ---------
R CLASS/SHARES AUTHORIZED 50,000 50,000
========= =========
Sold 94 2,147 13 264
Redeemed (18) (425) (2) (33)
--------- ------------ --------- ---------
76 1,722 11 231
--------- ------------ --------- ---------
Net increase (decrease) (44,917) $(1,121,481) (23,677) $(491,814)
========= ============ ========= ==========
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26
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
Year ended Year ended
October 31, 2007 October 31, 2006
Shares Amount Shares Amount
Vista
INVESTOR CLASS/SHARES AUTHORIZED 800,000 800,000
========= ========
Sold 29,032 $594,313 19,234 $320,240
Issued in reinvestment of
distributions 817 14,041 -- --
Redeemed (29,524) (567,312) (25,947) (425,992)
--------- --------- -------- ----------
325 41,042 (6,713) (105,752)
--------- --------- -------- ----------
INSTITUTIONAL CLASS/SHARES
AUTHORIZED 80,000 80,000
========= ========
Sold 5,631 115,870 5,478 94,126
Issued in reinvestment of
distributions 58 1,008 -- --
Redeemed (3,345) (63,192) (3,993) (68,624)
--------- --------- -------- ----------
2,344 53,686 1,485 25,502
--------- --------- -------- ----------
ADVISOR CLASS/SHARES AUTHORIZED 210,000 210,000
========= ========
Sold 7,906 161,044 4,866 78,643
Issued in reinvestment of
distributions 97 1,632 -- --
Redeemed (5,081) (95,834) (4,673) (75,163)
--------- --------- -------- ----------
2,922 66,842 193 3,480
--------- --------- -------- ----------
C CLASS/SHARES AUTHORIZED 100,000 100,000
========= ========
Sold 198 3,788 75 1,172
Issued in reinvestment of
distributions 2 25 -- --
Redeemed (70) (1,289) (57) (904)
--------- --------- -------- ----------
130 2,524 18 268
--------- --------- -------- ----------
R CLASS/SHARES AUTHORIZED 10,000 10,000
========= ========
Sold 189 3,673 23 371
Redeemed (110) (2,191) (4) (58)
--------- --------- -------- ----------
79 1,482 19 313
--------- --------- -------- ----------
Net increase (decrease) 5,800 $165,576 (4,998) $(76,189)
========= ========= ======== ==========
5. SECURITIES LENDING
As of October 31, 2007, securities in Growth valued at $93,484, 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 $93,949. Growth'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
Growth may be delayed or limited.
6. BANK LINE OF CREDIT
The funds, along with certain other funds managed by ACIM or ACGIM, have a
$500 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 0.40%. The funds did not borrow from the line during the year ended
October 31, 2007.
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27
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
7. RISK FACTORS
There are certain risks involved in investing in foreign securities. These
risks include those resulting from future adverse political, social, and
economic developments, fluctuations in currency exchange rates, the possible
imposition of exchange controls, and other foreign laws or restrictions.
Investing in emerging markets may accentuate these risks.
8. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years ended October 31,
2007 and October 31, 2006 were as follows:
Growth Vista
2007 2006 2007 2006
DISTRIBUTIONS PAID FROM
Ordinary income $4,692 $21,518 -- --
Long-term capital gains -- -- $18,238 --
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
The reclassifications, which reflect character differences primarily related
to federal income tax treatment of a redemptions in kind and net operating
losses, were as follows:
Growth Vista
Capital Paid in $132,499 --
Accumulated undistributed
net investment income (loss) $(2,678) $16,423
Accumulated net realized loss $(129,821) $(16,423)
As of October 31, 2007, the components of distributable earnings on a
tax-basis and the federal tax cost of investments were as follows:
Growth Vista
Federal tax cost of investments $3,805,930 $2,413,299
=========== ==========
Gross tax appreciation of investments $956,360 $1,184,200
Gross tax depreciation of investments (36,760) (8,519)
----------- ----------
Net tax appreciation (depreciation) of investments $919,600 $1,175,681
=========== ==========
Net tax appreciation (depreciation) of derivatives and
translation of assets and liabilities in foreign
currencies $(149) $(114)
----------- ----------
Net tax appreciation (depreciation) $919,451 $1,175,567
=========== ==========
Undistributed ordinary income $5,778 $91,095
Accumulated long-term gains -- $221,387
Accumulated capital losses $(168,744) --
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 in 2010 for
Growth.
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28
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
9. CORPORATE EVENT
On July 27, 2007, the C Class shareholders of the funds approved a
reclassification of C Class shares into Advisor Class shares. The change was
approved by the Board of Directors on November 29, 2006 and March 7, 2007. The
reclassification was effective on December 3, 2007.
On July 27, 2007 and September 25, 2007, the Advisor Class shareholders of
Vista and Growth, respectively, approved a change to each class's fee
structure. The change was approved by the Board of Directors on November 29,
2006 and March 7, 2007. Vista's change was effective on September 4, 2007.
Growth's change was effective on December 3, 2007.
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
11. OTHER TAX INFORMATION (UNAUDITED) ($ IN FULL)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
Growth hereby designates up to the maximum amount allowable as qualified
dividend income for the fiscal year ended October 31, 2007.
Vista hereby designates $18,237,080 capital gain distributions for the fiscal
year ended October 31, 2007.
For corporate taxpayers of Growth, ordinary income distributions paid during
the fiscal year ended October 31, 2007, of $4,691,985 qualify for the
corporate dividends received deduction.
- ------
29
FINANCIAL HIGHLIGHTS
Growth
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning
of Period $21.99 $19.80 $18.43 $17.26 $14.80
------ ------ ------ ------- ------
Income From Investment Operations
Net Investment Income (Loss)(1) 0.04 0.02 0.08 (0.01) 0.01
Net Realized and Unrealized
Gain (Loss) 4.76 2.26 1.30 1.18 2.45
------ ------ ------ ------- ------
Total From Investment Operations 4.80 2.28 1.38 1.17 2.46
------ ------ ------ ------- ------
Distributions
From Net Investment Income (0.01) (0.09) (0.01) -- --
------ ------ ------ ------- ------
Net Asset Value, End of Period $26.78 $21.99 $19.80 $18.43 $17.26
====== ====== ====== ======= ======
TOTAL RETURN(2) 21.86% 11.51% 7.47% 6.78% 16.62%
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 0.15% 0.09% 0.38% (0.07)% 0.05%
Portfolio Turnover Rate 112% 127% 77% 131% 159%
$4,133 $3,946 $4,008 $4,176 $4,350
Net Assets, End of Period (in
millions)
(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.
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30
Growth
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning
of Period $22.19 $19.98 $18.59 $17.38 $14.87
-------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment
Income (Loss)(1) 0.09 0.06 0.11 0.02 0.04
Net Realized and
Unrealized Gain (Loss) 4.81 2.27 1.33 1.19 2.47
-------- -------- -------- -------- --------
Total From Investment
Operations 4.90 2.33 1.44 1.21 2.51
-------- -------- -------- -------- --------
Distributions
From Net Investment
Income (0.06) (0.12) (0.05) -- --
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $27.03 $22.19 $19.98 $18.59 $17.38
======== ======== ======== ======== ========
TOTAL RETURN(2) 22.13% 11.70% 7.72% 6.96% 16.88%
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 0.35% 0.29% 0.58% 0.13% 0.25%
Portfolio Turnover Rate 112% 127% 77% 131% 159%
Net Assets, End of Period
(in thousands) $284,695 $759,816 $689,983 $685,090 $618,569
(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.
- ------
31
Growth
Advisor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $21.68 $19.53 $18.22 $17.11 $14.70
-------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment
Income (Loss)(1) (0.04) (0.03) 0.02 (0.06) (0.03)
Net Realized and
Unrealized Gain (Loss) 4.72 2.22 1.29 1.17 2.44
-------- ------- ------- ------- -------
Total From Investment
Operations 4.68 2.19 1.31 1.11 2.41
-------- ------- ------- ------- -------
Distributions
From Net Investment Income -- (0.04) -- -- --
-------- ------- ------- ------- -------
Net Asset Value, End of Period $26.36 $21.68 $19.53 $18.22 $17.11
======== ======= ======= ======= =======
TOTAL RETURN(2) 21.59% 11.23% 7.19% 6.49% 16.39%
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 Income
(Loss) to Average
Net Assets (0.10)% (0.16)% 0.13% (0.32)% (0.20)%
Portfolio Turnover Rate 112% 127% 77% 131% 159%
Net Assets, End of Period (in
thousands) $206,837 $85,953 $86,303 $76,962 $55,010
(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.
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32
Growth
C Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $21.04 $19.06 $17.91 $16.95 $14.66
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income
(Loss)(1) (0.20) (0.18) (0.12) (0.19) (0.15)
Net Realized and Unrealized
Gain (Loss) 4.56 2.16 1.27 1.15 2.44
------- ------- ------- ------- -------
Total From Investment
Operations 4.36 1.98 1.15 0.96 2.29
------- ------- ------- ------- -------
Net Asset Value, End of Period $25.40 $21.04 $19.06 $17.91 $16.95
======= ======= ======= ======= =======
TOTAL RETURN(2) 20.72% 10.39% 6.42% 5.66% 15.62%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 2.00% 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.85)% (0.91)% (0.62)% (1.07)% (0.95)%
Portfolio Turnover Rate 112% 127% 77% 131% 159%
Net Assets, End of Period (in
thousands) $1,606 $947 $779 $632 $623
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
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.
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33
Growth
R Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005 2004 2003(1)
PER-SHARE DATA
Net Asset Value, Beginning of
Period $21.74 $19.59 $18.32 $17.25 $16.56
------- ------- ------- ------- ----------
Income From Investment
Operations
Net Investment Income
(Loss)(2) (0.10) (0.11) (0.07) (0.13) (0.02)
Net Realized and
Unrealized Gain (Loss) 4.73 2.26 1.34 1.20 0.71
------- ------- ------- ------- ----------
Total From Investment
Operations 4.63 2.15 1.27 1.07 0.69
------- ------- ------- ------- ----------
Net Asset Value, End of Period $26.37 $21.74 $19.59 $18.32 $17.25
======= ======= ======= ======= ==========
TOTAL RETURN(3) 21.30% 10.97% 6.93% 6.20% 4.17%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.50% 1.50% 1.50% 1.50% 1.50%(4)
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.35)% (0.41)% (0.12)% (0.57)% (0.58)%(4)
Portfolio Turnover Rate 112% 127% 77% 131% 159%(5)
Net Assets, End of Period (in
thousands) $2,383 $298 $49 $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 becuause 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.
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34
Vista
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $16.35 $14.99 $13.14 $11.97 $9.25
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income
(Loss)(1) (0.12) (0.04) (0.04) (0.06) (0.06)
Net Realized and Unrealized
Gain (Loss) 8.14 1.40 1.89 1.23 2.78
------- ------- ------- ------- -------
Total From Investment
Operations 8.02 1.36 1.85 1.17 2.72
------- ------- ------- ------- -------
Distributions
From Net Realized Gains (0.13) -- -- -- --
------- ------- ------- ------- -------
Net Asset Value, End of Period $24.24 $16.35 $14.99 $13.14 $11.97
======= ======= ======= ======= =======
TOTAL RETURN(2) 49.39% 9.07% 14.08% 9.77% 29.41%
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 (0.60)% (0.23)% (0.26)% (0.48)% (0.57)%
Portfolio Turnover Rate 121% 234% 284% 255% 280%
Net Assets, End of Period (in
millions) $2,921 $1,965 $1,902 $1,418 $1,240
(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.
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35
Vista
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $16.64 $15.22 $13.32 $12.11 $9.34
-------- -------- ------- ------- -------
Income From Investment
Operations
Net Investment Income
(Loss)(1) (0.08) (0.01) (0.01) (0.04) (0.03)
Net Realized and
Unrealized Gain (Loss) 8.29 1.43 1.91 1.25 2.80
-------- -------- ------- ------- -------
Total From Investment
Operations 8.21 1.42 1.90 1.21 2.77
-------- -------- ------- ------- -------
Distributions
From Net Realized Gains (0.13) -- -- -- --
-------- -------- ------- ------- -------
Net Asset Value, End of Period $24.72 $16.64 $15.22 $13.32 $12.11
======== ======== ======= ======= =======
TOTAL RETURN(2) 49.68% 9.33% 14.26% 9.99% 29.66%
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 (0.40)% (0.03)% (0.06)% (0.28)% (0.37)%
Portfolio Turnover Rate 121% 234% 284% 255% 280%
Net Assets, End of Period (in
thousands) $254,528 $132,325 $98,439 $42,747 $34,177
(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.
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36
Vista
Advisor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning
of Period $16.03 $14.73 $12.95 $11.82 $9.15
-------- -------- -------- -------- -------
Income From Investment
Operations
Net Investment Income
(Loss)(1) (0.16) (0.08) (0.08) (0.11) (0.08)
Net Realized and
Unrealized Gain (Loss) 7.95 1.38 1.86 1.24 2.75
-------- -------- -------- -------- -------
Total From Investment
Operations 7.79 1.30 1.78 1.13 2.67
-------- -------- -------- -------- -------
Distributions
From Net Realized Gains (0.13) -- -- -- --
-------- -------- -------- -------- -------
Net Asset Value, End of
Period $23.69 $16.03 $14.73 $12.95 $11.82
======== ======== ======== ======== =======
TOTAL RETURN(2) 48.94% 8.83% 13.75% 9.56% 29.18%
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
Income (Loss) to Average Net
Assets (0.85)% (0.48)% (0.51)% (0.73)% (0.82)%
Portfolio Turnover Rate 121% 234% 284% 255% 280%
Net Assets, End of Period
(in thousands) $380,555 $210,576 $190,635 $106,750 $17,060
(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.
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37
Vista
C Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $15.52 $14.37 $12.73 $11.71 $9.12
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income
(Loss)(1) (0.30) (0.19) (0.18) (0.19) (0.16)
Net Realized and Unrealized
Gain (Loss) 7.68 1.34 1.82 1.21 2.75
------- ------- ------- ------- -------
Total From Investment
Operations 7.38 1.15 1.64 1.02 2.59
------- ------- ------- ------- -------
Distributions
From Net Realized Gains (0.13) -- -- -- --
------- ------- ------- ------- -------
Net Asset Value, End of Period $22.77 $15.52 $14.37 $12.73 $11.71
======= ======= ======= ======= =======
TOTAL RETURN(2) 47.90% 8.00% 12.88% 8.71% 28.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 2.00% 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income
(Loss) to Average Net Assets (1.60)% (1.23)% (1.26)% (1.48)% (1.57)%
Portfolio Turnover Rate 121% 234% 284% 255% 280%
Net Assets, End of Period (in
thousands) $7,346 $2,998 $2,515 $1,439 $333
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
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.
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38
Vista
R Class
For a Share Outstanding Throughout the Year Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $16.25 $14.97 $15.32
Income From Investment Operations
------- ------- ----------
Net Investment Income (Loss)(2) (0.21) (0.16) (0.04)
Net Realized and Unrealized Gain (Loss) 8.07 1.44 (0.31)
------- ------- ----------
Total From Investment Operations 7.86 1.28 (0.35)
------- ------- ----------
Distributions
From Net Realized Gains (0.13) -- --
------- ------- ----------
Net Asset Value, End of Period $23.98 $16.25 $14.97
======= ======= ==========
TOTAL RETURN(3) 48.71% 8.55% (2.28)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.50% 1.50% 1.50%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.10)% (0.73)% (0.92)%(4)
Portfolio Turnover Rate 121% 234% 284%(5)
Net Assets, End of Period (in thousands) $2,398 $337 $24
(1) July 29, 2005 (commencement of sale) through October 31, 2005.
(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, 2005.
See Notes to Financial Statements.
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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 Growth Fund and Vista Fund (the
"Funds"), two of the mutual funds comprising American Century Mutual Funds,
Inc., as of October 31, 2007, 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. The Funds are not required to have, nor were we engaged to
perform, an audit of their internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities owned as of
October 31, 2007, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing
procedures. 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 each
of the respective Funds, as of October 31, 2007, 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 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 12, 2007
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40
PROXY VOTING RESULTS
Special meetings of shareholders were held on July 27, 2007 and September 25,
2007, to vote on the following proposals. The proposals received the required
number of votes of the American Century Mutual Funds, Inc. or the applicable
fund, depending on the proposal, and were adopted. A summary of voting results
is listed below each proposal.
PROPOSAL 1:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
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41
PROPOSAL 2:
To approve a change in the fee structure of the Advisor Class. This proposal
was voted on by the Advisor Class shareholders of the following funds:
Growth Vista
For: 32,031,369 96,096,628
Against: 3,606,757 5,738,418
Abstain: 1,596,188 2,194,365
Broker Non-Vote: 10,316,147 17,275,308
PROPOSAL 3:
To approve the reclassification of the C Class shares of the fund, whereby all
of the C Class shares will be reclassified as Advisor Class shares of that
fund. This proposal was voted on by the C Class shareholders of the following
funds:
Growth Vista
For: 647,399 2,174,394
Against: 155,801 28,684
Abstain: 0 82,817
Broker Non-Vote: 311,165 1,067,071
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42
MANAGEMENT
The individuals listed below serve as directors or officers of the funds. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue
of their engagement as directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, subsidiaries, including the funds' investment advisor, American
Century Investment Management, Inc. (ACIM); the funds' principal underwriter,
American Century Investment Services, Inc. (ACIS); and the funds' transfer
agent, American Century Services, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the funds also serve in similar capacities
for the other 14 investment companies in the American Century family of funds
advised by ACIM or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the funds. The listed officers are
interested persons of the funds and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUNDS: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUNDS: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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43
INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUNDS: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
Other Directorships Held by Director: None
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUNDS: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUNDS: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUNDS: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUNDS: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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44
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUNDS: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUNDS: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUNDS: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUNDS: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the funds' directors and is available
without charge, upon request, by calling 1-800-345-2021.
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45
APPROVAL OF MANAGEMENT AGREEMENTS
Growth and Vista
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors (the "Directors") each year. At
American Century, this process is referred to as the "15(c) Process." As a
part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning Growth and Vista (the "funds") and the
services provided to the funds under the management agreements. The
information considered and the discussions held at the meetings included, but
were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the funds under the management
agreements;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the funds and its shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the funds to the cost of owning similar
funds;
* data comparing the funds' performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the funds to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the funds' board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreements, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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46
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreements under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES - GENERALLY. Under the management
agreements, the advisor is responsible for providing or arranging for all
services necessary for the operation of the funds. The board noted that under
the management agreements, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the funds' portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the funds in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
- ------
47
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information for the funds, together with comparative information
for appropriate benchmarks and peer groups of funds managed similarly to the
funds. The Directors also review detailed performance information during the
15(c) Process comparing the funds' performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. Growth's performance for both the one- and three-year periods was
above the median for its peer group. Vista's performance was above the median
of its peer group for the one-year period and just below the median for the
three-year period.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the funds, its profitability in managing the funds, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreements, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the funds specifically, the expenses incurred by the advisor
in providing various functions to the funds, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the funds increase in size, and through
reinvestment in its business to provide shareholders additional content and
services.
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48
COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the funds, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
funds' independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the funds and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the funds' unified fee to the total
expense ratio of other funds in the funds' peer group. The unified fee charged
to shareholders of Growth was below the median of the total expense ratios of
its peer group. The unified fee charged to shareholders of Vista was in the
lowest quartile of the total expense ratio of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the funds. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the funds. The
Directors analyzed this information and concluded that the fees charged and
services provided to the funds were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the funds. They concluded that the advisor's primary
business is managing mutual funds and it generally does not use the fund or
shareholder information to generate profits in other lines of business, and
therefore does not derive any significant collateral benefits from them. The
Directors noted that the advisor receives proprietary research from
broker-dealers that execute fund portfolio transactions and concluded that
this research is likely to benefit fund shareholders. The Directors also
determined that the advisor is able to provide investment management services
to certain clients other than the funds, at least in part, due to its existing
infrastructure built to serve the fund complex. The Directors concluded,
however, that the assets of those other clients are not material to the
analysis and, in any event, are included with the assets of the funds to
determine breakpoints in the funds' fee schedule, provided they are managed
using the same investment team and strategy.
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49
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor concluded that the
investment management agreement between Vista and the advisor is fair and
reasonable in light of the services provided and should be renewed.
The independent directors negotiated changes to the breakpoint schedule used
to calculate the management fees of Growth. These changes were proposed by the
Directors based on their review of the competitive changes in the mutual fund
marketplace and their review of financial information provided by the advisor.
The new schedule, effective August 1, 2007, contains lower management fees at
certain asset levels than under the existing structure. Following these
negotiations with the advisor, the independent directors concluded that the
investment management agreement between each fund and its advisor is fair and
reasonable in light of the services provided and should be renewed.
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50
SHARE CLASS INFORMATION
Five classes of shares are authorized for sale by the funds: Investor Class,
Institutional Class, Advisor Class, C Class, and R Class. The total expense
ratio of Institutional Class shares is lower than that of Investor Class
shares. The total expense ratios of Advisor Class, C Class, 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; and/or 2) through
certain financial intermediaries (such as banks, broker-dealers, insurance
companies and investment advisors), which may require payment of a transaction
fee to the financial intermediary. The funds' prospectuses contain additional
information regarding eligibility for Investor Class shares.
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 unified
management fee of Institutional Class shares is 0.20% less than the unified
management fee of Investor Class shares.
ADVISOR CLASS shares are sold primarily through institutions such as
investment advisors, banks, broker-dealers, insurance companies, and financial
advisors. Prior to September 4, 2007 for Vista, and prior to December 3, 2007
for Growth, Advisor Class shares of the funds were subject to a 0.50% annual
Rule 12b-1 distribution and service fee. Effective September 4, 2007 for Vista
and effective December 3, 2007 for Growth, Advisor Class shares are subject to
a 0.25% annual Rule 12b-1 distribution and service fee. Upon the effective
date of the fee change, the unified management fee for Advisor Class shares is
the same as for 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.
The unified management fee for C Class shares is the same as for Investor
Class shares. C Class shares also are subject to a Rule 12b-1 distribution and
service 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. The unified management fee for R Class shares is the
same as for Investor Class shares. R Class shares are subject to a 0.50%
annual Rule 12b-1 distribution and service fee.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
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51
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 advisor,
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 advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The 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
website at sec.gov, and may be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330. The funds also make
their complete schedule of portfolio holdings for the most recent quarter of
their fiscal year available on their website at americancentury.com and, upon
request, by calling 1-800-345-2021.
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52
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 available for purchase.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
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 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 MIDCAP® VALUE 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 lower price-to-book
ratios and lower forecasted growth values.
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.
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53
NOTES
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54
NOTES
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55
NOTES
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56
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
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 PROFESSIONALS, 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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investments
P.O. Box 419200
Kansas City, MO 64141-6200
PRSRT STD
U.S. POSTAGE PAID
AMERICAN CENTURY
COMPANIES
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0712
SH-ANN-57612S
[front cover]
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter]
Giftrust® Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century® Giftrust Fund
for the 12 months ended October 31, 2007. I am honored to be addressing you in
the "Our Message" space long devoted to company founder Jim Stowers, Jr. and
his son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
GIFTRUST
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 9
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 12
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 13
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 14
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 15
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 19
Report of Independent Registered Public Accounting Firm . . . . . . . 20
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 21
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Approval of Management Agreement for Giftrust . . . . . . . . . . . . 25
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 29
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Steve Lurito, Chief Investment Officer, U.S. Growth Equity
STOCK RETURNS, VOLATILITY UP
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007. Stocks rallied for much of the first half of the fiscal year, touching
record highs in July, as the worldwide economic expansion drove strong
corporate earnings. But the sub-prime mortgage crisis blossomed in late July
and early August in the form of massive losses for banks, residential lenders,
and firms that securitized these subprime loans. This crisis caused a sharp
tightening of lending standards, removing the easy credit that propelled
strong consumer spending and funded a record amount of leveraged buyouts. As a
result, the U.S. stock market came under pressure late in the fiscal year.
By October, stock market volatility surged and credit markets seized up. To
relieve the pressure, the Federal Reserve (the Fed) lowered its benchmark
federal funds rate target in September and again in October--the Fed's first
rate cuts since June 2003. Markets rallied briefly at fiscal year-end, though
there were concerns heading into November about the future course of corporate
earnings.
GROWTH SHARES LED
Growth stocks led the market during the 12 months, outpacing value-oriented
shares across all market capitalizations. That's because the deceleration in
corporate earnings cast a brighter spotlight on the relative earnings power of
growth companies, providing a favorable context for our growth portfolios and
growth stocks in general. We took advantage of this favorable backdrop,
enjoying a solid year of outperformance.
Looking at returns by sector, energy and materials performed best, supported
by booming global demand for commodities. In contrast, the aforementioned
credit crisis weakened consumer discretionary and financial shares--the only
two segments of the S&P 500 Index to decline during the period.
We expect a continued favorable environment for growth-stock investing:
interest rates are low, global growth continues to provide new markets for
goods and services, and inflation remains contained.
U.S. Stock Index Returns
For the 12 months ended October 31, 2007
RUSSELL 1000 INDEX (LARGE-CAP) 15.03%
Russell 1000 Growth Index 19.23%
Russell 1000 Value Index 10.83%
RUSSELL MIDCAP INDEX 15.24%
Russell Midcap Growth Index 19.72%
Russell Midcap Value Index 9.73%
RUSSELL 2000 INDEX (SMALL-CAP) 9.27%
Russell 2000 Growth Index 16.73%
Russell 2000 Value Index 2.05%
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2
PERFORMANCE
Giftrust
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years 10 years Inception Date
GIFTRUST 56.63% 21.54%(1) 5.69%(1) 13.66%(1) 11/25/83
RUSSELL MIDCAP GROWTH
INDEX(2) 19.72% 19.21% 8.30% N/A(3) --
(1) Returns would have been lower if management fees had not been waived from
2/1/04 to 7/31/04.
(2) Data provided by Lipper Inc. -- A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(3) 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. The fund's investment process may result in high
portfolio turnover, high commission costs and high capital gains
distributions. In addition, its investment approach may involve higher
volatility and risk. International investing involves special risks, such as
political instability and currency fluctuations. Investing in emerging markets
may accentuate these risks.
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.
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3
Giftrust
Growth of $10,000 Over 10 Years
$10,000 investment made October 31, 1997
One-Year Returns Over 10 Years
Periods ended October 31
1998 1999 2000 2001 2002 2003 2004* 2005 2006 2007
Giftrust -31.55% 59.05% 63.10% -56.36% -15.38% 18.18% -1.64% 25.13% 16.49% 56.63%
Russell
Midcap
Growth
Index 2.43% 37.66% 38.67% -42.78% -17.61% 39.30% 8.77% 15.91% 14.51% 19.72%
* Returns would have been lower, along with the ending value, 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. The fund's investment process may result in high
portfolio turnover, high commission costs and high capital gains
distributions. In addition, its investment approach may involve higher
volatility and risk. International investing involves special risks, such as
political instability and currency fluctuations. Investing in emerging markets
may accentuate these risks.
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.
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4
PORTFOLIO COMMENTARY
Giftrust
Portfolio Managers: Glenn Fogle and David Hollond
In August 2007, portfolio manager Kurt Stalzer took a personal leave of
absence from American Century. Veteran American Century mid-cap growth
portfolio managers Glenn Fogle (16 years with the firm) and David Hollond
(nine years with the firm) continue as co-managers for Giftrust.
PERFORMANCE SUMMARY
Giftrust advanced 56.63% for the year ended October 31, 2007, more than
doubling the 19.72% return of its benchmark, the Russell Midcap Growth Index.
Giftrust's gain ranked among the highest in American Century's family of funds
for the period.
As discussed in the Market Perspective on page 2, a change in Federal Reserve
(Fed) interest rate policy, continued corporate earnings growth, and signs of
U.S. economic strength contributed to stock index gains for the period,
despite market volatility created largely by growing problems among subprime
lenders. In this environment, large- and mid-cap stocks generally outpaced
their small-cap counterparts, and growth-oriented shares outperformed value
stocks.
Giftrust derived gains from effective stock selection in all ten market
sectors. The bulk of Giftrust's strong performance relative to the Russell
Midcap Growth Index, though, came from individual holdings within the
industrials, consumer discretionary, and information technology sectors.
Foreign holdings also contributed significantly to fund performance.
AEROSPACE AND DEFENSE LED GAINS
The portfolio's largest single sector contribution came from the industrials
group, where we continued to focus on the aerospace and defense industry. The
share prices of portfolio overweights Precision Castparts and BE Aerospace,
two of the fund's largest holdings, soared 120% and 97%, respectively, as both
companies benefited from a replacement cycle and expanding orders in global
aviation. Both companies reflect Giftrust's focus on companies with
accelerating financial growth and share price momentum.
Also within the industrials sector, an overweight stake and stock selection
within the construction and engineering industry and the industrial
conglomerate group contributed to performance, as companies within these
groups benefited from increased demand for global energy infrastructure.
Notably, share prices of construction company Foster Wheeler and industrial
conglomerate McDermott International climbed 230% and 173%, respectively. Both
companies are involved in a variety of heavy construction areas, including the
construction of power plants.
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
BE Aerospace, Inc. 4.6% 3.7%
Nintendo Co., Ltd. ORD 4.5% 3.7%
NII Holdings, Inc. 3.8% 8.1%
Medco Health Solutions Inc. 3.7% 3.8%
Precision Castparts Corp. 3.7% 5.4%
Apple Inc. 3.4% 1.8%
Monsanto Co. 3.1% 1.9%
GameStop Corp. Cl A 3.0% 0.8%
Dresser-Rand Group Inc. 2.7% 0.5%
McDermott International, Inc. 2.7% 2.1%
- ------
5
Giftrust
CONSUMER DISCRETIONARY, TECHNOLOGY CONTRIBUTED
An underweight position and effective stock selection within the consumer
discretionary sector contributed to absolute and relative gains. Within the
sector, video game retailer GameStop climbed 132% on the heels of a robust
video game cycle. Casino resort company Las Vegas Sands, which recently opened
its monstrous Venetian Macao Casino, gained 75%.
Within the technology sector, software maker Nintendo was the largest single
contributor to portfolio performance. Strong demand for the company's Wii
interactive game system continued to outstrip supply, helping Nintendo's share
price jump 212% during the reporting period.
Fund overweight Apple also boosted Giftrust's absolute and relative gains. The
computer and peripherals maker, which introduced the iPhone during the
reporting period, experienced a 134% gain in its share price.
UNDERWEIGHT IN FINANCIALS AVOIDED PAIN
An underweight position in the financials sector benefited portfolio
performance during the period, as a softening housing market and mounting
concerns surrounding subprime mortgage lenders weighed on sector performance.
Within the sector, Giftrust had no holdings in either the real estate
management and development industry or the consumer finance industry, two
groups that suffered losses within the benchmark.
STARTING POINT FOR NEXT REPORTING PERIOD
Giftrust's investment process focuses on medium-sized and smaller companies
with accelerating earnings growth rates and share price momentum. We believe
that active investing in such companies will generate outperformance over time
compared with the Russell Midcap Growth Index.
Now that the Fed has cut short-term interest rates, we have entered an easing
cycle. In this environment, we are confident in our current sector emphasis,
which includes industrials and information technology. We continue monitoring
the market for any meaningful, sustainable changes in sector leadership.
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Aerospace & Defense 8.8% 9.0%
Semiconductors &
Semiconductor Equipment 6.1% 2.3%
Software 5.7% 4.2%
Health Care Providers & Services 5.5% 4.9%
Machinery 5.3% 2.3%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 86.0% 80.7%
Foreign Common Stocks* 13.4% 19.5%
TOTAL COMMON STOCKS 99.4% 100.2%
Temporary Cash Investments 0.2% 0.1%
Other Assets and Liabilities 0.4% (0.3)%
* Includes depositary shares, dual listed securities and foreign ordinary
shares.
- ------
6
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, 2007 to October 31, 2007.
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.
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.
- ------
7
Beginning Ending Expenses Paid
Account Value Account Value During Period* Annualized
5/1/07 10/31/07 5/1/07 - 10/31/07 Expense Ratio*
Actual $1,000 $1,265.80 $5.71 1.00%
Hypothetical $1,000 $1,020.16 $5.09 1.00%
* Expenses are equal to the fund's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
- ------
8
SCHEDULE OF INVESTMENTS
Giftrust
OCTOBER 31, 2007
Shares ($ IN THOUSANDS) Value
Common Stocks -- 99.4%
AEROSPACE & DEFENSE -- 8.8%
65,600 Alliant Techsystems Inc.(1) $ 7,242
1,315,193 BE Aerospace, Inc.(1) 65,377
348,203 Precision Castparts Corp. 52,164
----------
124,783
----------
BIOTECHNOLOGY -- 3.7%
102,800 Celgene Corp.(1) 6,785
903,897 CSL Ltd. ORD 31,228
92,300 Myriad Genetics Inc.(1) 5,110
142,804 Onyx Pharmaceuticals, Inc.(1) 6,670
69,800 Pharmion Corp.(1) 3,358
----------
53,151
----------
CAPITAL MARKETS -- 3.4%
177,800 Ameriprise Financial Inc. 11,198
57,400 GFI Group Inc.(1) 4,955
309,400 Janus Capital Group Inc. 10,677
247,100 Lazard Ltd. Cl A 12,405
257,600 Waddell & Reed Financial Inc. 8,557
----------
47,792
----------
CHEMICALS -- 3.7%
96,216 CF Industries Holdings, Inc. 8,457
456,240 Monsanto Co. 44,543
----------
53,000
----------
COMMERCIAL SERVICES & SUPPLIES -- 0.7%
131,360 Corrections Corp. of America(1) 3,716
90,900 Huron Consulting Group Inc.(1) 6,352
----------
10,068
----------
COMMUNICATIONS EQUIPMENT -- 1.1%
212,000 Ciena Corp.(1) 10,147
238,100 Foundry Networks, Inc.(1) 5,033
----------
15,180
----------
COMPUTERS & PERIPHERALS -- 3.7%
253,430 Apple Inc.(1) 48,139
103,300 SanDisk Corp.(1) 4,587
----------
52,726
----------
CONSTRUCTION & ENGINEERING -- 3.8%
195,552 Foster Wheeler Ltd.(1) 28,991
344,200 KBR, INC.(1) 14,759
305,600 Quanta Services, Inc.(1) 10,085
----------
53,835
----------
CONTAINERS & PACKAGING -- 2.6%
827,400 Owens-Illinois Inc.(1) 36,753
----------
Shares ($ IN THOUSANDS) Value
DIVERSIFIED CONSUMER SERVICES -- 3.9%
156,400 Apollo Group, Inc. Cl A(1) $ 12,396
111,600 Capella Education Co.(1) 6,919
218,500 Career Education Corp.(1) 7,809
112,100 ITT Educational Services Inc.(1) 14,258
78,600 Strayer Education, Inc. 14,656
----------
56,038
----------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.4%
56,115 Golden Telecom Inc. 5,805
----------
ELECTRIC UTILITIES -- 0.8%
401,462 Reliant Energy, Inc.(1) 11,048
----------
ELECTRICAL EQUIPMENT -- 3.2%
116,600 First Solar Inc.(1) 18,517
330,900 JA Solar Holdings Co., Ltd. ADR(1) 19,060
96,600 Vestas Wind Systems AS ORD(1) 8,712
----------
46,289
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.2%
150,173 Dolby Laboratories Inc. Cl A(1) 6,226
106,000 Itron Inc.(1) 11,394
----------
17,620
----------
ENERGY EQUIPMENT & SERVICES -- 4.6%
216,635 Aker Kvaerner ASA ORD 7,602
74,245 Cameron International Corp.(1) 7,228
1,009,700 Dresser-Rand Group Inc.(1) 39,076
158,300 National Oilwell Varco, Inc.(1) 11,594
----------
65,500
----------
FOOD PRODUCTS -- 2.0%
244,600 Bunge Ltd. 28,175
----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.3%
119,700 Align Technology Inc.(1) 2,478
181,718 Hologic, Inc.(1) 12,343
214,200 Immucor, Inc.(1) 6,908
88,000 Mindray Medical International Ltd. ADR 3,499
150,600 Varian Medical Systems, Inc.(1) 7,345
----------
32,573
----------
HEALTH CARE PROVIDERS & SERVICES -- 5.5%
409,600 Express Scripts, Inc.(1) 25,846
559,300 Medco Health Solutions Inc.(1) 52,786
----------
78,632
----------
- ------
9
Giftrust
Shares ($ IN THOUSANDS) Value
HOTELS, RESTAURANTS & LEISURE -- 3.7%
302,683 Bally Technologies, Inc.(1) $ 12,207
85,816 Chipotle Mexican Grill Inc. Cl A(1) 11,928
211,627 Las Vegas Sands Corp.(1) 28,086
----------
52,221
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.5%
155,100 NRG Energy Inc.(1) 7,082
----------
INDUSTRIAL CONGLOMERATES -- 2.7%
625,000 McDermott International, Inc.(1) 38,163
----------
INTERNET & CATALOG RETAIL -- 1.1%
162,908 Priceline.com Inc.(1) 15,167
----------
INTERNET SOFTWARE & SERVICES -- 1.4%
169,300 Equinix Inc.(1) 19,751
----------
IT SERVICES -- 0.3%
22,400 MasterCard Inc. Cl A 4,246
----------
LIFE SCIENCES TOOLS & SERVICES -- 3.2%
127,885 Covance Inc.(1) 10,551
232,280 Invitrogen Corp.(1) 21,107
227,000 Thermo Fisher Scientific Inc.(1) 13,350
----------
45,008
----------
MACHINERY -- 5.3%
581,300 AGCO Corp.(1) 34,692
104,355 Alfa Laval AB ORD 8,354
414,087 Flowserve Corp. 32,696
----------
75,742
----------
MEDIA -- 1.9%
324,888 Liberty Global, Inc. Series A(1) 12,752
383,200 Liberty Global, Inc. Series C(1) 14,056
----------
26,808
----------
OIL, GAS & CONSUMABLE FUELS -- 0.5%
156,000 Frontier Oil Corp. 7,143
----------
PHARMACEUTICALS -- 1.3%
144,160 Shire plc ADR 10,834
281,321 Shire plc ORD 7,038
----------
17,872
----------
REAL ESTATE INVESTMENT TRUSTS -- 1.0%
166,300 AMB Property Corp. 10,868
153,255 DuPont Fabros Technology, Inc.(1) 3,292
----------
14,160
----------
Shares ($ IN THOUSANDS) Value
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 6.1%
539,500 Cypress Semiconductor Corp.(1) $ 19,719
104,700 LDK Solar Co., Ltd. ADR(1) 4,147
203,916 MEMC Electronic Materials Inc.(1) 14,931
611,050 NVIDIA Corp.(1) 21,619
420,400 OmniVision Technologies, Inc.(1) 9,312
337,000 ON Semiconductor Corp.(1) 3,437
233,700 Semtech Corp.(1) 3,999
216,600 Silicon Laboratories Inc.(1) 9,465
----------
86,629
----------
SOFTWARE -- 5.7%
427,700 Activision, Inc.(1) 10,115
97,300 NAVTEQ Corp.(1) 7,512
100,600 Nintendo Co., Ltd. ORD 63,419
----------
81,046
----------
SPECIALTY RETAIL -- 4.5%
709,522 GameStop Corp. Cl A(1) 42,018
440,750 Guess?, Inc. 22,650
----------
64,668
----------
TEXTILES, APPAREL & LUXURY GOODS -- 0.7%
93,400 Crocs, Inc.(1) 6,982
68,000 lululemon athletica inc.(1) 3,619
----------
10,601
----------
WIRELESS TELECOMMUNICATION SERVICES -- 4.1%
42,393 Millicom International Cellular SA(1) 4,980
919,577 NII Holdings, Inc.(1) 53,336
----------
58,316
----------
TOTAL COMMON STOCKS
(Cost $963,262) 1,413,591
----------
Temporary Cash Investments -- 0.2%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized by
various U.S. Treasury obligations, 7.125%-7.625%, 2/15/23-2/15/25,
valued at $2,647), in a joint trading account at 4.50%, dated
10/31/07, due 11/1/07 (Delivery value $2,600) (Cost $2,600) 2,600
----------
TOTAL INVESTMENT SECURITIES -- 99.6%
(Cost $965,862) 1,416,191
----------
OTHER ASSETS AND LIABILITIES -- 0.4% 5,023
----------
TOTAL NET ASSETS -- 100.0% $1,421,214
==========
- ------
10
Giftrust
Forward Foreign Currency Exchange Contracts
($ IN THOUSANDS)
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
26,755,351 AUD for USD 11/30/07 $24,882 $(278)
35,626,080 DKK for USD 11/30/07 6,935 (50)
2,653,419 GBP for USD 11/30/07 5,512 (48)
3,483,275,000 JPY for USD 11/30/07 30,305 149
31,715,364 NOK for USD 11/30/07 5,911 2
42,409,872 SEK for USD 11/30/07 6,684 (39)
------- -------
$80,229 $(264)
======= =======
(Value on Settlement Date $79,965)
Notes to Schedule of Investments
ADR = American Depositary Receipt
AUD = Australian Dollar
DKK = Danish Krone
GBP = British Pound
JPY = Japanese Yen
NOK = Norwegian Krona
ORD = Foreign Ordinary Share
SEK = Swedish Krona
USD = United States Dollar
(1) Non-income producing.
As of October 31, 2007, securities with an aggregate value of $126,353 (in
thousands), which represented 8.9% of total net assets, were valued in
accordance with alternative pricing procedures adopted by the Board of
Directors.
See Notes to Financial Statements.
- ------
11
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
ASSETS
Investment securities, at value (cost of $965,862) $1,416,191
Receivable for investments sold 12,915
Receivable for forward foreign currency exchange contracts 151
Dividends and interest receivable 134
----------
1,429,391
----------
LIABILITIES
Disbursements in excess of demand deposit cash 106
Payable for investments purchased 6,485
Payable for forward foreign currency exchange contracts 415
Accrued management fees 1,171
----------
8,177
----------
NET ASSETS $1,421,214
==========
CAPITAL SHARES, $0.01 PAR VALUE
Authorized 200,000
==========
Outstanding 45,077
==========
NET ASSET VALUE PER SHARE $31.53
==========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 975,617
Undistributed net investment income 123
Accumulated net realized loss on investment and foreign currency
transactions (4,600)
Net unrealized appreciation on investments and translation of assets
and liabilities in foreign currencies 450,074
----------
$1,421,214
==========
See Notes to Financial Statements.
- ------
12
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $426) $ 4,757
Interest 358
--------
5,115
--------
EXPENSES:
Management fees 11,762
Directors' fees and expenses 21
Other expenses 15
--------
11,798
--------
NET INVESTMENT INCOME (LOSS) (6,683)
--------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment and foreign currency
transactions (net of foreign taxes withheld of $62) 252,077
Change in net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign currencies 286,276
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) 538,353
--------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $531,670
========
See Notes to Financial Statements.
- ------
13
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006 (AMOUNTS IN THOUSANDS)
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ (6,683) $ (2,212)
Net realized gain (loss) 252,077 151,426
Change in net unrealized appreciation (depreciation) 286,276 1,285
---------- ---------
Net increase (decrease) in net assets resulting from
operations 531,670 150,499
---------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 11,498 11,179
Payments for shares redeemed (106,533) (104,138)
---------- ---------
Net increase (decrease) in net assets from capital share
transactions (95,035) (92,959)
---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS 436,635 57,540
NET ASSETS
Beginning of period 984,579 927,039
---------- ---------
End of period $1,421,214 $984,579
========== =========
Undistributed net investment income $123 $120
========== =========
TRANSACTIONS IN SHARES OF THE FUND
Sold 468 571
Redeemed (4,292) (5,308)
---------- ---------
Net increase (decrease) in shares of the fund (3,824) (4,737)
========== =========
See Notes to Financial Statements.
- ------
14
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007 (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-sized and smaller 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. Securities traded on foreign
securities exchanges and over-the-counter markets are normally completed
before the close of business on days that the New York Stock Exchange (the
Exchange) is open and may also take place on days when the Exchange is not
open. If an event occurs after the value of a security was established but
before the net asset value per share was determined that was likely to
materially change the net asset value, that security would be valued as
determined in accordance with procedures adopted by the Board of Directors. If
the fund determines that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not
reflect the security's fair value, such security is valued as determined by,
or in accordance with procedures adopted by, the Board of Directors or its
designee if such determination would materially impact a fund's net asset
value. Certain other circumstances may cause the fund to use alternative
procedures to value a security such as: a security has been declared in
default; trading in a security has been halted during the trading day; or
there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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. Certain countries impose taxes on realized gains
on the sale of securities registered in their country. The fund records the
foreign tax expense, if any, on an accrual basis. The realized and unrealized
tax provision reduces the net realized gain (loss) on investment transactions
and net unrealized appreciation (depreciation) on investments, respectively.
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.
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.
- ------
15
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of 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 or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions that would materially impact the financial statements.
Accordingly, no provision has been made for federal or state income taxes.
Interest and penalties associated with any federal or state income tax
obligations, if any, are recorded as interest expense.
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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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 is 1.00%.
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 advisor, ACIM, the distributor of the corporation, American Century
Investment Services, Inc., and the corporation's transfer agent, American
Century Services, LLC.
Beginning in December 2006, the fund is eligible to invest in a money market
fund for temporary purposes, which is managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan 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.
- ------
16
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended October 31, 2007, were $1,726,039 and
$1,837,729, respectively.
4. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a $500
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 0.40%. The fund did not borrow from the line during the year ended
October 31, 2007.
5. RISK FACTORS
The fund's investment process may result in high portfolio turnover, high
commission costs and high capital gains distributions. In addition, its
investment approach may involve higher volatility and risk. There are certain
risks involved in investing in foreign securities. These risks include those
resulting from future adverse political, social, and economic developments,
fluctuations in currency exchange rates, the possible imposition of exchange
controls, and other foreign laws or restrictions. Investing in emerging
markets may accentuate these risks.
6. FEDERAL TAX INFORMATION
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
There were no distributions paid by the fund during the years ended October
31, 2007 and October 31, 2006.
As of October 31, 2007, the components of distributable earnings on a
tax-basis and the federal tax cost of investments were as follows:
Federal tax cost of investments $968,279
========
Gross tax appreciation of investments $449,829
Gross tax depreciation of investments (1,917)
--------
Net tax appreciation (depreciation) of investments $447,912
========
Net tax appreciation (depreciation) on derivatives and translation of
assets and liabilities in foreign currencies $(132)
--------
Net tax appreciation (depreciation) $447,780
========
Undistributed ordinary income --
Accumulated capital losses $(2,183)
--------
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, return of capital dividends 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 of $(2,183) expire in
2010.
- ------
17
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
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18
FINANCIAL HIGHLIGHTS
Giftrust
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning
of Period $20.13 $17.28 $13.81 $14.04 $11.88
------ ------ ------ -------- --------
Income From Investment
Operations
Net Investment Income
(Loss) (0.14) (0.05) (0.08) (0.01)(1) (0.07)(1)
Net Realized and
Unrealized Gain (Loss) 11.54 2.90 3.55 (0.22) 2.23
------ ------ ------ -------- --------
Total From Investment
Operations 11.40 2.85 3.47 (0.23) 2.16
------ ------ ------ -------- --------
Net Asset Value, End of
Period $31.53 $20.13 $17.28 $13.81 $14.04
====== ====== ====== ======== ========
TOTAL RETURN(2) 56.63% 16.49% 25.13% (1.64)% 18.18%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.00% 1.00% 1.00% 0.49%(3) 1.00%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.57)% (0.22)% (0.46)% (0.09)%(3) (0.55)%
Portfolio Turnover Rate 147% 229% 223% 260% 140%
Net Assets, End of Period
(in millions) $1,421 $985 $927 $865 $896
(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 investment
advisor 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 income (loss) to average net assets would
have been 1.00% and (0.60)%, respectively.
See Notes to Financial Statements.
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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 Giftrust Fund (the "Fund"), one of
the mutual funds comprising American Century Mutual Funds, Inc., as of October
31, 2007, and the related statement 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 each of the five years in the
period then ended. 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. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of October 31, 2007,
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. 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, 2007, 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 each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 12, 2007
- ------
20
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007, to vote on the
following proposal. The proposal received the required number of votes of the
American Century Mutual Funds, Inc. and was adopted. A summary of voting
results is listed below the proposal.
PROPOSAL:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
- ------
21
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 directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, 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, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the fund also serve in similar capacities for
the other 14 investment companies in the American Century family of funds
advised by ACIM, or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the fund. The listed officers are
interested persons of the fund and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- ------
22
INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
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 (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUND: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- ------
23
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUND: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the fund's directors and is available
without charge, upon request, by calling 1-800-345-2021.
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24
APPROVAL OF MANAGEMENT AGREEMENT
Giftrust
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning Giftrust (the "fund") and the services
provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund under the management
agreement;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the fund and its shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
- ------
25
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
- ------
26
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance for both the one- and three-year periods
was above the median for its peer group.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the fund, its profitability in managing the fund, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
27
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was in the lowest quartile of the total expense
ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor concluded that the
investment management agreement between the fund and the advisor is fair and
reasonable in light of the services provided and should be renewed.
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28
ADDITIONAL INFORMATION
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
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 RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
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 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 MIDCAP® VALUE 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 lower price-to-book
ratios and lower forecasted growth values.
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
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
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1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
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PRSRT STD
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AMERICAN CENTURY
COMPANIES
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0712
SH-ANN-57608S
[front cover]
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter]
Select Fund
Capital Growth Fund
Focused Growth Fund
Fundamental Equity Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century® Select, Capital
Growth, Focused Growth, and Fundamental Equity funds for the 12 months ended
October 31, 2007. I am honored to be addressing you in the "Our Message" space
long devoted to company founder Jim Stowers, Jr. and his son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
SELECT
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries and Types of Investments in Portfolio. . . . . . 6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 7
CAPITAL GROWTH
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 12
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Top Five Industries and Types of Investments in Portfolio. . . . . . 13
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 14
FOCUSED GROWTH
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 19
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Top Five Industries and Types of Investments in Portfolio. . . . . . 20
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 21
FUNDAMENTAL EQUITY
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 25
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Top Five Industries and Types of Investments in Portfolio. . . . . . 26
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 27
Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . . . 31
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 34
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 36
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 37
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 39
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 49
Report of Independent Registered Public Accounting Firm . . . . . . . 73
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 74
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Approval of Management Agreements for Select, Capital Growth,
Focused Growth, and Fundamental Equity . . . . . . . . . . . . . . . 79
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 84
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 86
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 87
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of chief investment officer]
By Steve Lurito, Chief Investment Officer, U.S. Growth Equity
STOCK RETURNS, VOLATILITY UP
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007. Stocks rallied for much of the first half of the fiscal year, touching
record highs in July, as the worldwide economic expansion drove strong
corporate earnings. But the sub-prime mortgage crisis blossomed in late July
and early August in the form of massive losses for banks, residential lenders,
and firms that securitized these subprime loans. This crisis caused a sharp
tightening of lending standards, removing the easy credit that propelled
strong consumer spending and funded a record amount of leveraged buyouts. As a
result, the U.S. stock market came under pressure late in the fiscal year.
By October, stock market volatility surged and credit markets seized up. To
relieve the pressure, the Federal Reserve (the Fed) lowered its benchmark
federal funds rate target in September and again in October -- the Fed's first
rate cuts since June 2003. Markets rallied briefly at fiscal year-end, though
there were concerns heading into November about the future course of corporate
earnings.
GROWTH SHARES LED
Growth stocks led the market during the 12 months, outpacing value-oriented
shares across all market capitalizations. That's because the deceleration in
corporate earnings cast a brighter spotlight on the relative earnings power of
growth companies, providing a favorable context for our growth portfolios and
growth stocks in general. We took advantage of this favorable backdrop,
enjoying a solid year of outperformance.
Looking at returns by sector, energy and materials performed best, supported
by booming global demand for commodities. In contrast, the aforementioned
credit crisis weakened consumer discretionary and financial shares -- the only
two segments of the S&P 500 Index to decline during the period.
We expect a continued favorable environment for growth-stock investing:
interest rates are low, global growth continues to provide new markets for
goods and services, and inflation remains contained.
U.S. Stock Index Returns
For the 12 months ended October 31, 2007
RUSSELL 1000 INDEX (LARGE-CAP) 15.03%
Russell 1000 Growth Index 19.23%
Russell 1000 Value Index 10.83%
RUSSELL MIDCAP INDEX 15.24%
Russell Midcap Growth Index 19.72%
Russell Midcap Value Index 9.73%
RUSSELL 2000 INDEX (SMALL-CAP) 9.27%
Russell 2000 Growth Index 16.73%
Russell 2000 Value Index 2.05%
- ------
2
PERFORMANCE
Select
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years 10 years Inception Date
INVESTOR CLASS 28.37% 10.22% 5.22% 13.62% 6/30/71(1)
RUSSELL 1000 GROWTH
INDEX(2)(3) 19.23% 12.61% 4.81% N/A(4) --
S&P 500 INDEX(2) 14.56% 13.88% 7.10% 11.36% --
Institutional Class 28.63% 10.43% 5.44% 6.83% 3/13/97
A Class(5)
No sales charge* 28.07% 9.95% 4.97% 4.59%
With sales charge* 20.71% 8.66% 4.35% 3.98% 8/8/97
B Class
No sales charge* 27.07% -- -- 10.58%
With sales charge* 23.07% -- -- 10.29% 1/31/03
C Class 27.07% -- -- 10.60%(6) 1/31/03
R Class 27.72% -- -- 8.71% 7/29/05
* Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a 5.75% maximum 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 investment advisor's implementation of its current
investment philosophy and practices.
(2) Data provided by Lipper Inc. -- A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(3) In February of 2007, the fund's benchmark changed from the S&P 500 Index
to the Russell 1000 Growth Index. The fund's investment advisor believes this
index better represents the fund's portfolio composition.
(4) Benchmark began 12/29/78.
(5) Prior to September 4, 2007, the A Class was referred to as the Advisor
Class. Performance, with sales charge, prior to that date has been adjusted to
reflect the A Class's current sales charge.
(6) Class returns would have been lower if distribution and service fees had
not been waived from 2/1/03 to 3/11/03.
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. International investing involves special risks, such as
political instability and currency fluctuations.
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
Select
Growth of $10,000 Over 10 Years
$10,000 investment made October 31, 1997
One-Year Returns Over 10 Years
Periods ended October 31
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investor
Class 22.96% 31.22% 7.64% -28.93% -17.11% 17.11% 3.05% 6.67% -1.55% 28.37%
Russell
1000
Growth
Index 24.64% 34.25% 9.33% -39.95% -19.62% 21.81% 3.38% 8.81% 10.84% 19.23%
S&P 500
Index 21.99% 25.67% 6.09% -24.90% -15.11% 20.80% 9.42% 8.72% 16.34% 14.56%
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. International investing involves special risks, such as
political instability and currency fluctuations.
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.
- ------
4
PORTFOLIO COMMENTARY
Select
Portfolio Managers: Keith Lee and Michael Li
PERFORMANCE SUMMARY
Select advanced 28.37%* during the 12 months ended October 31, 2007,
surpassing the 19.23% return of its benchmark, the Russell 1000 Growth Index,
and the 14.56% gain of the S&P 500 Index, a broader market measure.
As discussed in the Market Perspective on page 2, better-than-expected
corporate earnings growth, robust merger activity, and a change in Federal
Reserve (Fed) interest rate policy contributed to sound stock index gains for
the period. Markets faced extreme volatility in the final months of the period
as mounting troubles among subprime mortgage lenders led to a credit crisis,
and rising energy costs sparked fears of inflation. In this environment,
large- and mid-cap stocks generally outpaced their small-cap counterparts, and
growth-oriented shares outperformed value stocks.
STOCK SELECTION DROVE PORTFOLIO PERFORMANCE
Effective security selection accounted for the vast majority of Select's
excess returns compared with the benchmark. Individual portfolio positions in
alternative energy companies found in the industrials and information
technology sectors aided performance. An overweight position and individual
holdings in materials also contributed to performance. Although an underweight
position in the consumer discretionary sector added to returns, that
contribution was offset by poor stock selection within the group.
ALTERNATIVE ENERGY HOLDINGS LED TOP PERFORMERS
Select's largest holding and largest overweight position versus the benchmark
was also its largest contributor to performance: MEMC Electronic Materials
(MEMC), a producer of silicon wafers serving both traditional semiconductor
companies and the solar cell industry.
The ongoing push for renewable energy sources has resulted in strong demand
for MEMC's polysilicon, a raw material used to manufacture solar cells. This
demand, combined with the continuing shift from 200 mm to 300 mm silicon
wafers, helped the company's share price to climb 106% during the period. MEMC
demonstrates our emphasis on companies with accelerating earnings growth that
appear capable of sustaining that growth over time. Thanks to its continued
high earnings growth, MEMC's valuations remained attractive despite the price
appreciation.
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
MEMC Electronic Materials Inc. 4.1% 4.6%
Cisco Systems Inc. 3.4% 2.9%
EMC Corp. 3.1% 2.2%
Google Inc. Cl A 2.8% 2.0%
GlobalSantaFe Corp. 2.6% 1.0%
eBay Inc. 2.5% 2.1%
Schering-Plough Corp. 2.5% 2.8%
Freeport-McMoRan Copper & Gold, Inc. 2.5% 1.5%
Hewlett-Packard Co. 2.4% 2.1%
Loews Corp. 2.4% 3.3%
*All fund returns referenced in this commentary are for Investor Class shares.
- ------
5
Select
Alternative energy demand also drove up the share prices for portfolio
holdings Q-Cells AG and Vestas Wind Systems AS (Vestas). Germany-based Q-Cells
AG is a producer of silicon-based solar cells. Denmark-based Vestas develops
wind power systems that harness wind energy to create electricity. Their share
prices soared 216% and 221%, respectively, as oil prices rose and global
demand for clean energy accelerated.
Robust electricity infrastructure spending and increasing demand for
energy-efficient technologies helped electric power company ABB Ltd. to
contribute meaningfully to absolute and relative performance. An 86% increase
in third-quarter net income helped the company's share price to climb 104% for
the period.
INFORMATION TECHNOLOGY, MATERIALS CONTRIBUTED
Certain holdings within the information technology sector also helped relative
performance. EMC, in particular, contributed to gains as growing sales of data
storage software and hardware translated into a 74% jump in profit for the
third quarter of 2007.
Networking giant Cisco Systems also aided portfolio gains, as its share price
gained ground on higher sales of internet infrastructure equipment.
Within the materials sector, the majority of gains came from one holding in
the metals and mining group. Freeport-McMoRan was an important contributor to
relative performance, as its share price climbed 103%. The company continued
to benefit from low copper inventories and ongoing strong demand from emerging
markets.
STARTING POINT FOR NEXT REPORTING PERIOD
Select strives to invest in large, established companies with attractive
risk/reward characteristics. Within that framework, we specifically seek
companies that have accelerating growth in earnings and revenue and appear
capable of sustaining such growth over time. We believe that our process works
well in market environments favoring growth stocks. Our stock selection
process has driven us to specific areas of the market -- including renewable
energy -- that we expect will continue adding to portfolio performance.
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Computers & Peripherals 7.7% 4.3%
Electrical Equipment 7.4% 5.5%
Semiconductors & Semiconductor Equipment 7.3% 7.0%
Software 6.1% 3.8%
Internet Software & Services 5.3% 4.1%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 86.7% 79.9%
Foreign Common Stocks(1) 12.0% 19.1%
TOTAL COMMON STOCKS 98.7% 99.0%
Temporary Cash Investments 1.7% --(2)
Other Assets and Liabilities(3) (0.4)% 1.0%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Category is less than 0.05% of total net assets.
(3) Includes securities lending collateral and other assets and liabilities.
- ------
6
SCHEDULE OF INVESTMENTS
Select
OCTOBER 31, 2007
Shares Value
Common Stocks -- 98.7%
AEROSPACE & DEFENSE -- 5.2%
537,026 Boeing Co. $ 52,945,393
626,175 General Dynamics Corp. 56,956,878
452,768 Rockwell Collins 33,871,574
--------------
143,773,845
--------------
BEVERAGES -- 3.9%
683,284 Coca-Cola Company (The) 42,199,620
1,062,894 Diageo plc ORD 24,365,034
551,209 PepsiCo, Inc. 40,635,127
--------------
107,199,781
--------------
BIOTECHNOLOGY -- 3.1%
779,817 Genzyme Corp.(1) 59,242,697
590,298 Gilead Sciences, Inc.(1) 27,265,865
--------------
86,508,562
--------------
CAPITAL MARKETS -- 3.8%
1,100,642 Bank of New York Mellon Corp. (The) 53,766,362
401,559 Franklin Resources, Inc. 52,074,171
--------------
105,840,533
--------------
CHEMICALS -- 3.5%
564,086 Air Products & Chemicals, Inc. 55,195,815
615,217 Mosaic Co. (The)(1) 42,942,147
--------------
98,137,962
--------------
COMMUNICATIONS EQUIPMENT -- 4.5%
633,387 Ciena Corp.(1) 30,313,902
2,813,588 Cisco Systems Inc.(1) 93,017,219
--------------
123,331,121
--------------
COMPUTERS & PERIPHERALS -- 7.7%
327,795 Apple Inc.(1) 62,264,660
3,330,763 EMC Corp.(1) 84,568,072
1,287,946 Hewlett-Packard Co. 66,561,049
--------------
213,393,781
--------------
CONSTRUCTION & ENGINEERING -- 1.3%
252,632 Foster Wheeler Ltd.(1) 37,452,694
--------------
DIVERSIFIED CONSUMER SERVICES -- 0.8%
171,036 ITT Educational Services Inc.(1) 21,754,069
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.0%
1,224,171 Verizon Communications Inc. 56,397,558
--------------
Shares Value
ELECTRIC UTILITIES -- 1.5%
506,645 Exelon Corporation $ 41,940,073
--------------
ELECTRICAL EQUIPMENT -- 7.4%
2,038,602 ABB Ltd. ADR 61,606,553
1,054,479 Emerson Electric Co. 55,117,617
386,745 Q-Cells AG ORD(1) 49,610,059
422,706 Vestas Wind Systems AS ORD(1) 38,123,703
--------------
204,457,932
--------------
ENERGY EQUIPMENT & SERVICES -- 3.6%
878,826 GlobalSantaFe Corp. 71,211,271
378,446 National Oilwell Varco, Inc.(1) 27,717,385
--------------
98,928,656
--------------
FOOD & STAPLES RETAILING -- 2.1%
1,384,146 CVS/Caremark Corp. 57,815,778
--------------
FOOD PRODUCTS -- 1.0%
842,111 Unilever N.V. New York Shares 27,334,923
--------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.2%
1,006,946 Baxter International Inc. 60,426,829
--------------
HEALTH CARE PROVIDERS & SERVICES -- 1.0%
563,602 UnitedHealth Group Inc. 27,701,038
--------------
HOTELS, RESTAURANTS & LEISURE -- 3.6%
673,599 Starwood Hotels & Resorts Worldwide, Inc. 38,300,839
1,517,268 Yum! Brands, Inc. 61,100,383
--------------
99,401,222
--------------
HOUSEHOLD PRODUCTS -- 2.4%
858,999 Colgate-Palmolive Co. 65,515,854
--------------
INSURANCE -- 2.4%
1,344,033 Loews Corp. 65,978,580
--------------
INTERNET SOFTWARE & SERVICES -- 5.3%
130,739 Alibaba.com Ltd. ORD(1) 227,726
1,926,556 eBay Inc.(1) 69,548,672
109,278 Google Inc. Cl A(1) 77,259,545
--------------
147,035,943
--------------
LIFE SCIENCES TOOLS & SERVICES -- 3.1%
345,213 Covance Inc.(1) 28,480,073
968,966 Thermo Fisher Scientific Inc.(1) 56,984,890
--------------
85,464,963
--------------
- ------
7
Select
Shares Value
MACHINERY -- 1.2%
663,630 Manitowoc Co., Inc. (The) $ 32,690,414
--------------
MEDIA -- 1.0%
760,849 Walt Disney Co. (The) 26,348,201
--------------
METALS & MINING -- 2.5%
582,123 Freeport-McMoRan Copper & Gold, Inc. 68,504,235
--------------
OIL, GAS & CONSUMABLE FUELS -- 2.1%
851,451 Occidental Petroleum Corp. 58,792,692
--------------
PHARMACEUTICALS -- 2.5%
2,255,606 Schering-Plough Corp. 68,841,095
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 7.3%
1,222,224 Linear Technology Corp.(2) 40,357,838
1,553,391 MEMC Electronic Materials Inc.(1) 113,739,290
1,064,783 National Semiconductor Corp. 26,768,645
628,627 NVIDIA Corp.(1) 22,240,823
--------------
203,106,596
--------------
SOFTWARE -- 6.1%
612,829 Adobe Systems Inc.(1) 29,354,509
868,852 Intuit Inc.(1) 27,950,969
1,774,377 Microsoft Corporation 65,314,818
70,100 Nintendo Co., Ltd. ORD 44,191,697
25,716 VMware, Inc. Cl A(1)(2) 3,210,128
--------------
170,022,121
--------------
SPECIALTY RETAIL -- 1.5%
1,408,209 TJX Companies, Inc. (The) 40,739,486
--------------
TRANSPORTATION INFRASTRUCTURE -- 0.8%
1,774,313 China Merchants Holdings International Co.
Ltd. ORD 12,579,725
11,039,000 Hopewell Highway Infrastructure Ltd. ORD 10,439,424
--------------
23,019,149
--------------
Shares Value
WIRELESS TELECOMMUNICATION SERVICES -- 2.3%
1,250,876 Rogers Communications Inc. Cl B ORD $ 63,789,376
--------------
TOTAL COMMON STOCKS
(Cost $2,075,346,344) 2,731,645,062
--------------
Temporary Cash Investments -- 1.7%
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Treasury obligations, 8.125%,
8/15/19, valued at $46,759,706), in a joint trading account at
4.47%, dated 10/31/07, due 11/1/07 (Delivery value $45,805,687)
(Cost $45,800,000) 45,800,000
--------------
Temporary Cash Investments - Securities Lending Collateral(3) -- 1.0%
Repurchase Agreement, Deutsche Bank AG, (collateralized by
various U.S. Government Agency obligations in a pooled account
at the lending agent), 4.82%, dated 10/31/07, due 11/1/07
(Delivery value $8,861,882) 8,860,696
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account
at the lending agent), 4.89%, dated 10/31/07, due 11/1/07
(Delivery value $20,002,717) 20,000,000
--------------
TOTAL TEMPORARY CASH INVESTMENTS -- SECURITIES LENDING COLLATERAL
(Cost $28,860,696) 28,860,696
--------------
TOTAL INVESTMENT SECURITIES -- 101.4%
(Cost $2,150,007,040) 2,806,305,758
--------------
OTHER ASSETS AND LIABILITIES -- (1.4)% (38,240,946)
--------------
TOTAL NET ASSETS -- 100.0% $2,768,064,812
==============
- ------
8
Select
Forward Foreign Currency Exchange Contracts
Unrealized
Contracts to Sell Settlement Date Value Gain (Loss)
30,014,769 CAD for USD 11/30/07 $ 31,798,102 $(367,379)
97,433,733 DKK for USD 11/30/07 18,967,597 (137,640)
15,806,268 Euro for USD 11/30/07 22,910,239 (120,050)
5,851,231 GBP for USD 11/30/07 12,154,384 (106,055)
2,427,212,500 JPY for USD 11/30/07 21,117,274 103,796
------------ ------------
$106,947,596 $(627,328)
============ ============
(Value on Settlement Date $106,320,268)
Notes to Schedule of Investments
ADR = American Depositary Receipt
CAD = Canadian Dollar
DKK = Danish Krone
GBP = British Pound
JPY = Japanese Yen
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, 2007.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
As of October 31, 2007, securities with an aggregate value of $179,537,368,
which represented 6.5% of total net assets, were valued in accordance with
alternative pricing procedures adopted by the Board of Directors.
See Notes to Financial Statements.
- ------
9
PERFORMANCE
Capital Growth
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year Inception Date
A CLASS
No sales charge* 21.40% 10.22%
With sales charge* 14.41% 8.46% 2/27/04
RUSSELL 1000 GROWTH INDEX(1) 19.23% 9.27% --
Investor Class 21.77% 13.53% 7/29/05
Institutional Class 22.06% 13.77% 7/29/05
B Class
No sales charge* 20.54% 9.39%
With sales charge* 16.54% 8.74% 2/27/04
C Class 20.54% 9.39% 2/27/04
R Class 21.13% 12.96% 7/29/05
* Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a 5.75% maximum 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) Data provided by Lipper Inc. -- A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
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
Growth of $10,000 Over Life of Class
$10,000 investment made February 27, 2004
One-Year Returns Over Life of Class
Periods ended October 31
2004* 2005 2006 2007
A Class (no sales charge) -1.10% 7.08% 11.24% 21.40%
Russell 1000 Growth Index -3.70% 8.81% 10.84% 19.23%
* 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.
- ------
11
PORTFOLIO COMMENTARY
Capital Growth
Portfolio Managers: Greg Woodhams and Prescott LeGard
PERFORMANCE SUMMARY
Capital Growth returned 21.40%* during the 12 months ended October 31, 2007.
That compares with the 19.23% return of its benchmark, the Russell 1000 Growth
Index.
Looking at the portfolio's absolute return, performance was driven by holdings
in information technology, health care, and industrials; utilities and
telecommunication services contributed the least. In terms of Capital Growth's
performance relative to the Russell 1000 Growth Index, outperformance was
driven by stock selection among health care stocks; consumer staples shares
were the leading detractors.
HEALTH CARE LED RELATIVE CONTRIBUTORS
In health care, stock selection among pharmaceutical names was the leading
source of outperformance. Schering-Plough, the portfolio's largest overweight
position during the period, was helped by market share gains and category
growth for its cholesterol franchise. In addition, it significantly helped
relative results to avoid Johnson & Johnson, which suffered from challenges in
some of its leading drug and medical device businesses.
Positioning in health care equipment & supplies firms was another source of
relative strength. The leading contributor to return in this space was medical
device maker Intuitive Surgical, benefiting from heavy demand for its new,
less-invasive robotic surgery system. Overweight positions in Baxter
International, DENTSPLY International, Cytyc, and Idexx Laboratories also
helped relative results.
IT A SOURCE OF STRENGTH
In the information technology sector, stock picks contributed most in the
communication equipment industry behind an overweight position in Research in
Motion, maker of the Blackberry handheld device. Juniper Networks -- a maker
of computer networking equipment benefiting from the surging demand for
bandwidth required to move video and data over the Internet -- was another key
contributor. That said, no stock helped relative results more than Apple,
which continued to enjoy margin expansion and revenue growth thanks to new
product launches and a redesign of existing products.
OTHER KEY CONTRIBUTORS
Stock selection drove outperformance among consumer discretionary names,
though it also helped to have an underweight position in this lagging sector.
The leading contributor in this space was specialty retailer GameStop, which
sells video game
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Apple Inc. 4.1% 2.7%
Cisco Systems Inc. 4.0% 3.2%
Microsoft Corporation 3.7% 0.7%
PepsiCo, Inc. 3.6% 2.0%
Procter & Gamble Co. (The) 3.1% 1.8%
Google Inc. Cl A 3.1% 1.8%
Coca-Cola Company (The) 2.6% --
Becton, Dickinson & Co. 2.3% 1.4%
Janus Capital Group Inc. 2.2% --
XTO Energy Inc. 2.1% 1.4%
* All fund returns referenced in this commentary are for A Class shares and
are not reduced by sales charges. A Class shares are subject to a maximum
sales charge of 5.75%. Had the sales charge been applied, returns would be
lower than those shown.
- ------
12
Capital Growth
products and entertainment software for computers. The company is seeing
revenues, same-store sales, and other metrics improve as a result of several
new hardware and software gaming product cycles. Positioning in the multiline
retail, media, auto components, and specialty retail industry segments also
helped relative performance.
Industrial shares were another key source of strength, as stock selection
contributed to relative results across a number of industries, including
electrical equipment and machinery. An overweight position in agricultural
equipment maker AGCO was a notable contributor for the year. The company
continues to benefit from exposure to growing agriculture markets globally. In
energy, Cameron International was a key contributor, benefiting from spending
on exploration with oil supplies tight and prices at record highs.
STAPLES LED DETRACTORS
At the other end of the spectrum, consumer staples shares limited the
portfolio's performance compared with the benchmark. Food products names
detracted most from performance behind overweight positions in Campbell Soup
and ConAgra Foods. These shares underperformed because of higher costs
associated with growth initiatives and rising input costs. Stock selection
also detracted in food and staples retailing, where Wal-Mart was the leading
detractor. Though the company continued to turn around its business, the
difficult environment for consumers in the U.S. slowed progress.
STARTING POINT FOR NEXT REPORTING PERIOD
We work to keep the portfolio fully invested in large companies exhibiting
sustainable improvement in their businesses. It is our belief that owning such
companies will generate outperformance over time versus the Russell 1000
Growth Index and the other funds in our large-growth peer group. Our sector
and industry selection as well as capitalization range decisions are primarily
a result of identifying what we believe to be superior individual securities.
As of October 31, 2007, the top sector overweights were in consumer staples,
telecommunication services, and information technology. The most notable
sector underweights were in consumer discretionary, industrials, and utilities
shares.
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Health Care Equipment & Supplies 8.8% 5.5%
Software 8.0% 3.0%
Communications Equipment 7.1% 5.5%
Oil, Gas & Consumable Fuels 7.1% 3.2%
Beverages 6.2% 2.9%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 95.2% 93.2%
Foreign Common Stocks(1) 4.3% 6.0%
TOTAL COMMON STOCKS 99.5% 99.2%
Other Assets and Liabilities(2) 0.5% 0.8%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes securities lending collateral and other assets and liabilities.
- ------
13
SCHEDULE OF INVESTMENTS
Capital Growth
OCTOBER 31, 2007
Shares Value
Common Stocks -- 99.5%
AEROSPACE & DEFENSE -- 3.1%
1,130 Honeywell International Inc. $ 68,263
1,512 United Technologies Corp. 115,804
----------
184,067
----------
AUTO COMPONENTS -- 2.0%
1,138 BorgWarner, Inc. 120,298
----------
BEVERAGES -- 6.2%
2,498 Coca-Cola Company (The) 154,276
2,876 PepsiCo, Inc. 212,019
----------
366,295
----------
CAPITAL MARKETS -- 5.7%
3,744 Janus Capital Group Inc. 129,206
1,564 Northern Trust Corp. 117,628
3,885 Schwab (Charles) Corp. 90,287
----------
337,121
----------
CHEMICALS -- 1.5%
927 Monsanto Co. 90,503
----------
COMMERCIAL SERVICES & SUPPLIES -- 0.5%
736 Waste Management, Inc. 26,783
----------
COMMUNICATIONS EQUIPMENT -- 7.1%
1,988 ADC Telecommunications, Inc.(1) 37,176
7,127 Cisco Systems Inc.(1) 235,619
1,165 Juniper Networks, Inc.(1) 41,940
1,176 QUALCOMM Inc. 50,250
453 Research In Motion Ltd.(1) 56,403
----------
421,388
----------
COMPUTERS & PERIPHERALS -- 5.7%
1,271 Apple Inc.(1) 241,426
3,108 Dell Inc.(1) 95,105
----------
336,531
----------
DIVERSIFIED -- 0.6%
578 iShares Russell 1000 Growth Index Fund 36,819
----------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.3%
1,867 AT&T Inc. 78,022
----------
ELECTRICAL EQUIPMENT -- 3.8%
1,178 Cooper Industries, Ltd. Cl A 61,715
2,155 Emerson Electric Co. 112,642
759 Roper Industries Inc.(2) 53,745
----------
228,102
----------
Shares Value
ENERGY EQUIPMENT & SERVICES -- 1.7%
347 Cameron International Corp.(1) $ 33,784
4,236 Grey Wolf Inc.(1) 23,849
422 Schlumberger Ltd. 40,752
----------
98,385
----------
FOOD & STAPLES RETAILING -- 1.2%
1,615 Wal-Mart Stores, Inc. 73,014
----------
FOOD PRODUCTS -- 2.0%
1,978 Wm. Wrigley Jr. Co. 121,983
----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 8.8%
659 Alcon, Inc. 100,306
1,893 Baxter International Inc. 113,599
1,645 Becton, Dickinson & Co. 137,292
1,192 DENTSPLY International Inc. 49,444
142 Idexx Laboratories, Inc.(1) 17,293
227 Intuitive Surgical Inc.(1) 74,199
665 Mentor Corp.(2) 28,309
----------
520,442
----------
HEALTH CARE PROVIDERS & SERVICES -- 1.1%
1,204 Patterson Companies, Inc.(1) 47,088
412 VCA Antech Inc.(1) 18,973
----------
66,061
----------
HOUSEHOLD PRODUCTS -- 3.1%
2,668 Procter & Gamble Co. (The) 185,479
----------
INDUSTRIAL CONGLOMERATES -- 1.6%
2,298 General Electric Co. 94,586
----------
INSURANCE -- 1.0%
1,096 Chubb Corp. 58,472
----------
INTERNET & CATALOG RETAIL -- 1.9%
801 Amazon.com, Inc.(1) 71,409
456 Priceline.com Inc.(1)(2) 42,454
----------
113,863
----------
INTERNET SOFTWARE & SERVICES -- 4.1%
1,637 eBay Inc.(1) 59,096
257 Google Inc. Cl A(1) 181,699
----------
240,795
----------
IT SERVICES -- 1.2%
844 DST Systems, Inc.(1) 71,495
----------
LIFE SCIENCES TOOLS & SERVICES -- 2.3%
502 Illumina, Inc.(1) 28,187
1,891 Thermo Fisher Scientific Inc.(1) 111,210
----------
139,397
----------
- ------
14
Capital Growth
Shares Value
MACHINERY -- 2.2%
1,123 Eaton Corp. $ 103,968
295 Valmont Industries, Inc. 28,237
----------
132,205
----------
MEDIA -- 1.3%
1,957 Viacom Inc. Cl B(1) 80,805
----------
METALS & MINING -- 0.8%
391 Freeport-McMoRan Copper & Gold, Inc. 46,013
----------
OIL, GAS & CONSUMABLE FUELS -- 7.1%
1,119 Apache Corp. 116,163
1,118 Devon Energy Corporation 104,421
777 Exxon Mobil Corp. 71,476
1,918 XTO Energy Inc. 127,318
----------
419,378
----------
PHARMACEUTICALS -- 3.5%
1,162 Allergan, Inc. 78,528
445 Novo Nordisk AS B Shares ORD 55,490
2,371 Schering-Plough Corp. 72,363
----------
206,381
----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.4%
1,917 Broadcom Corp. Cl A(1) 62,398
2,177 Intersil Corp. Cl A 66,051
546 MEMC Electronic Materials Inc.(1) 39,978
3,486 PMC-Sierra, Inc.(1) 31,409
----------
199,836
----------
SOFTWARE -- 8.0%
1,010 Electronic Arts Inc.(1) 61,731
5,979 Microsoft Corporation 220,088
5,606 Oracle Corp.(1) 124,285
556 VMware, Inc. Cl A(1)(2) 69,405
----------
475,509
----------
Shares Value
SPECIALTY RETAIL -- 4.6%
1,832 GameStop Corp. Cl A(1) $ 108,491
2,144 Home Depot, Inc. (The) 67,557
3,387 TJX Companies, Inc. (The) 97,986
----------
274,034
----------
WIRELESS TELECOMMUNICATION SERVICES -- 1.1%
1,510 American Tower Corp. Cl A(1) 66,712
----------
TOTAL COMMON STOCKS
(Cost $4,934,693) 5,910,774
----------
Temporary Cash Investments -- Securities Lending Collateral(3) -- 2.4%
Repurchase Agreement, Deutsche Bank AG, (collateralized by various
U.S. Government Agency obligations in a pooled account at the
lending agent), 4.82%, dated 10/31/07, due 11/1/07 (Delivery value
$39,918) 39,913
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 4.89%, dated 10/31/07, due 11/1/07 (Delivery
value $100,014) 100,000
----------
TOTAL TEMPORARY CASH INVESTMENTS -- SECURITIES LENDING COLLATERAL
(Cost $139,913) 139,913
----------
TOTAL INVESTMENT SECURITIES -- 101.9%
(Cost $5,074,606) 6,050,687
----------
OTHER ASSETS AND LIABILITIES -- (1.9)% (111,219)
----------
TOTAL NET ASSETS -- 100.0% $5,939,468
==========
- ------
15
Capital Growth
Forward Foreign Currency Exchange Contracts
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
143,128 DKK for USD 11/30/07 $27,863 $(202)
======= =======
(Value on Settlement Date $27,661)
Notes to Schedule of Investments
DKK = Danish Krone
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, 2007.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
As of October 31, 2007, securities with an aggregate value of $55,490, which
represented 0.9% of total net assets, were valued in accordance with
alternative pricing procedures adopted by the Board of Directors.
See Notes to Financial Statements.
- ------
16
PERFORMANCE
Focused Growth
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year Inception Date
INVESTOR CLASS 15.78% 11.28% 2/28/05
BLENDED INDEX 16.88% 12.25% --
RUSSELL 1000 GROWTH INDEX(1) 19.23% 12.51% --
S&P 500 INDEX(1) 14.56% 11.97% --
Institutional Class -- 2.70%(2) 9/28/07
A Class
No sales charge* -- 2.62%(2)
With sales charge* -- -3.29%(2) 9/28/07
B Class
No sales charge* -- 2.54%(2)
With sales charge* -- -2.46%(2) 9/28/07
C Class
No sales charge* -- 2.54%(2)
With sales charge* -- 1.54%(2) 9/28/07
R Class -- 2.62%(2) 9/28/07
* Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a 5.75% maximum 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) Data provided by Lipper Inc. -- A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(2) Total 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. The fund is considered nondiversified and has the
potential for wide performance swings, both up and down. The fund's investment
approach may also result in high portfolio turnover, which could mean high
transaction costs, affecting both performance and capital gains tax
liabilities to investors.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. Returns for the
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.
- ------
17
Focused Growth
Growth of $10,000 Over Life of Class
$10,000 investment made February 28, 2005
One-Year Returns Over Life of Class
Periods ended October 31
2005* 2006 2007
Investor Class 5.30% 9.13% 15.78%
Blended index 2.53% 13.57% 16.88%
Russell 1000 Growth Index 3.62% 10.84% 19.23%
S&P 500 Index 1.44% 16.34% 14.56%
*From 2/28/05, 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. The fund is considered nondiversified and has the
potential for wide performance swings, both up and down. The fund's investment
approach may also result in high portfolio turnover, which could mean high
transaction costs, affecting both performance and capital gains tax
liabilities to investors.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. Returns for the
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.
- ------
18
PORTFOLIO COMMENTARY
Focused Growth
Portfolio Managers: Greg Woodhams and Joe Reiland
PERFORMANCE SUMMARY
Focused Growth returned 15.78%* during the 12 months ended October 31, 2007.
That compares with the 16.88% return of its blended benchmark. The blended
index's return reflects the performance of its equally weighted components,
the Russell 1000 Growth Index and the S&P 500 Index, which gained 19.23% and
14.56%, respectively.
Looking at the portfolio's absolute return, the portfolio's solid performance
was driven by holdings in a number of sectors, led by health care; consumer
staples shares were the only sector to detract from return. In terms of
Focused Growth's performance relative to the benchmark, positioning in
information technology limited performance, while consumer discretionary
holdings were some of the leading contributors.
LEADING DETRACTORS
While the information technology sector on balance was a net contributor to
performance, it was also home to some leading detractors. Among these were
semiconductor text equipment maker Teradyne and computer storage device maker
Network Appliance. Teradyne reported growth and revenue figures below
expectations on a slowdown in new orders from chip makers. Network Appliance
actually reported good results in recent quarters, but warned that slower
spending on computer memory gear would limit profits going forward.
While a number of Focused Growth's leading contributors were in the healthcare
sector, this segment was also home to several of the portfolio's largest
detractors. The top relative and absolute detractor from portfolio results was
Amgen, which received disappointing news on a drug in clinical trials and saw
prescriptions for another drug line slow. Another top-10 detractor was
Cephalon, which had some of its prominent drug lines face safety concerns and
additional FDA oversight.
Consumer staples shares also limited the portfolio's performance, as food
products names detracted most. Two detractors in this space were overweight
positions in Campbell Soup and ConAgra Foods. These shares underperformed
because of higher costs associated with growth initiatives and rising input
costs. Stock selection also detracted in food and staples retailing, where
Wal-Mart was the leading detractor. Though the company continued to turn
around its business, the difficult environment for consumers in the U.S.
slowed progress.
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Apache Corp. 4.3% 4.1%
XTO Energy Inc. 4.0% --
Baxter International Inc. 3.9% --
Oracle Corp. 3.8% --
Becton, Dickinson & Co. 3.8% 4.3%
Northern Trust Corp. 3.7% --
United Technologies Corp. 3.7% --
Emerson Electric Co. 3.7% --
Apple Inc. 3.6% 3.3%
Viacom Inc. Cl B 3.6% 3.0%
*All fund returns referenced in this commentary are for Investor Class shares.
- ------
19
Focused Growth
LEADING CONTRIBUTORS
Holdings in the consumer discretionary sector were a key source of strength,
where textiles & apparel firm Polo Ralph Lauren was again a leading
contributor. These shares continued to hit new highs as the company enjoyed
better-than-expected earnings and margins on strong performance by its Lauren
and Chaps clothing lines. Another key contributor among consumer discretionary
shares was fast food chain Wendy's International, whose shares spiked when the
management team essentially put the company up for sale. We sold our stake
into this strength.
Some of the leading contributors to return resided in the health care sector,
which was home to medical device maker Intuitive Surgical. This was the top
contributor to performance for the year, benefiting from heavy demand for its
new, less-invasive robotic surgery system.
In addition, the portfolio benefited from our stock selection among
pharmaceutical names. Schering-Plough, the portfolio's largest position during
the period, was helped by market share gains and category growth for its
cholesterol franchise. It also significantly helped relative results to avoid
Johnson & Johnson, which suffered from challenges in some of its leading drug
and medical device businesses.
STARTING POINT FOR NEXT REPORTING PERIOD
Our investment process focuses on companies we think are able to sustain
accelerating growth in their fundamentals. We believe this approach will lead
to the businesses that are the keys to generating solid returns over time.
That said, shareholders should understand that Focused Growth is a
nondiversified fund, meaning its holdings are typically limited to a core
group of approximately 25-45 stocks. Stocks advancing in this concentrated
portfolio, where a single holding may account for more than 5% of assets, will
have a positive impact on performance. However, investors need to be prepared
for the other side of the coin: if a large position stumbles, the effect is
magnified.
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Health Care Equipment & Supplies 14.2% 8.4%
Oil, Gas & Consumable Fuels 10.9% 4.1%
Electrical Equipment 8.8% 0.6%
Communications Equipment 6.7% 0.3%
Capital Markets 5.8% 5.1%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 94.0% 91.7%
Foreign Common Stocks(1) 4.1% 6.2%
TOTAL COMMON STOCKS 98.1% 97.9%
Temporary Cash Investments 0.7% 1.5%
Other Assets and Liabilities(2) 1.2% 0.6%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes securities lending collateral and other assets and liabilities.
- ------
20
SCHEDULE OF INVESTMENTS
Focused Growth
OCTOBER 31, 2007
Shares Value
Common Stocks -- 98.1%
AEROSPACE & DEFENSE -- 4.8%
2,521 Honeywell International Inc. $ 152,294
6,534 United Technologies Corp. 500,439
-----------
652,733
-----------
AUTO COMPONENTS -- 3.5%
4,470 BorgWarner, Inc. 472,524
-----------
BEVERAGES -- 2.2%
4,103 PepsiCo, Inc. 302,473
-----------
CAPITAL MARKETS -- 5.8%
802 Janus Capital Group Inc. 27,677
6,684 Northern Trust Corp. 502,703
10,740 Schwab (Charles) Corp. 249,598
-----------
779,978
-----------
COMMERCIAL SERVICES & SUPPLIES -- 0.5%
1,722 Waste Management, Inc. 62,664
-----------
COMMUNICATIONS EQUIPMENT -- 6.7%
4,512 ADC Telecommunications, Inc.(1) 84,374
12,669 Cisco Systems Inc.(1) 418,837
6,234 Juniper Networks, Inc.(1) 224,424
2,278 QUALCOMM Inc. 97,339
723 Research In Motion Ltd.(1) 90,021
-----------
914,995
-----------
COMPUTERS & PERIPHERALS -- 4.4%
2,600 Apple Inc.(1) 493,870
3,270 Dell Inc.(1) 100,062
-----------
593,932
-----------
ELECTRICAL EQUIPMENT -- 8.8%
9,128 Cooper Industries, Ltd. Cl A 478,216
9,512 Emerson Electric Co. 497,192
3,050 Roper Industries Inc.(2) 215,971
-----------
1,191,379
-----------
ENERGY EQUIPMENT & SERVICES -- 3.4%
2,069 Cameron International Corp.(1) 201,438
45,370 Grey Wolf Inc.(1) 255,433
-----------
456,871
-----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 14.2%
1,660 Alcon, Inc. 252,669
8,726 Baxter International Inc. 523,648
6,161 Becton, Dickinson & Co. 514,197
Shares Value
10,519 DENTSPLY International Inc. $ 436,328
588 Intuitive Surgical Inc.(1) 192,200
-----------
1,919,042
-----------
HEALTH CARE PROVIDERS & SERVICES -- 1.8%
6,320 Patterson Companies, Inc.(1) 247,175
-----------
HOUSEHOLD PRODUCTS -- 0.8%
1,575 Procter & Gamble Co. (The) 109,494
-----------
INTERNET & CATALOG RETAIL -- 0.4%
579 Priceline.com Inc.(1) 53,905
-----------
INTERNET SOFTWARE & SERVICES -- 3.0%
11,245 eBay Inc.(1) 405,945
-----------
IT SERVICES -- 3.1%
4,933 DST Systems, Inc.(1) 417,874
-----------
LIFE SCIENCES TOOLS & SERVICES -- 2.3%
5,230 Thermo Fisher Scientific Inc.(1) 307,576
-----------
MACHINERY -- 3.4%
4,971 Eaton Corp. 460,215
-----------
MEDIA -- 3.6%
11,939 Viacom Inc. Cl B(1) 492,961
-----------
OIL, GAS & CONSUMABLE FUELS -- 10.9%
5,621 Apache Corp. 583,516
3,705 Devon Energy Corporation 346,047
8,186 XTO Energy Inc. 543,387
-----------
1,472,950
-----------
PHARMACEUTICALS -- 5.1%
1,747 Novo Nordisk AS B Shares ORD 217,847
15,719 Schering-Plough Corp. 479,743
-----------
697,590
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.0%
4,536 Intersil Corp. Cl A 137,622
-----------
SOFTWARE -- 3.8%
23,355 Oracle Corp.(1) 517,780
-----------
SPECIALTY RETAIL -- 3.2%
2,693 GameStop Corp. Cl A(1) 159,479
9,715 TJX Companies, Inc. (The) 281,055
-----------
440,534
-----------
WIRELESS TELECOMMUNICATION SERVICES -- 1.4%
4,273 American Tower Corp. Cl A(1) 188,781
-----------
TOTAL COMMON STOCKS
(Cost $11,699,151) 13,296,993
-----------
- ------
21
Focused Growth
Shares Value
Temporary Cash Investments -- 0.7%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized
by various U.S. Treasury obligations, 7.125%-7.625%,
2/15/23-2/15/25, valued at $101,824), in a joint trading account at
4.50%, dated 10/31/07, due 11/1/07 (Delivery value $100,013) (Cost
$100,000) $ 100,000
-----------
Temporary Cash Investments -- Securities Lending Collateral(3) -- 1.6%
Repurchase Agreement, Deutsche Bank AG, (collateralized by various
U.S. Government Agency obligations in a pooled account at the
lending agent), 4.82%, dated 10/31/07, due 11/1/07 (Delivery value
$113,515) 113,500
Shares Value
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 4.89%, dated 10/31/07, due 11/1/07 (Delivery
value $100,014) $ 100,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS -- SECURITIES LENDING COLLATERAL
(Cost $213,500) 213,500
-----------
TOTAL INVESTMENT SECURITIES -- 100.4%
(Cost $12,012,651) 13,610,493
-----------
OTHER ASSETS AND LIABILITIES -- (0.4)% (51,050)
-----------
TOTAL NET ASSETS -- 100.0% $13,559,443
===========
Forward Foreign Currency Exchange Contracts
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
647,787 DKK for USD 11/30/07 $126,106 $(915)
======== ========
(Value on Settlement Date $125,191)
Notes to Schedule of Investments
DKK = Danish Krone
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, 2007.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
As of October 31, 2007, securities with an aggregate value of $217,847, which
represented 1.6% of total net assets, were valued in accordance with
alternative pricing procedures adopted by the Board of Directors.
See Notes to Financial Statements.
- ------
22
PERFORMANCE
Fundamental Equity
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year Inception Date
A CLASS
No sales charge* 23.88% 18.51%
With sales charge* 16.79% 16.13% 11/30/04
S&P 500 INDEX(1) 14.56% 12.03% --
Investor Class 24.18% 20.26% 7/29/05
Institutional Class 24.43% 20.48% 7/29/05
B Class
No sales charge* 23.01% 17.60%
With sales charge* 19.01% 16.84% 11/30/04
C Class 22.99% 17.62% 11/30/04
R Class 23.60% 19.66% 7/29/05
* Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a 5.75% maximum 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) Data provided by Lipper Inc. -- A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
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. Fund performance to date was affected by investments in
initial public offerings (IPOs), non-U.S. stocks, and small- and mid-cap
stocks. IPOs and smaller stocks may have less impact on the fund's performance
as its assets grow. Performance over a longer period of time is more
meaningful than short-term performance. International investing involves
special risks, such as political instability and currency fluctuations.
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.
- ------
23
Fundamental Equity
Growth of $10,000 Over Life of Class
$10,000 investment made November 30, 2004
One-Year Returns Over Life of Class
Periods ended October 31
2005* 2006 2007
A Class (no sales charge) 10.30% 20.12% 23.88%
S&P 500 Index 4.49% 16.34% 14.56%
* From 11/30/04, the A Class's inception date. Not annualized. Fundamental
Equity 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. Fund performance to date was affected by investments in
initial public offerings (IPOs), non-U.S. stocks, and small- and mid-cap
stocks. IPOs and smaller stocks may have less impact on the fund's performance
as its assets grow. Performance over a longer period of time is more
meaningful than short-term performance. International investing involves
special risks, such as political instability and currency fluctuations.
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.
- ------
24
PORTFOLIO COMMENTARY
Fundamental Equity
Portfolio Managers: Jerry Sullivan and Rob Brookby
PERFORMANCE SUMMARY
Fundamental Equity advanced 23.88%* during the 12 months ended October 31,
2007. Its benchmark, the S&P 500 Index, returned 14.56% over the same time
frame.
As discussed in the Market Perspective on page 2, better-than-expected
corporate earnings growth, robust merger activity, and a change in Federal
Reserve (Fed) rate policy contributed to sound stock index gains for the
period. Markets faced extreme volatility in the final months of the period,
though, as mounting troubles among subprime mortgage lenders led to a credit
crisis, and rising energy costs sparked fears of inflation. In this
environment, large- and mid-cap stocks generally outpaced their small-cap
counterparts, and growth-oriented shares outperformed value stocks.
STOCK SELECTION DROVE PORTFOLIO PERFORMANCE
Effective security selection accounted for the bulk of Fundamental Equity's
excess returns compared with the benchmark during the reporting period. In
particular, individual holdings within the information technology, consumer
discretionary, and industrials sectors contributed significantly to absolute
and relative performance. Holdings in the energy and consumer staples groups
also benefited results.
Although we further aided relative returns by maintaining a slight underweight
position in the financials sector (which was dragged down by problems
associated with the subprime mortgage market), that advantage was offset by
the poor performance of stock picks within the sector.
During the reporting period, initial public offerings (IPOs) accounted for a
significant portion of Fundamental Equity's excess returns. Although several
of these positions detracted slightly from portfolio gains, the group
collectively contributed to absolute and relative performance.
We also allocated a portion of Fundamental Equity's assets to holdings of
companies outside of the United States. The portfolio benefited from this
allocation, as international stocks generated higher returns than the domestic
market, boosted by improving global economic conditions and a declining U.S.
dollar.
TECHNOLOGY PICKS LED GAINS
Several of the portfolio's top individual performers were technology stocks.
Within the technology sector, software maker Nintendo was the largest single
contributor to portfolio performance. Strong demand for the company's Wii
interactive game system continued to outstrip supply, helping Nintendo's share
price jump 212% during the reporting period.
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
General Electric Co. 3.5% 3.7%
PowerShares QQQ Trust 3.0% 0.9%
Chevron Corp. 2.7% 2.5%
Bank of America Corp. 2.6% 2.3%
AT&T Inc. 2.2% --
Cisco Systems Inc. 2.2% 1.7%
Wachovia Corp. 2.1% --
International Business Machines Corp. 2.0% 2.0%
Exxon Mobil Corp. 1.9% 2.1%
Honeywell International Inc. 1.9% 1.8%
* All fund returns referenced in this commentary are for A Class shares and
are not reduced by sales charges. A Class shares are subject to a maximum
sales charge of 5.75%. Had the sales charge been applied, returns would be
lower than those shown.
- ------
25
Fundamental Equity
Overweight holding Avnet also contributed meaningfully to Fundamental Equity's
relative gains. The distributor of electronic components saw its share price
surge 76% for the period, due largely to increased demand in the industry.
Within the IT services industry, the portfolio benefited from both an industry
overweight and an overweight stake in Ceridian, which provides technological
support for human resources outsourcing functions. Ceridian's share price
jumped 52% during the period.
AEROSPACE AND DEFENSE SOARED
An overweight position and stock selection within the aerospace and defense
industry added a significant contribution to performance results as the group
continued to benefit from a replacement cycle and expanding orders in global
aviation. In particular, overweight holding Honeywell International
contributed to relative gains as the aerospace giant's share price climbed 46%.
ENERGY, CONSUMER STAPLES CONTRIBUTED TO GAINS
Stock selection within the energy sector also accounted for a portion of
Fundamental Equity's relative strength. Within the energy sector, the
portfolio derived its relative gains from the oil, gas and consumable fuels
industry, where it held an overweight position in Chevron. Chevron continued
to benefit from rising oil prices during the period.
Within the consumer staples sector, effective stock selection in the food and
staples retailing group aided relative performance. Here, we held overweight
positions in strong performers while sidestepping laggards. Notably,
overweight positions in grocery chains Supervalu and Kroger both contributed
to performance results.
STARTING POINT FOR NEXT REPORTING PERIOD
Fundamental Equity seeks large, established companies that we believe are
attractively valued relative to their prospects for earnings growth and income
production. Our focus on bellwether large-cap stocks should put the portfolio
in position for solid returns for the foreseeable future if the market's shift
toward large-cap stocks continues. In particular, our investment process has
successfully guided us to attractive companies in the aerospace and technology
areas, which we believe should benefit from long-term trends. We will also
continue to look for investment opportunities outside the large company arena,
including IPOs.
Top Five Industries* as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Oil, Gas & Consumable Fuels 8.2% 8.2%
Aerospace & Defense 6.2% 5.6%
Diversified Financial Services 5.8% 6.9%
Industrial Conglomerates 4.3% 4.9%
Insurance 4.0% 6.9%
* Excludes securities in the Diversified category. These securities represent
investments in diversified pools of underlying securities in multiple industry
categories.
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 91.1% 89.6%
Foreign Common Stocks(1) 7.0% 8.9%
Convertible Preferred Stocks -- 0.4%
TOTAL EQUITY EXPOSURE 98.1% 98.9%
Temporary Cash Investments 1.8% 2.5%
Other Assets and Liabilities(2) 0.1% (1.4)%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes securities lending collateral and other assets and liabilities.
- ------
26
SCHEDULE OF INVESTMENTS
Fundamental Equity
OCTOBER 31, 2007
Shares Value
Common Stocks -- 98.1%
AEROSPACE & DEFENSE -- 6.2%
49,000 General Dynamics Corp. $ 4,457,040
102,000 Honeywell International Inc. 6,161,820
32,600 Lockheed Martin Corp. 3,587,304
42,104 Raytheon Company 2,678,235
46,559 United Technologies Corp. 3,565,954
------------
20,450,353
------------
AIRLINES -- 0.4%
93,000 Southwest Airlines Co. 1,321,530
------------
AUTO COMPONENTS -- 1.6%
80,500 Johnson Controls, Inc. 3,519,460
56,000 Tenneco Automotive Inc.(1) 1,714,160
------------
5,233,620
------------
BEVERAGES -- 2.0%
36,427 Anheuser-Busch Companies, Inc. 1,867,977
66,000 PepsiCo, Inc. 4,865,520
------------
6,733,497
------------
BIOTECHNOLOGY -- 0.7%
12,649 Biotech HOLDRs(SM) Trust 2,294,529
------------
CAPITAL MARKETS -- 3.0%
17,000 Deutsche Bank AG ORD 2,277,822
14,492 Goldman Sachs Group, Inc. (The) 3,592,857
59,163 Merrill Lynch & Co., Inc. 3,905,941
------------
9,776,620
------------
CHEMICALS -- 2.1%
56,479 du Pont (E.I.) de Nemours & Co. 2,796,275
19,700 Monsanto Co. 1,923,311
29,800 PPG Industries, Inc. 2,227,252
------------
6,946,838
------------
COMMERCIAL BANKS -- 2.4%
37,500 Marshall & Ilsley Corp.(1) 1,293,750
148,398 Wachovia Corp. 6,786,241
------------
8,079,991
------------
COMMERCIAL SERVICES & SUPPLIES -- 0.7%
65,462 Republic Services, Inc. 2,238,146
------------
COMMUNICATIONS EQUIPMENT -- 2.2%
219,200 Cisco Systems Inc.(1) 7,246,752
------------
COMPUTERS & PERIPHERALS -- 2.6%
21,750 Apple Inc.(1) 4,131,413
89,000 Hewlett-Packard Co. 4,599,520
------------
8,730,933
------------
Shares Value
CONTAINERS & PACKAGING -- 0.6%
73,978 Crown Holdings Inc.(1) $ 1,834,654
------------
DIVERSIFIED -- 4.3%
68,300 iShares Russell 1000 Growth Index Fund 4,350,710
180,000 PowerShares QQQ Trust(2) 9,905,400
------------
14,256,110
------------
DIVERSIFIED FINANCIAL SERVICES -- 5.8%
175,470 Bank of America Corp. 8,471,691
70,000 Bovespa Holding SA ORD(1) 1,328,323
112,342 Citigroup Inc. 4,707,130
80,182 JPMorgan Chase & Co. 3,768,554
31,500 Metavante Technologies Inc.(1) 819,000
------------
19,094,698
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.4%
176,000 AT&T Inc. 7,355,041
360,000 China Communications Services Corp. Ltd. H
Shares ORD(1) 315,525
16,476 Maxcom Telecomunicaciones, SAB de CV ADR(1) 286,023
------------
7,956,589
------------
ELECTRIC UTILITIES -- 0.6%
71,883 Pepco Holdings, Inc. 2,047,947
------------
ELECTRICAL EQUIPMENT -- 0.6%
34,350 Belden Inc.(2) 2,001,575
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.6%
48,000 Avnet, Inc.(1) 2,002,560
------------
ENERGY EQUIPMENT & SERVICES -- 1.9%
27,706 Schlumberger Ltd. 2,675,568
12,200 Tenaris SA ADR 656,360
7,700 Transocean Inc.(1) 919,149
30,500 Weatherford International Ltd.(1) 1,979,755
------------
6,230,832
------------
FOOD & STAPLES RETAILING -- 2.5%
82,000 CVS/Caremark Corp. 3,425,140
67,136 Kroger Co. (The) 1,973,127
60,462 Wal-Mart Stores, Inc. 2,733,487
------------
8,131,754
------------
- ------
27
Fundamental Equity
Shares Value
FOOD PRODUCTS -- 1.9%
38,500 General Mills, Inc. $ 2,222,605
42,345 H.J. Heinz Co. 1,980,899
39,728 Kellogg Co. 2,097,241
------------
6,300,745
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 3.2%
80,000 Baxter International Inc. 4,800,800
4,134,513 Golden Meditech Co. Ltd. ORD(2) 1,964,245
72,200 Steris Corp. 2,096,688
22,300 Zimmer Holdings Inc.(1) 1,549,627
------------
10,411,360
------------
HEALTH CARE PROVIDERS & SERVICES -- 2.7%
42,961 Aetna Inc. 2,413,120
22,500 Brookdale Senior Living Inc.(2) 830,025
13,000 Humana Inc.(1) 974,350
35,994 McKesson Corp. 2,379,203
46,326 UnitedHealth Group Inc. 2,276,923
------------
8,873,621
------------
HOTELS, RESTAURANTS & LEISURE -- 2.1%
80,000 McDonald's Corporation 4,776,000
55,500 Yum! Brands, Inc. 2,234,985
------------
7,010,985
------------
HOUSEHOLD PRODUCTS -- 1.3%
27,000 Kimberly-Clark Corp. 1,914,030
36,438 Procter & Gamble Co. (The) 2,533,170
------------
4,447,200
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.4%
13,800 Constellation Energy Group Inc. 1,306,860
------------
INDUSTRIAL CONGLOMERATES -- 4.3%
31,691 3M Co. 2,736,835
282,500 General Electric Co. 11,627,700
------------
14,364,535
------------
INSURANCE -- 4.0%
47,213 Ace, Ltd. 2,861,580
24,726 Ambac Financial Group, Inc. 910,659
85,795 American International Group, Inc. 5,415,380
274 Berkshire Hathaway Inc. Cl B(1) 1,209,436
120,300 Unum Group 2,807,802
------------
13,204,857
------------
Shares Value
INTERNET SOFTWARE & SERVICES -- 2.2%
7,093 Alibaba.com Ltd. ORD(1) $12,355
8,050 Google Inc. Cl A(1) 5,691,350
1,000,000 NetDragon Websoft, Inc. ORD(1) 1,700,546
------------
7,404,251
------------
IT SERVICES -- 2.9%
40,000 Accenture Ltd. Cl A 1,562,000
32,250 Automatic Data Processing, Inc. 1,598,310
56,700 International Business Machines Corp. 6,584,004
------------
9,744,314
------------
LIFE SCIENCES TOOLS & SERVICES -- 1.3%
71,400 Thermo Fisher Scientific Inc.(1) 4,199,034
------------
MACHINERY -- 1.3%
11,300 Caterpillar Inc. 843,093
19,034 Eaton Corp. 1,762,168
21,274 Parker-Hannifin Corp. 1,709,791
------------
4,315,052
------------
MEDIA -- 2.3%
31,861 CBS Corp. Cl B 914,411
70,695 Comcast Corp. Cl A(1) 1,488,130
92,439 Walt Disney Co. (The) 3,201,162
24,511 WPP Group plc ADR 1,686,357
24,199 WPP Group plc ORD 331,292
------------
7,621,352
------------
METALS & MINING -- 0.7%
34,223 Nucor Corp. 2,122,510
------------
MULTI-UTILITIES -- 1.3%
44,000 Sempra Energy 2,706,440
76,054 XCEL Energy Inc. 1,715,018
------------
4,421,458
------------
MULTILINE RETAIL -- 0.9%
9,330 Sears Holdings Corp.(1)(2) 1,257,591
27,000 Target Corp. 1,656,720
------------
2,914,311
------------
OIL, GAS & CONSUMABLE FUELS -- 8.2%
99,000 Chevron Corp. 9,059,489
75,000 CVR Energy, Inc.(1) 1,710,000
31,500 Devon Energy Corporation 2,942,100
67,252 Exxon Mobil Corp. 6,186,511
70,000 Marathon Oil Corp. 4,139,100
42,500 Occidental Petroleum Corp. 2,934,625
------------
26,971,825
------------
- ------
28
Fundamental Equity
Shares Value
PHARMACEUTICALS -- 2.9%
50,000 Abbott Laboratories $ 2,731,000
39,522 Eli Lilly and Company 2,140,116
98,360 Pfizer Inc. 2,420,640
44,000 Wyeth 2,139,720
------------
9,431,476
------------
REAL ESTATE INVESTMENT TRUSTS -- 0.1%
9,369 DuPont Fabros Technology, Inc.(1) 201,246
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.8%
2,000,000 Soho China Ltd. ORD(1) 2,575,334
------------
ROAD & RAIL -- 0.5%
18,918 Burlington Northern Santa Fe Corp. 1,648,704
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.2%
88,500 Atmel Corp.(1) 432,765
155,200 Intel Corp. 4,174,880
21,000 Microchip Technology Inc. 696,570
36,000 NVIDIA Corp.(1) 1,273,680
21,700 Texas Instruments Inc. 707,420
------------
7,285,315
------------
SOFTWARE -- 2.9%
80,000 Microsoft Corporation 2,944,800
1,800 Nintendo Co., Ltd. ORD 1,134,737
253,000 Oracle Corp.(1) 5,609,010
------------
9,688,547
------------
SPECIALTY RETAIL -- 1.9%
41,636 Best Buy Co., Inc. 2,020,178
14,300 GameStop Corp. Cl A(1) 846,846
21,112 Sherwin-Williams Co. 1,349,479
66,692 TJX Companies, Inc. (The) 1,929,400
------------
6,145,903
------------
Shares Value
TEXTILES, APPAREL & LUXURY GOODS -- 1.0%
4,000,000 Bosideng International Holdings Ltd. ORD(1)(2) $ 1,713,449
26,000 NIKE, Inc. Cl B 1,722,760
------------
3,436,209
------------
TOBACCO -- 1.6%
72,448 Altria Group Inc. 5,283,633
------------
TOTAL COMMON STOCKS
(Cost $298,661,438) 323,940,165
------------
Temporary Cash Investments -- 1.8%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized
by various U.S. Treasury obligations, 7.125%-7.625%,
2/15/23-2/15/25, valued at $6,211,268), in a joint trading account
at 4.50%, dated 10/31/07, due 11/1/07 (Delivery value $6,100,763)
(Cost $6,100,000) 6,100,000
------------
Temporary Cash Investments -- Securities Lending Collateral(3) -- 2.3%
Repurchase Agreement, Deutsche Bank AG, (collateralized by various
U.S. Government Agency obligations in a pooled account at the
lending agent), 4.82%, dated 10/31/07, due 11/1/07 (Delivery value
$5,670,990) 5,670,231
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 4.89%, dated 10/31/07, due 11/1/07 (Delivery
value $2,000,272) 2,000,000
------------
TOTAL TEMPORARY CASH INVESTMENTS -- SECURITIES LENDING COLLATERAL
(Cost $7,670,231) 7,670,231
------------
TOTAL INVESTMENT SECURITIES -- 102.2%
(Cost $312,431,669) 337,710,396
------------
OTHER ASSETS AND LIABILITIES -- (2.2)% (7,322,313)
------------
TOTAL NET ASSETS -- 100.0% $330,388,083
============
- ------
29
Fundamental Equity
Forward Foreign Currency Exchange Contracts
Unrealized
Contracts to Sell Settlement Date Value Gain (Loss)
743,070 Euro for USD 11/30/07 $1,077,036 $(5,644)
79,070 GBP for USD 11/30/07 164,247 (1,356)
62,325,000 JPY for USD 11/30/07 542,241 2,665
---------- ----------
$1,783,524 $(4,335)
========== ==========
(Value on Settlement Date $1,779,189)
Notes to Schedule of Investments
ADR = American Depositary Receipt
GBP = British Pound
HOLDRs = Holding Company Depositary Receipts
JPY = Japanese Yen
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, 2007.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
As of October 31, 2007, securities with an aggregate value of $12,025,305,
which represented 3.6% of total net assets, were valued in accordance with
alternative pricing procedures adopted by the Board of Directors.
See Notes to Financial Statements.
- ------
30
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, 2007 to October 31, 2007
(except as noted).
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.
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.
- ------
31
Expenses
Paid
During
Beginning Ending Period* Annualized
Account Value Account Value 5/1/07 - Expense
5/1/07 10/31/07 10/31/07 Ratio*
Select
ACTUAL
Investor Class $1,000 $1,156.90 $5.44 1.00%
Institutional Class $1,000 $1,157.90 $4.35 0.80%
A Class $1,000 $1,155.70 $6.79 1.25%
B Class $1,000 $1,150.80 $10.84 2.00%
C Class $1,000 $1,151.00 $10.84 2.00%
R Class $1,000 $1,154.00 $8.14 1.50%
HYPOTHETICAL
Investor Class $1,000 $1,020.16 $5.09 1.00%
Institutional Class $1,000 $1,021.17 $4.08 0.80%
A Class $1,000 $1,018.90 $6.36 1.25%
B Class $1,000 $1,015.12 $10.16 2.00%
C Class $1,000 $1,015.12 $10.16 2.00%
R Class $1,000 $1,017.64 $7.63 1.50%
Capital Growth
ACTUAL
Investor Class $1,000 $1,142.30 $5.45 1.01%
Institutional Class $1,000 $1,144.20 $4.38 0.81%
A Class $1,000 $1,141.40 $6.80 1.26%
B Class $1,000 $1,136.50 $10.82 2.01%
C Class $1,000 $1,136.50 $10.82 2.01%
R Class $1,000 $1,139.50 $8.14 1.51%
HYPOTHETICAL
Investor Class $1,000 $1,020.11 $5.14 1.01%
Institutional Class $1,000 $1,021.12 $4.13 0.81%
A Class $1,000 $1,018.85 $6.41 1.26%
B Class $1,000 $1,015.07 $10.21 2.01%
C Class $1,000 $1,015.07 $10.21 2.01%
R Class $1,000 $1,017.59 $7.68 1.51%
* Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
- ------
32
Expenses
Paid
During
Beginning Ending Period(1) Annualized
Account Value Account Value 5/1/07 - Expense
5/1/07 10/31/07 10/31/07 Ratio(1)
Focused Growth
ACTUAL
Investor Class $1,000 $1,090.30 $5.27 1.00%
Institutional Class $1,000 $1,027.00(2) $0.73(3) 0.80%
A Class $1,000 $1,026.20(2) $1.14(3) 1.25%
B Class $1,000 $1,025.40(2) $1.83(3) 2.00%
C Class $1,000 $1,025.40(2) $1.83(3) 2.00%
R Class $1,000 $1,026.20(2) $1.37(3) 1.50%
HYPOTHETICAL
Investor Class $1,000 $1,020.16 $5.09 1.00%
Institutional Class $1,000 $1,021.17(4) $4.08(4) 0.80%
A Class $1,000 $1,018.90(4) $6.36(4) 1.25%
B Class $1,000 $1,015.12(4) $10.16(4) 2.00%
C Class $1,000 $1,015.12(4) $10.16(4) 2.00%
R Class $1,000 $1,017.64(4) $7.63(4) 1.50%
Fundamental Equity
ACTUAL
Investor Class $1,000 $1,084.40 $5.25 1.00%
Institutional Class $1,000 $1,085.80 $4.21 0.80%
A Class $1,000 $1,083.00 $6.56 1.25%
B Class $1,000 $1,078.90 $10.48 2.00%
C Class $1,000 $1,079.60 $10.48 2.00%
R Class $1,000 $1,081.80 $7.87 1.50%
HYPOTHETICAL
Investor Class $1,000 $1,020.16 $5.09 1.00%
Institutional Class $1,000 $1,021.17 $4.08 0.80%
A Class $1,000 $1,018.90 $6.36 1.25%
B Class $1,000 $1,015.12 $10.16 2.00%
C Class $1,000 $1,015.12 $10.16 2.00%
R Class $1,000 $1,017.64 $7.63 1.50%
(1) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
(2) Ending account value based on actual return from September 28, 2007
(commencement of sale) through October 31, 2007.
(3) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 33, the number of days in the period from September 28, 2007
(commencement of sale) through October 31, 2007, divided by 365, to reflect
the period. Had the class been available for the full period, the expenses
paid during the period would have been higher.
(4) Ending account value and expenses paid during period assumes the class had
been available throughout the entire fiscal half-year period and are
calculated using the class's annualized expense ratio listed in the table
above.
- ------
33
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007
Capital Focused Fundamental
Select Growth Growth Equity
ASSETS
Investment securities
- -- at value (cost of
$2,121,146,344,
$4,934,693,
$11,799,151 and
$304,761,438,
respectively) --
including $28,729,999,
$140,674, $215,971 and
$7,537,626 of
securities on loan,
respectively $2,777,445,062 $5,910,774 $13,396,993 $330,040,165
Investments made with
cash collateral
received for
securities on loan, at
value (cost of
$28,860,696, $139,913,
$213,500 and
$7,670,231,
respectively) 28,860,696 139,913 213,500 7,670,231
-------------- ---------- ----------- ------------
Total investment
securities, at value
(cost of
$2,150,007,040,
$5,074,606,
$12,012,651 and
$312,431,669,
respectively) 2,806,305,758 6,050,687 13,610,493 337,710,396
Cash -- 27,945 50,392 1,332,143
Cash collateral
received for
securities on loan -- -- -- 27,500
Foreign currency
holdings, at value
(cost of $-, $-, $-
and $639,140,
respectively) -- -- -- 639,140
Receivable for
investments sold 16,224,403 159,647 121,304 4,518,430
Receivable for forward
foreign currency
exchange contracts 103,796 -- -- 2,665
Receivable for capital
shares sold 1,230 200 -- 175,601
Dividends and interest
receivable 2,318,942 2,890 3,188 218,945
-------------- ---------- ----------- ------------
2,824,954,129 6,241,369 13,785,377 344,624,820
-------------- ---------- ----------- ------------
LIABILITIES
Disbursements in
excess of demand
deposit cash 604,394 -- -- --
Payable for collateral
received for
securities on loan 28,860,696 139,913 213,500 7,697,731
Payable for
investments purchased 227,984 155,377 -- 6,110,889
Payable for forward
foreign currency
exchange contracts 731,124 202 915 7,000
Payable for capital
shares redeemed 24,178,892 -- -- 81,361
Accrued management fees 2,271,537 4,467 11,434 267,152
Distribution fees
payable 4,492 950 52 17,502
Service fees (and
distribution fees -- A
Class and R Class)
payable 10,198 992 33 55,102
-------------- ---------- ----------- ------------
56,889,317 301,901 225,934 14,236,737
-------------- ---------- ----------- ------------
NET ASSETS $2,768,064,812 $5,939,468 $13,559,443 $330,388,083
============== ========== =========== ============
See Notes to Financial Statements.
- ------
34
OCTOBER 31, 2007
Capital Focused Fundamental
Select Growth Growth Equity
NET ASSETS CONSIST OF:
Capital (par value and
paid-in surplus) $1,920,032,310 $4,510,309 $10,424,905 $296,015,586
Undistributed net
investment income 489,688 -- 1,393 915,406
Undistributed net
realized gain on
investment and foreign
currency transactions 191,866,403 453,238 1,536,218 8,196,572
Net unrealized
appreciation on
investments and
translation of assets
and liabilities in
foreign currencies 655,676,411 975,921 1,596,927 25,260,519
-------------- ---------- ----------- ------------
$2,768,064,812 $5,939,468 $13,559,443 $330,388,083
============== ========== =========== ============
INVESTOR CLASS, $0.01 PAR VALUE
Net assets $2,550,254,361 $1,138,673 $13,380,719 $53,908,268
Shares outstanding 55,945,702 80,119 1,035,283 3,437,934
Net asset value per
share $45.58 $14.21 $12.92 $15.68
INSTITUTIONAL CLASS, $0.01 PAR VALUE
Net assets $168,441,351 $33,443 $25,670 $286,011
Shares outstanding 3,663,099 2,342 1,986 18,215
Net asset value per
share $45.98 $14.28 $12.93 $15.70
A CLASS, $0.01 PAR VALUE
Net assets $42,769,569 $3,171,090 $25,661 $246,322,386
Shares outstanding 949,476 224,421 1,986 15,735,986
Net asset value per
share $45.05 $14.13 $12.92 $15.65
Maximum offering price
(net asset value
divided by 0.9425) $47.80 $14.99 $13.71 $16.60
B CLASS, $0.01 PAR VALUE
Net assets $5,566,512 $865,194 $25,644 $4,889,081
Shares outstanding 126,415 62,962 1,986 316,435
Net asset value per
share $44.03 $13.74 $12.91 $15.45
C CLASS, $0.01 PAR VALUE
Net assets $1,001,427 $695,436 $76,094 $24,544,116
Shares outstanding 22,724 50,609 5,892 1,588,044
Net asset value per
share $44.07 $13.74 $12.91 $15.46
R CLASS, $0.01 PAR VALUE
Net assets $31,592 $35,632 $25,655 $438,221
Shares outstanding 697 2,536 1,986 28,081
Net asset value per
share $45.33 $14.05 $12.92 $15.61
See Notes to Financial Statements.
- ------
35
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007
Capital Focused Fundamental
Select Growth Growth Equity
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign
taxes withheld of
$262,157, $326, $- and
$14,457, respectively) $ 27,981,361 $ 54,931 $ 173,121 $ 2,832,917
Interest 1,056,047 3,201 12,949 277,677
Securities lending 196,604 268 378 30,988
------------ ---------- ---------- -----------
29,234,012 58,400 186,448 3,141,582
------------ ---------- ---------- -----------
EXPENSES:
Management fees 26,006,186 50,232 140,160 1,580,110
Distribution fees:
A Class 41,800 -- -- --
B Class 41,090 7,992 16 21,521
C Class 8,319 6,689 35 93,841
Service fees:
A Class 41,800 -- -- --
B Class 13,697 2,664 5 7,174
C Class 2,773 2,230 12 31,280
Distribution and service
fees:
A Class 17,332 7,177 5 296,375
A Class (old)
(Note 10) 49,758 -- -- --
R Class 134 145 11 1,597
Directors' fees and
expenses 51,141 219 267 4,877
Other expenses 28,515 85 210 1,246
------------ ---------- ---------- -----------
26,302,545 77,433 140,721 2,038,021
------------ ---------- ---------- -----------
NET INVESTMENT INCOME
(LOSS) 2,931,467 (19,033) 45,727 1,103,561
------------ ---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS)
ON:
Investment transactions 211,735,251 485,148 1,537,094 8,268,360
Foreign currency
transactions (11,874,860) (3,299) (4,579) (88,864)
------------ ---------- ---------- -----------
199,860,391 481,849 1,532,515 8,179,496
------------ ---------- ---------- -----------
CHANGE IN NET UNREALIZED
APPRECIATION
(DEPRECIATION) ON:
Investments 461,161,422 544,351 417,702 22,216,816
Translation of assets and
liabilities in foreign
currencies (159,556) 245 740 (18,207)
------------ ---------- ---------- -----------
461,001,866 544,596 418,442 22,198,609
------------ ---------- ---------- -----------
NET REALIZED AND
UNREALIZED GAIN (LOSS) 660,862,257 1,026,445 1,950,957 30,378,105
------------ ---------- ---------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $663,793,724 $1,007,412 $1,996,684 $31,481,666
============ ========== ========== ===========
See Notes to Financial Statements.
- ------
36
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006
Select Capital Growth
2007 2006 2007 2006
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income
(loss) $ 2,931,467 $ 18,488,198 $ (19,033) $ (18,592)
Net realized gain
(loss) 199,860,391 308,424,651 481,849 116,616
Change in net
unrealized
appreciation
(depreciation) 461,001,866 (376,374,294) 544,596 235,642
-------------- -------------- ---------- ----------
Net increase
(decrease) in net
assets resulting from
operations 663,793,724 (49,461,445) 1,007,412 333,666
-------------- -------------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment
income:
Investor Class (10,981,848) (23,121,134) -- --
Institutional
Class (951,224) (1,850,095) -- --
A Class (39,351) (141,382) -- --
A Class (old)
(Note 10) (47,590) (197,118) -- --
R Class -- (138) -- --
From net realized
gains:
Investor Class (39,672,127) -- (1,045) --
Institutional
Class (2,344,204) -- (331) --
A Class (343,121) -- (27,475) --
A Class (old)
(Note 10) (414,970) -- -- --
B Class (92,435) -- (11,734) --
C Class (19,786) -- (10,342) --
R Class (381) -- (331) --
-------------- -------------- ---------- ----------
Decrease in net
assets from
distributions (54,907,037) (25,309,867) (51,258) --
-------------- -------------- ---------- ----------
CAPITAL SHARE TRANSACTIONS
Net increase
(decrease) in net
assets from capital
share transactions (622,635,475) (743,988,986) 896,296 1,082,556
-------------- -------------- ---------- ----------
NET INCREASE
(DECREASE) IN NET
ASSETS (13,748,788) (818,760,298) 1,852,450 1,416,222
NET ASSETS
Beginning of period 2,781,813,600 3,600,573,898 4,087,018 2,670,796
-------------- -------------- ---------- ----------
End of period $2,768,064,812 $2,781,813,600 $5,939,468 $4,087,018
============== ============== ========== ==========
Undistributed net
investment income $489,688 $12,433,503 -- $334
============== ============== ========== ==========
See Notes to Financial Statements.
- ------
37
YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006
Focused Growth Fundamental Equity
2007 2006 2007 2006
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income
(loss) $ 45,727 $ 11,241 $ 1,103,561 $ 61,739
Net realized gain (loss) 1,532,515 307,507 8,179,496 767,310
Change in net unrealized
appreciation
(depreciation) 418,442 871,801 22,198,609 3,015,872
----------- ----------- ------------ -----------
Net increase (decrease)
in net assets resulting
from operations 1,996,684 1,190,549 31,481,666 3,844,921
----------- ----------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment
income:
Investor Class (54,114) (3,627) (24,444) --
Institutional Class -- -- (256) --
A Class -- -- (137,443) --
R Class -- -- (4) --
From net realized gains:
Investor Class (299,286) (89,993) (59,454) (1,402)
Institutional Class -- -- (447) (841)
A Class -- -- (657,564) (84,337)
B Class -- -- (25,167) (13,834)
C Class -- -- (83,263) (19,272)
R Class -- -- (489) (793)
----------- ----------- ------------ -----------
Decrease in net assets
from distributions (353,400) (93,620) (988,531) (120,479)
----------- ----------- ------------ -----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease)
in net assets from
capital share
transactions (3,920,671) 2,564,754 252,655,161 40,641,105
----------- ----------- ------------ -----------
NET INCREASE (DECREASE)
IN NET ASSETS (2,277,387) 3,661,683 283,148,296 44,365,547
NET ASSETS
Beginning of period 15,836,830 12,175,147 47,239,787 2,874,240
----------- ----------- ------------ -----------
End of period $13,559,443 $15,836,830 $330,388,083 $47,239,787
=========== =========== ============ ===========
Undistributed net
investment income $1,393 $11,982 $915,406 $64,169
=========== =========== ============ ===========
See Notes to Financial Statements.
- ------
38
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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), Focused Growth Fund (Focused Growth) and Fundamental
Equity Fund (Fundamental Equity) (collectively, the funds) are four funds in a
series issued by the corporation. Select, Capital Growth and Fundamental
Equity are diversified under the 1940 Act. Focused Growth is nondiversified
and normally limits its investments to a core group of approximately 25-45
common stocks. The funds' investment objective is to seek long-term capital
growth. Income is a secondary objective of Fundamental Equity. Select, Capital
Growth and Focused Growth pursue this objective by purchasing stocks of
larger-sized companies that management believes will increase in value over
time. Fundamental Equity looks for common stocks that management believes are
attractively priced relative to the companies' earnings growth potential and
dividend yields. The following is a summary of the funds' significant
accounting policies.
MULTIPLE CLASS -- The funds are authorized to issue the Investor Class, the
Institutional Class, the A Class (formerly the Advisor Class for Select), the
B Class, the C Class and the R Class. The A Class may incur an initial sales
charge. The A Class, B Class and C Class may be subject to a contingent
deferred sales charge. The share classes differ principally in their
respective sales charges and distribution and shareholder servicing expenses
and arrangements. 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 Focused Growth's Institutional Class, A Class, B Class, C Class and R Class
commenced on September 28, 2007.
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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the funds determine that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
funds to use alternative procedures to value a security such as: a security
has been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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. Certain countries impose taxes on realized gains
on the sale of securities registered in their country. The fund records the
foreign tax expense, if any, on an accrual basis. The realized and unrealized
tax provision reduces the net realized gain (loss) on investment transactions
and net unrealized appreciation (depreciation) on investments, respectively.
- ------
39
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 funds may lend portfolio securities through their
lending agent to certain approved borrowers in order to earn additional
income. The funds continue to recognize any gain or loss in the market price
of the securities loaned and record any interest earned or dividends declared.
EXCHANGE TRADED FUNDS -- The funds may invest in exchange traded funds (ETFs).
ETFs are a type of index fund bought and sold on a securities exchange. An ETF
trades like common stock and represents a fixed portfolio of securities
designed to track the performance and dividend yield of a particular domestic
or foreign market index. A fund may purchase an ETF to temporarily gain
exposure to a portion of the U.S. or a foreign market while awaiting purchase
of underlying securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities they are designed to track, although
the lack of liquidity on an ETF could result in it being more volatile.
Additionally, ETFs have management fees, which increase their cost.
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 American Century Investment Management, Inc. (ACIM) (the
investment advisor) 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 or American
Century Global Investment Management, Inc. (ACGIM), 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.
- ------
40
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. The funds are no longer subject to examination by tax
authorities for years prior to 2004. At this time, management has not
identified any uncertain tax positions that would materially impact the
financial statements. Accordingly, no provision has been made for federal or
state income taxes. Interest and penalties associated with any federal or
state income tax obligations, if any, are recorded as interest expense.
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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the funds. In addition, in the normal
course of business, the funds enter into contracts that provide general
indemnifications. The funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the
funds. The risk of material loss from such claims is considered by management
to be remote.
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
On July 27, 2007, the A Class (formerly Advisor Class, also referred to as "A
Class (new)") shareholders of Select approved a change to the class's fee
structure. The change was approved by the Board of Directors on November 29,
2006 and March 7, 2007. Effective September 4, 2007, the fee structure change
resulted in an increase of 0.25% in the unified management fee and a
simultaneous decrease of 0.25% in the total distribution and service fee,
resulting in no change to the total operating expense ratio of the class.
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 advisor'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 advisor 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 the funds ranges from 0.800% to 1.000% for
the Investor Class, A Class, B Class, C Class and R Class. The Institutional
Class is 0.200% less at each point within the range. Prior to September 4,
2007, the A Class (new) was 0.250% less at each point within the range for
Select. The effective annual management fee for each class of each fund for
the year ended October 31, 2007, was as follows:
Select Capital Growth Focused Growth Fundamental Equity
Investor 1.00% 1.00% 1.00% 1.00%
Institutional 0.80% 0.80% 0.80% 0.80%
A 0.82% 1.00% 1.00% 1.00%
B 1.00% 1.00% 1.00% 1.00%
C 1.00% 1.00% 1.00% 1.00%
R 1.00% 1.00% 1.00% 1.00%
- ------
41
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a separate
Master Distribution and Individual Shareholder Services Plan for each of the A
Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule
12b-1 of the 1940 Act. The plans provide that the A Class will pay American
Century Investment Services, Inc. (ACIS) an annual distribution and service
fee of 0.25%. The plans provide that the B Class and C Class will each pay
ACIS an annual distribution fee of 0.75% and service fee of 0.25%. The plans
provide that the R Class will pay ACIS an annual distribution and service fee
of 0.50%. Prior to September 4, 2007, the Board of Directors had adopted a
Master Distribution and Shareholder Services Plan for the A Class (new) for
Select, pursuant to Rule 12b-1 of the 1940 Act, in which the A Class (new)
paid ACIS an annual distribution fee of 0.25% 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 individual shareholder
services rendered by broker/dealers or other independent financial
intermediaries for A Class, B Class, C Class and R Class shares. Prior to
September 4, 2007, the service fee provided compensation for shareholder and
administrative services rendered by ACIS, its affiliates or independent third
party providers for A Class (new) shares. Fees incurred under the plans during
the year ended October 31, 2007, 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 advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
Beginning in December 2006, the funds are eligible to invest in a money market
fund for temporary purposes, which is managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan Chase
& Co. (JPM). JPM is an equity investor in ACC. The funds have a bank line of
credit agreement and 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, 2007, were as follows:
Capital Focused Fundamental
Select Growth Growth Equity
Purchases $2,069,089,586 $8,806,902 $37,734,934 $375,921,651
Proceeds from
sales $2,768,736,865 $7,998,329 $42,068,941 $127,777,636
- ------
42
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows:
Year ended October 31, 2007 Year ended October 31, 2006
Shares Amount Shares Amount
Select
INVESTOR
CLASS/SHARES
AUTHORIZED 300,000,000 300,000,000
============ ============
Sold 1,250,472 $ 48,790,315 1,651,576 $ 61,030,222
Issued in
reinvestment of
distributions 1,304,522 48,241,214 566,800 22,042,836
Redeemed (17,717,923) (685,347,731) (20,992,994) (771,821,071)
------------ -------------- ------------ --------------
(15,162,929) (588,316,202) (18,774,618) (688,748,013)
------------ -------------- ------------ --------------
INSTITUTIONAL
CLASS/SHARES
AUTHORIZED 40,000,000 40,000,000
============ ============
Sold 353,624 13,609,415 3,570,233 136,803,638
Issued in
reinvestment of
distributions 88,501 3,294,898 47,217 1,849,034
Redeemed (849,574) (32,045,945) (4,853,683) (180,423,638)
------------ -------------- ------------ --------------
(407,449) (15,141,632) (1,236,233) (41,770,966)
------------ -------------- ------------ --------------
A CLASS/SHARES
AUTHORIZED 75,000,000 50,000,000
============ ============
Sold 148,523 5,577,259 279,821 10,298,858
Issued in
connection with
reclassification
(Note 10) 506,351 20,436,277 -- --
Issued in
reinvestment of
distributions 9,421 344,992 3,366 129,641
Redeemed (314,140) (12,073,334) (441,221) (15,986,365)
------------ -------------- ------------ --------------
350,155 14,285,194 (158,034) (5,557,866)
------------ -------------- ------------ --------------
A CLASS
(OLD)/SHARES
AUTHORIZED N/A 25,000,000
============ ============
Sold 37,196 1,415,182 97,074 3,560,583
Issued in
connection with
acquisition (Note 9) -- -- 3,570,242 135,355,199
Issued in
reinvestment of
distributions 12,149 447,803 4,961 192,384
Redeemed in
connection with
reclassification
(Note 10) (506,351) (20,436,277) -- --
Redeemed (330,339) (12,574,066) (3,952,810) (148,882,449)
------------ -------------- ------------ --------------
(787,345) (31,147,358) (280,533) (9,774,283)
------------ -------------- ------------ --------------
B CLASS/SHARES
AUTHORIZED 25,000,000 25,000,000
============ ============
Sold 7,203 268,506 5,936 204,532
Issued in
connection with
acquisition (Note 9) -- -- 155,909 5,800,482
Issued in
reinvestment of
distributions 2,401 86,511 -- --
Redeemed (50,198) (1,890,695) (64,071) (2,234,279)
------------ -------------- ------------ --------------
(40,594) (1,535,678) 97,774 3,770,735
------------ -------------- ------------ --------------
C CLASS/SHARES
AUTHORIZED 25,000,000 25,000,000
============ ============
Sold 714 26,450 9,425 348,877
Issued in
reinvestment of
distributions 426 15,353 -- --
Redeemed (22,109) (823,182) (62,851) (2,257,608)
------------ -------------- ------------ --------------
(20,969) (781,379) (53,426) (1,908,731)
------------ -------------- ------------ --------------
R CLASS/SHARES
AUTHORIZED 50,000,000 50,000,000
============ ============
Sold 54 2,087 -- --
Issued in
reinvestment of
distributions 10 381 4 138
Redeemed (23) (888) -- --
------------ -------------- ------------ --------------
41 1,580 4 138
------------ -------------- ------------ --------------
Net increase
(decrease) (16,069,090) $(622,635,475) (20,405,066) $(743,988,986)
============ ============== ============ ==============
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43
Year ended Year ended
October 31, 2007(1) October 31, 2006
Shares Amount Shares Amount
Capital Growth
INVESTOR CLASS/SHARES
AUTHORIZED 300,000,000 300,000,000
============ ============
Sold 78,738 $1,095,962 4,932 $ 56,817
Issued in reinvestment
of distributions 88 1,045 -- --
Redeemed (5,954) (79,017) -- --
------------ ------------ ------------ -----------
72,872 1,017,990 4,932 56,817
------------ ------------ ------------ -----------
INSTITUTIONAL
CLASS/SHARES AUTHORIZED 50,000,000 50,000,000
============ ============
Issued in reinvestment
of distributions 27 331 -- --
------------ ------------ ------------ -----------
A CLASS/SHARES
AUTHORIZED 100,000,000 100,000,000
============ ============
Sold 123,502 1,513,050 126,608 1,407,752
Issued in reinvestment
of distributions 2,022 23,962 -- --
Redeemed (84,101) (1,089,133) (58,426) (637,593)
------------ ------------ ------------ -----------
41,423 447,879 68,182 770,159
------------ ------------ ------------ -----------
B CLASS/SHARES
AUTHORIZED 100,000,000 100,000,000
============ ============
Sold 27,689 332,104 19,755 217,231
Issued in reinvestment
of distributions 990 11,480 -- --
Redeemed (48,876) (626,062) (10,357) (112,753)
------------ ------------ ------------ -----------
(20,197) (282,478) 9,398 104,478
------------ ------------ ------------ -----------
C CLASS/SHARES
AUTHORIZED 100,000,000 100,000,000
============ ============
Sold 20,884 259,074 14,375 157,223
Issued in reinvestment
of distributions 809 9,388 -- --
Redeemed (43,150) (558,908) (568) (6,121)
------------ ------------ ------------ -----------
(21,457) (290,446) 13,807 151,102
------------ ------------ ------------ -----------
R CLASS/SHARES
AUTHORIZED 60,000,000 60,000,000
============ ============
Sold 195 2,713 -- --
Issued in reinvestment
of distributions 28 331 -- --
Redeemed (2) (24) -- --
------------ ------------ ------------ -----------
221 3,020 -- --
------------ ------------ ------------ -----------
Net increase (decrease) 72,889 $ 896,296 96,319 $1,082,556
============ ============ ============ ===========
Focused Growth
INVESTOR CLASS/SHARES
AUTHORIZED 50,000,000 100,000,000
============ ============
Sold 252,879 $ 2,955,714 976,404 $10,783,672
Issued in reinvestment
of distributions 29,862 339,826 8,062 88,986
Redeemed (633,768) (7,391,198) (755,415) (8,307,904)
------------ ------------ ------------ -----------
(351,027) (4,095,658) 229,051 2,564,754
------------ ------------ ------------ -----------
INSTITUTIONAL
CLASS/SHARES AUTHORIZED 10,000,000 N/A
============ ============
Sold 1,986 25,000
------------ ------------
A CLASS/SHARES
AUTHORIZED 10,000,000 N/A
============ ============
Sold 1,986 25,000
------------ ------------
B CLASS/SHARES
AUTHORIZED 10,000,000 N/A
============ ============
Sold 1,986 25,000
------------ ------------
C CLASS/SHARES
AUTHORIZED 10,000,000 N/A
============ ============
Sold 5,892 74,987
------------ ------------
R CLASS/SHARES
AUTHORIZED 10,000,000 N/A
============ ============
Sold 1,986 25,000
------------ ------------
Net increase (decrease) (337,191) $(3,920,671) 229,051 $ 2,564,754
============ ============ ============ ===========
(1) September 28, 2007 (commencement of sale) through October 31, 2007 for the
Institutional Class, A Class, B Class, C Class and R Class for Focused Growth.
- ------
44
Year ended Year ended
October 31, 2007 October 31, 2006
Shares Amount Shares Amount
Fundamental Equity
INVESTOR CLASS/SHARES
AUTHORIZED 200,000,000 200,000,000
=========== ===========
Sold 3,715,748 $ 53,813,021 298,990 $ 3,668,107
Issued in reinvestment
of distributions 5,867 77,738 123 1,402
Redeemed (581,646) (8,716,197) (3,446) (40,059)
----------- ------------ ----------- -----------
3,139,969 45,174,562 295,667 3,629,450
----------- ------------ ----------- -----------
INSTITUTIONAL
CLASS/SHARES AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 15,790 209,743 -- --
Issued in reinvestment
of distributions 53 703 74 841
----------- ------------ ----------- -----------
15,843 210,446 74 841
----------- ------------ ----------- -----------
A CLASS/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 13,689,196 198,932,845 2,957,105 35,087,633
Issued in reinvestment
of distributions 58,553 776,411 6,893 78,235
Redeemed (915,776) (13,379,165) (208,307) (2,445,261)
----------- ------------ ----------- -----------
12,831,973 186,330,091 2,755,691 32,720,607
----------- ------------ ----------- -----------
B CLASS/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 224,752 3,219,435 111,780 1,311,393
Issued in reinvestment
of distributions 1,357 17,871 1,179 13,357
Redeemed (27,247) (393,576) (38,179) (439,569)
----------- ------------ ----------- -----------
198,862 2,843,730 74,780 885,181
----------- ------------ ----------- -----------
C CLASS/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 1,308,090 18,834,090 342,058 3,979,820
Issued in reinvestment
of distributions 3,892 51,300 1,422 16,128
Redeemed (79,354) (1,139,749) (51,320) (591,715)
----------- ------------ ----------- -----------
1,232,628 17,745,641 292,160 3,404,233
----------- ------------ ----------- -----------
R CLASS/SHARES
AUTHORIZED 60,000,000 60,000,000
=========== ===========
Sold 33,938 472,163 -- --
Issued in reinvestment
of distributions 37 493 70 793
Redeemed (8,262) (121,965) -- --
----------- ------------ ----------- -----------
25,713 350,691 70 793
----------- ------------ ----------- -----------
Net increase (decrease) 17,444,988 $252,655,161 3,418,442 $40,641,105
=========== ============ =========== ===========
5. SECURITIES LENDING
As of October 31, 2007, securities in Select, Capital Growth, Focused Growth
and Fundamental Equity valued at $28,729,999, $140,674, $215,971 and
$7,537,626, respectively, 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 $28,860,696, $139,913, $213,500
and $7,697,731, respectively. The funds' 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 funds may be delayed or limited.
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45
6. BANK LINE OF CREDIT
The funds, along with certain other funds managed by ACIM or ACGIM, have a
$500,000,000 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 0.40%. The funds did not borrow from the line during the year ended
October 31, 2007.
7. RISK FACTORS
There are certain risks involved in investing in foreign securities. These
risks include those resulting from future adverse political, social, and
economic developments, fluctuation in currency exchange rates, the possible
imposition of exchange controls, and other foreign laws or restrictions.
Focused Growth is considered nondiversified which may subject the fund to the
following risks: a price change in one security may have a greater impact that
would be the case if the fund were diversified; the fund's nondiversification
could result in high portfolio turnover which would mean increased transaction
costs, affecting both the fund's performance and capital gains tax liabilities
to investors.
Fundamental Equity's performance may be affected by investments in initial
public offerings (IPOs). The impact of IPOs on a fund's performance depends on
the strength of the IPO market and the size of the fund. IPOs may have less
impact on a fund's performance as its assets grow.
8. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years ended October 31,
2007 and October 31, 2006 were as follows:
Select Capital Growth
2007 2006 2007 2006
DISTRIBUTIONS PAID FROM
Ordinary income $12,020,013 $25,309,867 -- --
Long-term capital gains $42,887,024 -- $51,258 --
Focused Growth Fundamental Equity
2007 2006 2007 2006
DISTRIBUTIONS PAID FROM
Ordinary income $353,400 $93,620 $969,242 $120,479
Long-term capital gains -- -- $19,289 --
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
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46
As of October 31, 2007, the components of distributable earnings on a
tax-basis and the federal tax cost of investments were as follows:
Capital Focused Fundamental
Select Growth Growth Equity
Federal tax cost of
investments $2,156,427,314 $5,099,481 $12,012,958 $312,554,487
============== ========== =========== ============
Gross tax appreciation
of investments $660,609,638 $996,459 $1,688,233 $32,029,323
Gross tax depreciation
of investments (10,731,194) (45,253) (90,698) (6,873,414)
-------------- ---------- ----------- ------------
Net tax appreciation
(depreciation) of
investments $649,878,444 $951,206 $1,597,535 $25,155,909
============== ========== =========== ============
Net tax appreciation
(depreciation) on
derivatives and
translation of assets
and liabilities in
foreign currencies $(132,739) $(160) $(917) $(16,131)
-------------- ---------- ----------- ------------
Net tax appreciation
(depreciation) $649,745,705 $951,046 $1,596,618 $25,139,778
============== ========== =========== ============
Undistributed ordinary
income $79,551,076 $164,952 $1,173,436 $8,571,119
Accumulated long-term
gains $118,735,721 $313,161 $364,484 $661,600
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.
9. 2006 REORGANIZATION PLAN
On December 14, 2005, the Board of Directors of Mason Street Growth Stock Fund
(Growth Stock), one fund in a series issued by Mason Street Funds, Inc.,
approved a plan of reorganization (the 2006 reorganization) pursuant to which
Select acquired all of the assets of Growth Stock in exchange for shares of
equal value of Select and the assumption by Select of all liabilities of
Growth Stock. The financial statements and performance history of Select will
be carried over in the post-reorganization. The 2006 reorganization was
approved by shareholders on March 23, 2006. The 2006 reorganization was
effective at the close of business on March 31, 2006. New shares in connection
with the 2006 reorganization were issued by Select on April 3, 2006.
The acquisition was accomplished by a tax-free exchange of shares. On April 3,
2006, Growth Stock exchanged its shares for shares of Select as follows:
Original Fund/Class Shares Exchanged New Fund/Class Shares Received
Growth Stock Fund -- A 9,879,722 Select -- A Class 3,564,222
Growth Stock Fund -- C 17,465 Select -- A Class 6,020
Growth Stock Fund -- B 443,869 Select -- B Class 155,909
The net assets of Growth Stock and Select immediately before the acquisition
were $141,155,681 and $3,336,122,073, respectively. Growth Stock's unrealized
appreciation of $26,507,502 was combined with that of Select. Immediately
after the acquisition, the combined net assets were $3,477,277,754.
- ------
47
10. CORPORATE EVENT
On July 27, 2007, the A Class (old) shareholders of Select approved a
reclassification of A Class (old) shares into Advisor Class shares. The change
was approved by the Board of Directors on November 29, 2006 and March 7, 2007.
The reclassification was effective on September 4, 2007. Subsequent to the
reclassification, the Advisor Class was renamed A Class.
11. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
12. OTHER TAX INFORMATION (UNAUDITED)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
The funds hereby designate up to the maximum amount allowable as qualified
dividend income for the fiscal year ended October 31, 2007.
For corporate taxpayers, the ordinary income distributions paid by the funds
during the fiscal year ended October 31, 2007, qualify for the corporate
dividends received deduction as follows:
Select Capital Growth Focused Growth Fundamental Equity
$12,020,013 -- $135,602 $303,450
The funds hereby designate capital gain distributions for the fiscal year
ended October 31, 2007, as follows:
Select Capital Growth Focused Growth Fundamental Equity
$42,887,024 $51,258 -- $19,289
The funds hereby designate qualified short-term capital gains distributions
for purposes of Internal Revenue Code Section 871 for the fiscal year ended
October 31, 2007, as follows:
Select Capital Growth Focused Growth Fundamental Equity
$46,872 -- $299,286 $807,095
- ------
48
FINANCIAL HIGHLIGHTS
Select
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning
of Period $36.22 $37.04 $34.80 $33.77 $28.91
-------- -------- -------- -------- --------
Income From
Investment Operations
Net Investment
Income (Loss)(1) 0.04 0.21 0.15 --(2) 0.01
Net Realized and
Unrealized Gain
(Loss) 10.06 (0.77) 2.17 1.03 4.92
-------- -------- -------- -------- --------
Total From
Investment Operations 10.10 (0.56) 2.32 1.03 4.93
-------- -------- -------- -------- --------
Distributions
From Net
Investment Income (0.16) (0.26) (0.08) -- (0.07)
From Net
Realized Gains (0.58) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (0.74) (0.26) (0.08) -- (0.07)
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $45.58 $36.22 $37.04 $34.80 $33.77
======== ======== ======== ======== ========
TOTAL RETURN(3) 28.37% (1.55)% 6.67% 3.05% 17.11%
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 0.11% 0.57% 0.42% (0.01)% 0.03%
Portfolio Turnover Rate 79% 206% 55% 48% 84%
Net Assets, End of Period
(in millions) $2,550 $2,576 $3,329 $3,565 $3,828
(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.
- ------
49
Select
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning
of Period $36.53 $37.35 $35.09 $33.99 $29.10
-------- -------- -------- -------- --------
Income From
Investment Operations
Net Investment
Income (Loss)(1) 0.12 0.30 0.24 0.07 0.07
Net Realized and
Unrealized Gain (Loss) 10.15 (0.78) 2.18 1.03 4.95
-------- -------- -------- -------- --------
Total From
Investment Operations 10.27 (0.48) 2.42 1.10 5.02
-------- -------- -------- -------- --------
Distributions
From Net
Investment Income (0.24) (0.34) (0.16) -- (0.13)
From Net
Realized Gains (0.58) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (0.82) (0.34) (0.16) -- (0.13)
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $45.98 $36.53 $37.35 $35.09 $33.99
======== ======== ======== ======== ========
TOTAL RETURN(2) 28.63% (1.35)% 6.87% 3.24% 17.34%
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 0.31% 0.77% 0.62% 0.19% 0.23%
Portfolio Turnover Rate 79% 206% 55% 48% 84%
Net Assets, End of Period
(in thousands) $168,441 $148,717 $198,212 $234,815 $229,596
(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.
- ------
50
Select
A Class(1)
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $35.80 $36.63 $34.43 $33.49 $28.66
-------- -------- -------- -------- --------
Income From
Investment Operations
Net Investment
Income (Loss)(2) (0.09) 0.12 0.04 (0.09) (0.07)
Net Realized and
Unrealized Gain (Loss) 9.99 (0.76) 2.16 1.03 4.90
-------- -------- -------- -------- --------
Total From
Investment Operations 9.90 (0.64) 2.20 0.94 4.83
-------- -------- -------- -------- --------
Distributions
From Net
Investment Income (0.07) (0.19) -- -- --(3)
From Net Realized Gains (0.58) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (0.65) (0.19) -- -- --(3)
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $45.05 $35.80 $36.63 $34.43 $33.49
======== ======== ======== ======== ========
TOTAL RETURN(4) 28.07% (1.79)% 6.39% 2.81% 16.86%
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
Income (Loss) to Average
Net Assets (0.14)% 0.32% 0.17% (0.26)% (0.22)%
Portfolio Turnover Rate 79% 206% 55% 48% 84%
Net Assets, End of Period
(in thousands) $42,770 $21,455 $27,741 $22,626 $29,152
(1) Prior to September 4, 2007, the A Class was referred to as the Advisor
Class.
(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.
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.
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51
Select
B Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005 2004 2003(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $35.21 $36.12 $34.21 $33.53 $27.75
-------- -------- -------- -------- --------
Income From
Investment Operations
Net Investment
Income (Loss)(2) (0.34) (0.12) (0.22) (0.35) (0.31)
Net Realized and
Unrealized Gain
(Loss) 9.74 (0.79) 2.13 1.03 6.09
-------- -------- -------- -------- --------
Total From
Investment Operations 9.40 (0.91) 1.91 0.68 5.78
-------- -------- -------- -------- --------
Distributions
From Net
Realized Gains (0.58) -- -- -- --
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $44.03 $35.21 $36.12 $34.21 $33.53
======== ======== ======== ======== ========
TOTAL RETURN(3) 27.07% (2.52)% 5.58% 2.03% 20.83%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average Net
Assets 2.00% 2.00% 2.00% 2.00% 2.00%(4)
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.89)% (0.43)% (0.58)% (1.01)% (1.28)%(4)
Portfolio Turnover Rate 79% 206% 55% 48% 84%(5)
Net Assets, End of Period
(in thousands) $5,567 $5,880 $2,501 $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.
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52
Select
C Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005 2004 2003(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $35.24 $36.15 $34.23 $33.56 $27.75
-------- -------- -------- -------- --------
Income From
Investment Operations
Net Investment
Income (Loss)(2) (0.34) (0.16) (0.22) (0.36) (0.31)
Net Realized and
Unrealized Gain
(Loss) 9.75 (0.75) 2.14 1.03 6.12
-------- -------- -------- -------- --------
Total From
Investment Operations 9.41 (0.91) 1.92 0.67 5.81
-------- -------- -------- -------- --------
Distributions
From Net
Realized Gains (0.58) -- -- -- --
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $44.07 $35.24 $36.15 $34.23 $33.56
======== ======== ======== ======== ========
TOTAL RETURN(3) 27.07% (2.52)% 5.58% 2.03% 20.94%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average Net
Assets 2.00% 2.00% 2.00% 2.00% 2.00%(4)
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.89)% (0.43)% (0.58)% (1.01)% (1.28)%(4)
Portfolio Turnover Rate 79% 206% 55% 48% 84%(5)
Net Assets, End of Period
(in thousands) $1,001 $1,540 $3,511 $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.
- --------
53
Select
R Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $36.05 $37.00 $38.34
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.15) 0.03 (0.05)
Net Realized and Unrealized Gain (Loss) 10.01 (0.77) (1.29)
-------- -------- --------
Total From Investment Operations 9.86 (0.74) (1.34)
-------- -------- --------
Distributions
From Net Investment Income -- (0.21) --
From Net Realized Gains (0.58) -- --
-------- -------- --------
Total Distributions (0.58) (0.21) --
-------- -------- --------
Net Asset Value, End of Period $45.33 $36.05 $37.00
======== ======== ========
TOTAL RETURN(3) 27.72% (2.04)% (3.50)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average
Net Assets 1.50% 1.50% 1.50%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.39)% 0.07% (0.50)%(4)
Portfolio Turnover Rate 79% 206% 55%(5)
Net Assets, End of Period (in thousands) $32 $24 $24
(1) July 29, 2005 (commencement of sale) through October 31, 2005.
(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, 2005.
See Notes to Financial Statements.
- ------
54
Capital Growth
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $11.81 $10.60 $10.80
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) --(3) --(3) --(3)
Net Realized and Unrealized Gain (Loss) 2.54 1.21 (0.20)
-------- -------- --------
Total From Investment Operations 2.54 1.21 (0.20)
-------- -------- --------
Distributions
From Net Realized Gains (0.14) -- --
-------- -------- --------
Net Asset Value, End of Period $14.21 $11.81 $10.60
======== ======== ========
TOTAL RETURN(4) 21.77% 11.42% (1.85)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.01% 1.00% 1.00%(5)
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.15% 0.05% (0.12)%(5)
Portfolio Turnover Rate 160% 140% 110%(6)
Net Assets, End of Period (in thousands) $1,139 $86 $25
(1) July 29, 2005 (commencement of sale) through October 31, 2005.
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2005.
See Notes to Financial Statements.
- ------
55
Capital Growth
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $11.84 $10.61 $10.80
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) 0.04 0.03 --(3)
Net Realized and Unrealized Gain (Loss) 2.54 1.20 (0.19)
-------- -------- --------
Total From Investment Operations 2.58 1.23 (0.19)
-------- -------- --------
Distributions
From Net Realized Gains (0.14) -- --
-------- -------- --------
Net Asset Value, End of Period $14.28 $11.84 $10.61
======== ======== ========
TOTAL RETURN(4) 22.06% 11.59% (1.76)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 0.81% 0.80% 0.80%(5)
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.35% 0.25% 0.08%(5)
Portfolio Turnover Rate 160% 140% 110%(6)
Net Assets, End of Period (in thousands) $33 $27 $25
(1) July 29, 2005 (commencement of sale) through October 31, 2005.
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2005.
See Notes to Financial Statements.
- ------
56
Capital Growth
A Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005 2004(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $11.78 $10.59 $9.89 $10.00
-------- -------- -------- --------
Income From
Investment Operations
Net Investment Income (Loss)(2) (0.01) (0.02) --(3) (0.03)
Net Realized and
Unrealized Gain (Loss) 2.50 1.21 0.70 (0.08)
-------- -------- -------- --------
Total From
Investment Operations 2.49 1.19 0.70 (0.11)
-------- -------- -------- --------
Distributions
From Net Realized Gains (0.14) -- -- --
-------- -------- -------- --------
Net Asset Value, End of Period $14.13 $11.78 $10.59 $9.89
======== ======== ======== ========
TOTAL RETURN(4) 21.40% 11.24% 7.08% (1.10)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.26% 1.25% 1.27% 1.25%(5)
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.10)% (0.20)% (0.03)% (0.43)%(5)
Portfolio Turnover Rate 160% 140% 110% 87%
Net Assets, End of Period
(in thousands) $3,171 $2,155 $1,216 $692
(1) February 27, 2004 (fund inception) through October 31, 2004.
(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 values to two decimal
places. If net asset values were calculated to three decimal places, the total
return differences would more closely reflect the class expense differences.
The calculation of net asset values to two decimal places is made in
accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(5) Annualized.
See Notes to Financial Statements.
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57
Capital Growth
B Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006 2005 2004(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $11.54 $10.46 $9.84 $10.00
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.10) (0.10) (0.08) (0.08)
Net Realized and
Unrealized Gain (Loss) 2.44 1.18 0.70 (0.08)
-------- -------- -------- --------
Total From
Investment Operations 2.34 1.08 0.62 (0.16)
-------- -------- -------- --------
Distributions
From Net Realized Gains (0.14) -- -- --
-------- -------- -------- --------
Net Asset Value, End of Period $13.74 $11.54 $10.46 $9.84
======== ======== ======== ========
TOTAL RETURN(3) 20.54% 10.33% 6.30% (1.60)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 2.01% 2.00% 2.02% 2.00%(4)
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.85)% (0.95)% (0.78)% (1.17)%(4)
Portfolio Turnover Rate 160% 140% 110% 87%
Net Assets, End of Period
(in thousands) $865 $960 $772 $450
(1) February 27, 2004 (fund inception) 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.
- ------
58
Capital Growth
C Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005 2004(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $11.54 $10.46 $9.84 $10.00
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.10) (0.10) (0.08) (0.08)
Net Realized and
Unrealized Gain (Loss) 2.44 1.18 0.70 (0.08)
-------- -------- -------- --------
Total From
Investment Operations 2.34 1.08 0.62 (0.16)
-------- -------- -------- --------
Distributions
From Net Realized Gains (0.14) -- -- --
-------- -------- -------- --------
Net Asset Value, End of Period $13.74 $11.54 $10.46 $9.84
======== ======== ======== ========
TOTAL RETURN(3) 20.54% 10.33% 6.30% (1.60)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 2.01% 2.00% 2.02% 2.00%(4)
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.85)% (0.95)% (0.78)% (1.18)%(4)
Portfolio Turnover Rate 160% 140% 110% 87%
Net Assets, End of Period
(in thousands) $695 $832 $609 $343
(1) February 27, 2004 (fund inception) 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.
- ------
59
Capital Growth
R Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $11.74 $10.59 $10.80
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.04) (0.05) (0.02)
Net Realized and Unrealized Gain (Loss) 2.49 1.20 (0.19)
-------- -------- --------
Total From Investment Operations 2.45 1.15 (0.21)
-------- -------- --------
Distributions
From Net Realized Gains (0.14) -- --
-------- -------- --------
Net Asset Value, End of Period $14.05 $11.74 $10.59
======== ======== ========
TOTAL RETURN(3) 21.13% 10.86% (1.94)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.51% 1.50% 1.50%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.35)% (0.45)% (0.62)%(4)
Portfolio Turnover Rate 160% 140% 110%(5)
Net Assets, End of Period (in thousands) $36 $27 $25
(1) July 29, 2005 (commencement of sale) through October 31, 2005.
(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, 2005.
See Notes to Financial Statements.
- ------
60
Focused Growth
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $11.42 $10.53 $10.00
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) 0.04 0.01 --(3)
Net Realized and Unrealized Gain (Loss) 1.73 0.95 0.53
-------- -------- --------
Total From Investment Operations 1.77 0.96 0.53
-------- -------- --------
Distributions
From Net Investment Income (0.04) --(3) --
From Net Realized Gains (0.23) (0.07) --
-------- -------- --------
Total Distributions (0.27) (0.07) --
-------- -------- --------
Net Asset Value, End of Period $12.92 $11.42 $10.53
======== ======== ========
TOTAL RETURN(4) 15.78% 9.13% 5.30%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.00% 1.00% 1.00%(5)
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.33% 0.07% 0.00%(5)
Portfolio Turnover Rate 275% 313% 95%
Net Assets, End of Period (in thousands) $13,381 $15,837 $12,175
(1) February 28, 2005 (fund inception) through October 31, 2005.
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
See Notes to Financial Statements.
- ------
61
Focused Growth
Institutional Class
For a Share Outstanding Throughout the Period Indicated
2007(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.59
--------
Income From Investment Operations
Net Investment Income (Loss)(2) --(3)
Net Realized and Unrealized Gain (Loss) 0.34
--------
Total From Investment Operations 0.34
--------
Net Asset Value, End of Period $12.93
========
TOTAL RETURN(4) 2.70%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 0.80%(5)
Ratio of Net Investment Income (Loss) to Average Net Assets (0.40)%(5)
Portfolio Turnover Rate 275%(6)
Net Assets, End of Period (in thousands) $26
(1) September 28, 2007 (commencement of sale) through October 31, 2007.
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 2007.
See Notes to Financial Statements.
- ------
62
Focused Growth
A Class
For a Share Outstanding Throughout the Period Indicated
2007(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.59
--------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.01)
Net Realized and Unrealized Gain (Loss) 0.34
--------
Total From Investment Operations 0.33
--------
Net Asset Value, End of Period $12.92
========
TOTAL RETURN(3) 2.62%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.25%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets (0.85)%(4)
Portfolio Turnover Rate 275%(5)
Net Assets, End of Period (in thousands) $26
(1) September 28, 2007 (commencement of sale) through October 31, 2007.
(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, 2007.
See Notes to Financial Statements.
- ------
63
Focused Growth
B Class
For a Share Outstanding Throughout the Period Indicated
2007(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.59
--------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.02)
Net Realized and Unrealized Gain (Loss) 0.34
--------
Total From Investment Operations 0.32
--------
Net Asset Value, End of Period $12.91
========
TOTAL RETURN(3) 2.54%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 2.00%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets (1.60)%(4)
Portfolio Turnover Rate 275%(5)
Net Assets, End of Period (in thousands) $26
(1) September 28, 2007 (commencement of sale) through October 31, 2007.
(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, 2007.
See Notes to Financial Statements.
- ------
64
Focused Growth
C Class
For a Share Outstanding Throughout the Period Indicated
2007(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.59
--------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.02)
Net Realized and Unrealized Gain (Loss) 0.34
--------
Total From Investment Operations 0.32
--------
Net Asset Value, End of Period $12.91
========
TOTAL RETURN(3) 2.54%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 2.00%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets (1.52)%(4)
Portfolio Turnover Rate 275%(5)
Net Assets, End of Period (in thousands) $76
(1) September 28, 2007 (commencement of sale) through October 31, 2007.
(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, 2007.
See Notes to Financial Statements.
- ------
65
Focused Growth
R Class
For a Share Outstanding Throughout the Period Indicated
2007(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.59
--------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.01)
Net Realized and Unrealized Gain (Loss) 0.34
--------
Total From Investment Operations 0.33
--------
Net Asset Value, End of Period $12.92
========
TOTAL RETURN(3) 2.62%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.50%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets (1.10)%(4)
Portfolio Turnover Rate 275%(5)
Net Assets, End of Period (in thousands) $26
(1) September 28, 2007 (commencement of sale) through October 31, 2007.
(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, 2007.
See Notes to Financial Statements.
- ------
66
Fundamental Equity
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.88 $11.04 $10.88
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) 0.14 0.08 0.02
Net Realized and Unrealized Gain (Loss) 2.93 2.12 0.14
-------- -------- --------
Total From Investment Operations 3.07 2.20 0.16
-------- -------- --------
Distributions
From Net Investment Income (0.08) -- --
From Net Realized Gains (0.19) (0.36) --
-------- -------- --------
Total Distributions (0.27) (0.36) --
-------- -------- --------
Net Asset Value, End of Period $15.68 $12.88 $11.04
======== ======== ========
TOTAL RETURN(3) 24.18% 20.37% 1.47%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.00% 1.00% 1.00%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.99% 0.74% 0.59%(4)
Portfolio Turnover Rate 82% 174% 101%(5)
Net Assets, End of Period (in thousands) $53,908 $3,836 $25
(1) July 29, 2005 (commencement of sale) through October 31, 2005.
(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 period November 30, 2004 (fund inception) through
October 31, 2005.
See Notes to Financial Statements.
- ------
67
Fundamental Equity
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.90 $11.05 $10.88
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) 0.19 0.12 0.02
Net Realized and Unrealized Gain (Loss) 2.91 2.10 0.15
-------- -------- --------
Total From Investment Operations 3.10 2.22 0.17
-------- -------- --------
Distributions
From Net Investment Income (0.11) -- --
From Net Realized Gains (0.19) (0.37) --
-------- -------- --------
Total Distributions (0.30) (0.37) --
-------- -------- --------
Net Asset Value, End of Period $15.70 $12.90 $11.05
======== ======== ========
TOTAL RETURN(3) 24.43% 20.51% 1.56%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 0.80% 0.80% 0.80%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets 1.19% 0.94% 0.79%(4)
Portfolio Turnover Rate 82% 174% 101%(5)
Net Assets, End of Period (in thousands) $286 $31 $25
(1) July 29, 2005 (commencement of sale) through October 31, 2005.
(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 period November 30, 2004 (fund inception) through
October 31, 2005.
See Notes to Financial Statements.
- ------
68
Fundamental Equity
A Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.85 $11.03 $10.00
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) 0.11 0.06 0.02
Net Realized and Unrealized Gain (Loss) 2.92 2.11 1.01
-------- -------- --------
Total From Investment Operations 3.03 2.17 1.03
-------- -------- --------
Distributions
From Net Investment Income (0.04) -- --
From Net Realized Gains (0.19) (0.35) --
-------- -------- --------
Total Distributions (0.23) (0.35) --
-------- -------- --------
Net Asset Value, End of Period $15.65 $12.85 $11.03
======== ======== ========
TOTAL RETURN(3) 23.88% 20.12% 10.30%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.25% 1.25% 1.28%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.74% 0.49% 0.17%(4)
Portfolio Turnover Rate 82% 174% 101%
Net Assets, End of Period (in thousands) $246,322 $37,314 $1,636
(1) November 30, 2004 (fund inception) through October 31, 2005.
(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.
- ------
69
Fundamental Equity
B Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.74 $10.96 $10.00
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) 0.01 (0.02) (0.06)
Net Realized and Unrealized Gain (Loss) 2.89 2.07 1.02
-------- -------- --------
Total From Investment Operations 2.90 2.05 0.96
-------- -------- --------
Distributions
From Net Realized Gains (0.19) (0.27) --
-------- -------- --------
Net Asset Value, End of Period $15.45 $12.74 $10.96
======== ======== ========
TOTAL RETURN(3) 23.01% 19.04% 9.60%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 2.00% 2.00% 2.03%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.01)% (0.26)% (0.58)%(4)
Portfolio Turnover Rate 82% 174% 101%
Net Assets, End of Period (in thousands) $4,889 $1,498 $469
(1) November 30, 2004 (fund inception) through October 31, 2005.
(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.
- ------
70
Fundamental Equity
C Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.75 $10.96 $10.00
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) --(3) (0.03) (0.06)
Net Realized and Unrealized Gain (Loss) 2.90 2.09 1.02
-------- -------- --------
Total From Investment Operations 2.90 2.06 0.96
-------- -------- --------
Distributions
From Net Realized Gains (0.19) (0.27) --
-------- -------- --------
Net Asset Value, End of Period $15.46 $12.75 $10.96
======== ======== ========
TOTAL RETURN(4) 22.99% 19.13% 9.60%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 2.00% 2.00% 2.03%(5)
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.01)% (0.26)% (0.58)%(5)
Portfolio Turnover Rate 82% 174% 101%
Net Assets, End of Period (in thousands) $24,544 $4,530 $693
(1) November 30, 2004 (fund inception) through October 31, 2005.
(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 values to two decimal
places. If net asset values were calculated to three decimal places, the total
return differences would more closely reflect the class expense differences.
The calculation of net asset values to two decimal places is made in
accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(5) Annualized.
See Notes to Financial Statements.
- ------
71
Fundamental Equity
R Class
For a Share Outstanding Throughout the Years Ended October 31
(except as noted)
2007 2006 2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.81 $11.03 $10.88
-------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) 0.09 0.04 --(3)
Net Realized and Unrealized Gain (Loss) 2.90 2.08 0.15
-------- -------- --------
Total From Investment Operations 2.99 2.12 0.15
-------- -------- --------
Distributions
From Net Investment Income --(3) -- --
From Net Realized Gains (0.19) (0.34) --
-------- -------- --------
Total Distributions (0.19) (0.34) --
-------- -------- --------
Net Asset Value, End of Period $15.61 $12.81 $11.03
======== ======== ========
TOTAL RETURN(4) 23.60% 19.67% 1.38%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.50% 1.50% 1.50%(5)
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.49% 0.24% 0.09%(5)
Portfolio Turnover Rate 82% 174% 101%(6)
Net Assets, End of Period (in thousands) $438 $30 $25
(1) July 29, 2005 (commencement of sale) through October 31, 2005.
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the period November 30, 2004 (fund inception) through
October 31, 2005.
See Notes to Financial Statements.
- ------
72
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,
Focused Growth Fund, and Fundamental Equity Fund (the "Funds"), four of the
mutual funds comprising American Century Mutual Funds, Inc., as of October 31,
2007, 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. The Funds are not required to have, nor were we engaged to
perform, an audit of their internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities owned as of
October 31, 2007, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing
procedures. 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 each
of the respective Funds as of October 31, 2007, 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 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 12, 2007
- ------
73
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007, to vote on the
following proposals. The proposals received the required number of votes of
the American Century Mutual Funds, Inc. or the applicable fund, depending on
the proposal, and were adopted. A summary of voting results is listed below
each proposal.
PROPOSAL 1:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
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PROPOSAL 2:
To approve a change in the fee structure of the Advisor Class of Select. This
proposal was voted on by the Advisor Class shareholders of Select.
Select
For: 14,575,403
Against: 0
Abstain: 19,541
Broker Non-Vote: 317,409
PROPOSAL 3:
To approve the reclassification of the A Class shares of Select, whereby all
of the A Class shares will be reclassified as Advisor Class shares of that
fund. This proposal was voted on by the A Class shareholders of Select.
Select
For: 12,286,834
Against: 379,916
Abstain: 640,324
Broker Non-Vote: 7,970,350
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MANAGEMENT
The individuals listed below serve as directors or officers of the funds. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue
of their engagement as directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, subsidiaries, including the funds' investment advisor, American
Century Investment Management, Inc. (ACIM); the funds' principal underwriter,
American Century Investment Services, Inc. (ACIS); and the funds' transfer
agent, American Century Services, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the funds also serve in similar capacities
for the other 14 investment companies in the American Century family of funds
advised by ACIM or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the funds. The listed officers are
interested persons of the funds and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUNDS: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUNDS: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUNDS: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUNDS: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUNDS: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUNDS: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUNDS: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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77
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUNDS: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUNDS: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUNDS: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUNDS: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the funds' directors and is available
without charge, upon request, by calling 1-800-345-2021.
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78
APPROVAL OF MANAGEMENT AGREEMENTS
Select, Capital Growth, Focused Growth, and Fundamental Equity
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning Select, Capital Growth, Focused Growth and
Fundamental Equity (the "funds") and the services provided to the funds under
the management agreements. The information considered and the discussions held
at the meetings included, but were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the funds under the management
agreements;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the funds and their shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the funds to the cost of owning similar
funds;
* data comparing the funds' performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the funds to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the funds' board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreements, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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79
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreements under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreements, the advisor is responsible for providing or arranging for all
services necessary for the operation of the funds. The board noted that under
the management agreements, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the funds' portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the funds in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
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80
At each quarterly meeting the Directors review investment performance
information for the funds, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the
funds. The Directors also review detailed performance information during the
15(c) Process comparing the funds' performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. Select's and Focused Growth's performance fell below the median
for both the one- and three-year periods during part of the past year. The
board discussed Select's and Focused Growth's performance with the advisor and
was satisfied with the efforts being undertaken by the advisor. Capital
Growth's and Fundamental Equity's performance for both the one- and three-year
periods was above the median for their peer groups.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the funds, its profitability in managing the funds, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreements, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the funds specifically, the expenses incurred by the advisor
in providing various functions to the funds, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is
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81
appropriately sharing economies of scale through its competitive fee
structure, fee breakpoints as the funds increase in size, and through
reinvestment in its business to provide shareholders additional content and
services.
COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the funds, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
funds' independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the funds and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the funds' unified fee to the total
expense ratio of other funds in the funds' peer group. The unified fee charged
to shareholders of the funds was below the median of the total expense ratios
of their peer groups.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the funds. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the funds. The
Directors analyzed this information and concluded that the fees charged and
services provided to the funds were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the funds. They concluded that the advisor's primary
business is managing mutual funds and it generally does not use the fund or
shareholder information to generate profits in other lines of business, and
therefore does not derive any significant collateral benefits from them. The
Directors noted that the advisor receives proprietary research from
broker-dealers that execute fund portfolio transactions and concluded that
this research is likely to benefit fund shareholders. The Directors also
determined that the advisor is able to provide investment management services
to certain clients other than the funds, at least in part, due to its existing
infrastructure built to serve the fund complex. The Directors concluded,
however, that the assets of those other clients are not material to the
analysis and, in any event, are included with the assets of the funds to
determine breakpoints in the funds' fee schedule, provided they are managed
using the same investment team and strategy.
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CONCLUSIONS OF THE DIRECTORS
The independent directors negotiated changes to the breakpoint schedule used
to calculate the management fees of the funds. These changes were proposed by
the Directors based on their review of the competitive changes in the mutual
fund marketplace and their review of financial information provided by the
advisor. The new schedule, effective August 1, 2007, contains lower management
fees at certain asset levels than under the existing structure. Following
these negotiations with the advisor, the independent directors concluded that
the investment management agreement between each fund and its advisor is fair
and reasonable in light of the services provided and should be renewed.
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83
SHARE CLASS INFORMATION
Six classes of shares are authorized for sale by the funds: Investor Class,
Institutional Class, A Class, B Class, C Class and R Class. The total expense
ratio of Institutional Class shares is lower than that of Investor Class
shares. The total expense ratios of A Class, B Class, C Class 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; and/or 2) through
certain financial intermediaries (such as banks, broker-dealers, insurance
companies and investment advisors), which may require payment of a transaction
fee to the financial intermediary. The funds' prospectuses contain additional
information regarding eligibility for Investor Class shares.
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 unified
management fee of Institutional Class shares is 0.20% less than the unified
management fee of Investor Class shares.
A CLASS shares are sold primarily through employer sponsored retirement plans
and 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. The unified management fee for A Class shares is
the same as for Investor Class shares. A Class shares also are subject to a
0.25% annual Rule 12b-1 distribution and service fee.
B CLASS shares are sold primarily through employer sponsored retirement plans
and through institutions such as 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% after the sixth year. There is no CDSC on shares acquired
through reinvestment of dividends or capital gains. The unified management fee
for B Class shares is the same as for Investor Class shares. B Class shares
also are subject to a 1.00% annual Rule 12b-1 distribution and service 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
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 CDSC of 1.00%. There is no CDSC on shares acquired through
reinvestment of dividends or capital gains. The unified management fee for C
Class shares is the same as for Investor Class shares. C Class shares also are
subject to a Rule 12b-1 distribution and service fee of 1.00%.
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R CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as investment advisors, banks, broker-dealers,
and insurance companies. The unified management fee for R Class shares is the
same as for Investor Class shares. R Class shares are subject to a 0.50%
annual Rule 12b-1 distribution and service fee.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
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85
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 advisor,
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 advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The 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
website at sec.gov, and may be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330. The funds also make
their complete schedule of portfolio holdings for the most recent quarter of
their fiscal year available on their website at americancentury.com and, upon
request, by calling 1-800-345-2021.
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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 Focused Growth. It combines
two widely known indices, the S&P 500 Index and the Russell 1000 Growth Index,
which are both weighted at 50%.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
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 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 MIDCAP® VALUE 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 lower price-to-book
ratios and lower forecasted growth values.
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.
- ------
87
NOTES
- ------
88
[back cover]
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0712
SH-ANN-57606S
[front cover]
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter]
Heritage Fund
New Opportunities II Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century® Heritage and
New Opportunities II funds for the 12 months ended October 31, 2007. I am
honored to be addressing you in the "Our Message" space long devoted to
company founder Jim Stowers, Jr. and his son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . 2
HERITAGE
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . 6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 7
NEW OPPORTUNITIES II
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 . . . . . . . . . . . . . . . . . 20
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 22
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 23
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 24
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 31
Report of Independent Registered Public Accounting Firm. . . 43
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 44
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Approval of Management Agreements for Heritage
and New Opportunities II. . . . . . . . . . . . . . . . . . . . . . 49
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 53
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 55
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 56
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Steve Lurito, Chief Investment Officer, U.S. Growth Equity
STOCK RETURNS, VOLATILITY UP
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007. Stocks rallied for much of the first half of the fiscal year, touching
record highs in July, as the worldwide economic expansion drove strong
corporate earnings. But the sub-prime mortgage crisis blossomed in late July
and early August in the form of massive losses for banks, residential lenders,
and firms that securitized these subprime loans. This crisis caused a sharp
tightening of lending standards, removing the easy credit that propelled
strong consumer spending and funded a record amount of leveraged buyouts. As a
result, the U.S. stock market came under pressure late in the fiscal year.
By October, stock market volatility surged and credit markets seized up. To
relieve the pressure, the Federal Reserve (the Fed) lowered its benchmark
federal funds rate target in September and again in October -- the Fed's first
rate cuts since June 2003. Markets rallied briefly at fiscal year-end, though
there were concerns heading into November about the future course of corporate
earnings.
GROWTH SHARES LED
Growth stocks led the market during the 12 months, outpacing value-oriented
shares across all market capitalizations. That's because the deceleration in
corporate earnings cast a brighter spotlight on the relative earnings power of
growth companies, providing a favorable context for our growth portfolios and
growth stocks in general. We took advantage of this favorable backdrop,
enjoying a solid year of outperformance.
Looking at returns by sector, energy and materials performed best, supported
by booming global demand for commodities. In contrast, the aforementioned
credit crisis weakened consumer discretionary and financial shares -- the only
two segments of the S&P 500 Index to decline during the period.
We expect a continued favorable environment for growth-stock investing:
interest rates are low, global growth continues to provide new markets for
goods and services, and inflation remains contained.
U.S. Stock Index Returns
For the 12 months ended October 31, 2007
RUSSELL 1000 INDEX (LARGE-CAP) 15.03%
Russell 1000 Growth Index 19.23%
Russell 1000 Value Index 10.83%
RUSSELL MIDCAP INDEX 15.24%
Russell Midcap Growth Index 19.72%
Russell Midcap Value Index 9.73%
RUSSELL 2000 INDEX (SMALL-CAP) 9.27%
Russell 2000 Growth Index 16.73%
Russell 2000 Value Index 2.05%
- ------
2
PERFORMANCE
Heritage
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years 10 years Inception Date
INVESTOR CLASS 56.41% 21.88% 11.21% 14.01% 11/10/87
RUSSELL MIDCAP GROWTH INDEX(1) 19.72% 19.21% 8.30% 12.62%(2) --
RUSSELL MIDCAP INDEX(1) 15.24% 20.10% 11.05% 14.17%(2) --
Institutional Class 56.66% 22.10% 11.45% 11.97% 6/16/97
A Class(3)
No sales charge*
56.05% 21.57% 10.93% 11.05%
With sales charge* 47.12% 20.15% 10.27% 10.41% 7/11/97
B Class
No sales charge*
-- -- -- 6.04%(4)
With sales charge* -- -- -- 1.04%(4) 9/28/07
C Class 54.88% 20.67% -- 10.19% 6/26/01
R Class -- -- -- 6.09%(4) 9/28/07
* Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a 5.75% maximum 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) Data provided by Lipper Inc. - A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(2) Since 10/31/87, the date nearest the Investor Class's inception for which
data are available.
(3) Prior to September 4, 2007, the A Class was referred to as the Advisor
Class. Performance, with sales charge, prior to that date has been adjusted to
reflect the A Class's current sales charge.
(4) Total 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. International investing involves special risks, such as
political instability and currency fluctuations. Investing in emerging markets
may accentuate these risks.
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
Heritage
Heritage of $10,000 Over 10 Years
$10,000 investment made October 31, 1997
One-Year Returns Over 10 Years
Periods ended October 31
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investor Class -15.87% 30.71% 62.61% -33.08% -10.07% 18.33% -0.09% 25.16% 16.26% 56.41%
Russell Midcap
Growth Index 2.43% 37.66% 38.67% -42.78% -17.61% 39.30% 8.77% 15.91% 14.51% 19.72%
Russell Midcap
Index 4.46% 17.12% 23.73% -18.02% -8.02% 35.88% 15.09% 18.09% 17.41% 15.24%
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. International investing involves special risks, such as
political instability and currency fluctuations. Investing in emerging markets
may accentuate these risks.
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.
- ------
4
PORTFOLIO COMMENTARY
Heritage
Portfolio Managers: Glenn Fogle and David Hollond
In August 2007, portfolio manager Kurt Stalzer took a personal leave of
absence from American Century. Veteran American Century mid-cap growth
portfolio managers Glenn Fogle (16 years with the firm) and David Hollond
(nine years with the firm) continue as co-managers for Heritage.
PERFORMANCE SUMMARY
Heritage advanced 56.41%* for the fiscal year ended October 31, 2007,
surpassing both the 15.24% return of the Russell Midcap Index and the 19.72%
return of the portfolio's benchmark, the Russell Midcap Growth Index.
Heritage's gain ranked among the highest in American Century's family of funds
for the period.
As discussed in the Market Perspective on page 2, a change in Federal Reserve
(Fed) interest rate policy, continued corporate earnings growth, and signs of
U.S. economic strength contributed to stock index gains for the period,
despite market volatility created largely by growing problems among subprime
lenders. In this environment, large- and mid-cap stocks generally outpaced
their small-cap counterparts, and growth-oriented shares outperformed value
stocks.
Heritage derived gains from effective stock selection in all ten market
sectors. The bulk of Heritage's strong performance relative to the Russell
Midcap Growth Index, though, came from individual holdings within the
industrials, consumer discretionary, and information technology sectors.
Foreign holdings also contributed significantly to fund performance.
AEROSPACE AND DEFENSE LED GAINS
The portfolio's largest single sector contribution came from the industrials
group, where we continued to focus on the aerospace and defense industry. The
share prices of portfolio overweights Precision Castparts and BE Aerospace,
two of the fund's largest holdings, soared 120% and 97%, respectively, as both
companies benefited from a replacement cycle and expanding orders in global
aviation. Both companies reflect Heritage's focus on companies with
accelerating financial growth and share price momentum.
Within the industrials sector, an overweight stake and stock selection within
the construction and engineering industry and the industrial conglomerate
group also contributed to performance, as companies within these groups
benefited from increased demand for global energy infrastructure. Notably,
share prices of construction company Foster Wheeler and industrial
conglomerate McDermott International climbed 230% and 173%, respectively. Both
companies are involved in a variety of heavy construction areas, including the
construction of power plants.
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
BE Aerospace, Inc. 4.4% 3.7%
Nintendo Co., Ltd. ORD 4.0% 3.6%
NII Holdings, Inc. 3.7% 8.0%
Medco Health Solutions Inc. 3.4% 3.8%
Precision Castparts Corp. 3.3% 5.3%
Apple Inc. 3.0% 1.8%
Monsanto Co. 3.0% 1.9%
GameStop Corp. Cl A 2.7% 0.8%
Dresser-Rand Group Inc. 2.7% 0.5%
Owens-Illinois Inc. 2.6% 0.5%
* All fund returns referenced in this commentary are for Investor Class shares.
- ------
5
Heritage
CONSUMER DISCRETIONARY, TECHNOLOGY CONTRIBUTED
An underweight position and effective stock selection within the consumer
discretionary sector contributed to absolute and relative gains. Within the
sector, video game retailer GameStop climbed 132% on the heels of a robust
video game cycle. Casino resort company Las Vegas Sands, which recently opened
its monstrous Venetian Macao Casino, gained 75%.
Within the technology sector, software maker Nintendo was the largest single
contributor to portfolio performance. Strong demand for the company's Wii
interactive game system continued to outstrip supply, helping Nintendo's share
price jump 212% during the reporting period.
Fund overweight Apple also boosted Heritage's absolute and relative gains. The
computer and peripherals maker, which introduced the iPhone during the
reporting period, experienced a 134% gain in its share price.
UNDERWEIGHT IN FINANCIALS AVOIDED PAIN
An underweight position in the financials sector benefited portfolio
performance during the period, as a softening housing market and mounting
concerns surrounding subprime mortgage lenders weighed on sector performance.
Within the sector, Heritage had no holdings in either the real estate
management and development industry or the consumer finance industry, two
groups that suffered losses within the benchmark.
STARTING POINT FOR NEXT REPORTING PERIOD
Heritage's investment process focuses on medium-sized and smaller companies
with accelerating earnings growth rates and share price momentum. We believe
that active investing in such companies will generate outperformance over time
compared with the Russell Midcap and Midcap Growth Indices.
Now that the Fed has cut short-term interest rates, we have entered an easing
cycle. In this environment, we are confident in our current sector emphasis,
which includes industrials and information technology. We continue monitoring
the market for any meaningful, sustainable changes in sector leadership.
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Aerospace & Defense 8.3% 9.0%
Semiconductors & Semiconductor Equipment 6.3% 2.3%
Software 5.5% 4.1%
Machinery 5.3% 2.3%
Health Care Providers & Services 5.2% 4.9%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 86.0% 80.0%
Foreign Common Stocks(1) 13.0% 19.1%
TOTAL COMMON STOCKS 99.0% 99.1%
Temporary Cash Investments 1.0% 1.5%
Other Assets
and Liabilities --(2) (0.6)%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Category is less than 0.05% of total net assets.
- ------
6
SCHEDULE OF INVESTMENTS
Heritage
OCTOBER 31, 2007
Shares Value
Common Stocks -- 99.0%
AEROSPACE & DEFENSE -- 8.3%
136,900 Alliant Techsystems Inc.(1) $ 15,112,391
2,625,385 BE Aerospace, Inc.(1) 130,507,889
652,752 Precision Castparts Corp. 97,788,777
--------------
243,409,057
--------------
BIOTECHNOLOGY -- 3.8%
202,300 Celgene Corp.(1) 13,351,800
1,836,400 CSL Ltd. ORD 63,443,032
217,900 Myriad Genetics Inc.(1) 12,062,944
325,328 Onyx Pharmaceuticals, Inc.(1) 15,196,071
143,300 Pharmion Corp.(1) 6,895,596
--------------
110,949,443
--------------
CAPITAL MARKETS -- 3.9%
366,700 Ameriprise Financial Inc. 23,094,766
168,100 GFI Group Inc.(1) 14,510,392
771,700 Janus Capital Group Inc. 26,631,367
626,100 Lazard Ltd. Cl A 31,430,220
555,200 Waddell & Reed Financial Inc. 18,443,744
--------------
114,110,489
--------------
CHEMICALS -- 3.5%
195,339 CF Industries Holdings, Inc. 17,170,298
892,430 Monsanto Co. 87,127,941
--------------
104,298,239
--------------
COMMERCIAL SERVICES & SUPPLIES -- 0.7%
259,852 Corrections Corp. of America(1) 7,351,213
187,300 Huron Consulting Group Inc.(1) 13,088,524
--------------
20,439,737
--------------
COMMUNICATIONS EQUIPMENT -- 1.2%
496,000 Ciena Corp.(1) 23,738,560
566,000 Foundry Networks, Inc.(1) 11,965,240
--------------
35,703,800
--------------
COMPUTERS & PERIPHERALS -- 3.4%
460,227 Apple Inc.(1) 87,420,119
289,500 SanDisk Corp.(1) 12,853,800
--------------
100,273,919
--------------
CONSTRUCTION & ENGINEERING -- 4.1%
400,990 Foster Wheeler Ltd.(1) 59,446,768
736,700 KBR, INC.(1) 31,589,696
900,700 Quanta Services, Inc.(1) 29,723,100
--------------
120,759,564
--------------
CONTAINERS & PACKAGING -- 2.6%
1,717,400 Owens-Illinois Inc.(1) 76,286,908
--------------
Shares Value
DIVERSIFIED CONSUMER SERVICES -- 4.2%
387,400 Apollo Group, Inc. Cl A(1) $ 30,705,324
229,000 Capella Education Co.(1) 14,198,000
465,200 Career Education Corp.(1) 16,626,248
240,500 ITT Educational Services Inc.(1) 30,589,195
171,900 Strayer Education, Inc. 32,052,474
--------------
124,171,241
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.4%
113,942 Golden Telecom Inc. 11,787,300
--------------
ELECTRIC UTILITIES -- 1.0%
1,067,905 Reliant Energy, Inc.(1) 29,388,746
--------------
ELECTRICAL EQUIPMENT -- 3.1%
231,800 First Solar Inc.(1) 36,812,158
672,200 JA Solar Holdings Co., Ltd. ADR(1) 38,718,720
181,500 Vestas Wind Systems AS ORD(1) 16,369,420
--------------
91,900,298
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.4%
388,323 Dolby Laboratories Inc. Cl A(1) 16,099,872
227,900 Itron Inc.(1) 24,496,971
--------------
40,596,843
--------------
ENERGY EQUIPMENT & SERVICES -- 4.5%
423,250 Aker Kvaerner ASA ORD 14,852,916
147,479 Cameron International Corp.(1) 14,358,555
2,055,900 Dresser-Rand Group Inc.(1) 79,563,331
321,800 National Oilwell Varco, Inc.(1) 23,568,632
--------------
132,343,434
--------------
FOOD PRODUCTS -- 1.9%
491,700 Bunge Ltd. 56,638,923
--------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.2%
247,500 Align Technology Inc.(1) 5,123,250
356,763 Hologic, Inc.(1) 24,234,911
417,500 Immucor, Inc.(1) 13,464,375
187,100 Mindray Medical International Ltd. ADR 7,439,096
329,900 Varian Medical Systems, Inc.(1) 16,089,223
--------------
66,350,855
--------------
HEALTH CARE PROVIDERS & SERVICES -- 5.2%
814,300 Express Scripts, Inc.(1) 51,382,330
1,069,200 Medco Health Solutions Inc.(1) 100,911,096
--------------
152,293,426
--------------
- ------
7
Heritage
Shares Value
HOTELS, RESTAURANTS & LEISURE -- 3.6%
632,910 Bally Technologies, Inc.(1) $ 25,525,260
174,394 Chipotle Mexican Grill Inc. Cl A(1) 24,240,766
424,850 Las Vegas Sands Corp.(1) 56,381,844
--------------
106,147,870
--------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.5%
327,300 NRG Energy Inc.(1) 14,944,518
--------------
INDUSTRIAL CONGLOMERATES -- 2.5%
1,220,890 McDermott International, Inc.(1) 74,547,543
--------------
INTERNET & CATALOG RETAIL -- 1.1%
344,341 Priceline.com Inc.(1) 32,058,147
--------------
INTERNET SOFTWARE & SERVICES -- 1.4%
349,500 Equinix Inc.(1) 40,772,670
--------------
IT SERVICES -- 0.3%
46,400 MasterCard Inc. Cl A 8,795,120
--------------
LIFE SCIENCES TOOLS & SERVICES -- 3.1%
270,365 Covance Inc.(1) 22,305,113
481,200 Invitrogen Corp.(1) 43,726,644
437,400 Thermo Fisher Scientific Inc.(1) 25,723,494
--------------
91,755,251
--------------
MACHINERY -- 5.3%
1,191,300 AGCO Corp.(1) 71,096,784
213,975 Alfa Laval AB ORD 17,128,583
857,942 Flowserve Corp. 67,743,100
--------------
155,968,467
--------------
MEDIA -- 2.2%
788,436 Liberty Global, Inc. Series A(1) 30,946,113
932,200 Liberty Global, Inc. Series C(1) 34,193,096
--------------
65,139,209
--------------
OIL, GAS & CONSUMABLE FUELS -- 0.5%
320,900 Frontier Oil Corp. 14,694,011
--------------
PHARMACEUTICALS -- 1.3%
318,840 Shire plc ADR 23,960,826
584,676 Shire plc ORD 14,627,706
--------------
38,588,532
--------------
REAL ESTATE INVESTMENT TRUSTS -- 1.0%
348,900 AMB Property Corp. 22,800,615
312,974 DuPont Fabros Technology, Inc.(1) 6,722,682
--------------
29,523,297
--------------
Shares Value
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 6.3%
1,126,600 Cypress Semiconductor Corp.(1) $ 41,177,230
214,600 LDK Solar Co., Ltd. ADR(1) 8,500,306
443,833 MEMC Electronic Materials Inc.(1) 32,497,452
1,259,150 NVIDIA Corp.(1) 44,548,727
866,228 OmniVision Technologies, Inc.(1) 19,186,950
696,500 ON Semiconductor Corp.(1) 7,104,300
727,900 Semtech Corp.(1) 12,454,369
446,300 Silicon Laboratories Inc.(1) 19,503,310
--------------
184,972,644
--------------
SOFTWARE -- 5.5%
1,269,000 Activision, Inc.(1) 30,011,850
190,300 NAVTEQ Corp.(1) 14,691,160
186,200 Nintendo Co., Ltd. ORD 117,382,225
--------------
162,085,235
--------------
SPECIALTY RETAIL -- 4.3%
1,368,356 GameStop Corp. Cl A(1) 81,034,042
891,600 Guess?, Inc. 45,819,324
--------------
126,853,366
--------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.7%
183,800 Crocs, Inc.(1) 13,739,050
144,600 lululemon athletica inc.(1) 7,695,612
--------------
21,434,662
--------------
WIRELESS TELECOMMUNICATION SERVICES -- 4.0%
81,536 Millicom International Cellular SA(1) 9,578,849
1,856,702 NII Holdings, Inc.(1) 107,688,716
--------------
117,267,565
--------------
TOTAL COMMON STOCKS
(Cost $2,033,246,809) 2,917,250,329
--------------
Temporary Cash Investments -- 1.0%
Repurchase Agreement, Morgan Stanley Group, Inc.,
(collateralized by various U.S. Treasury obligations,
7.125%-7.625%, 2/15/23-2/15/25, valued at $30,852,692),
in a joint trading account at 4.50%, dated 10/31/07,
due 11/1/07 (Delivery value $30,303,788)
(Cost $30,300,000) 30,300,000
--------------
TOTAL INVESTMENT SECURITIES -- 100.0%
(Cost $2,063,546,809) 2,947,550,329
--------------
OTHER ASSETS AND LIABILITIES(2) 262,125
--------------
TOTAL NET ASSETS -- 100.0% $2,947,812,454
==============
- ------
8
Heritage
Forward Foreign Currency Exchange Contracts
Settlement Unrealized Gain
Contracts to Sell Date Value (Loss)
54,357,440 AUD for USD 11/30/07 $50,551,946 $(564,844)
66,937,200 DKK for USD 11/30/07 13,030,783 (94,559)
5,514,664 GBP for USD 11/30/07 11,455,255 (99,955)
6,384,110,000 JPY for USD 11/30/07 55,543,140 276,655
61,963,800 NOK for USD 11/30/07 11,547,636 3,639
86,959,440 SEK for USD 11/30/07 13,704,184 (79,089)
------------ -------------
$155,832,944 $(558,153)
============ =============
(Value on Settlement Date $155,274,791)
Notes to Schedule of Investments
ADR = American Depositary Receipt
AUD = Australian Dollar
DKK = Danish Krone
GBP = British Pound
JPY = Japanese Yen
NOK = Norwegian Krona
ORD = Foreign Ordinary Share
SEK = Swedish Krona
USD = United States Dollar
(1) Non-income producing.
(2) Category is less than 0.05% of total net assets.
As of October 31, 2007, securities with an aggregate value of $243,803,882,
which represented 8.3% of total net assets, were valued in accordance with
alternative pricing procedures adopted by the Board of Directors.
See Notes to Financial Statements.
- ------
9
PERFORMANCE
New Opportunities II
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years Inception Date
INVESTOR CLASS 35.22% 21.33% 12.93% 6/1/01
RUSSELL 2000 GROWTH INDEX(1) 16.73% 18.57% 6.40%(2) --
Institutional Class
Before redemption fee
-- -- 14.03%(4)
Net of redemption fee(3) -- -- 11.75%(4) 5/18/07
A Class
No sales charge*
34.91% -- 22.27%
With sales charge* 27.20% -- 20.78% 1/31/03
B Class
No sales charge*
33.84% -- 21.37%
With sales charge* 29.84% -- 21.16% 1/31/03
C Class 34.02% -- 21.46% 1/31/03
R Class
Before redemption fee
-- -- 4.43%(4)
Net of redemption fee(3) -- -- 2.35%(4) 9/28/07
* Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a 5.75% maximum 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) Data provided by Lipper Inc. - A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(2) Since 5/31/01, the date nearest the Investor Class's inception for which
data are available.
(3) Returns reflect the deduction of a 2.00% redemption fee, incurred if
shares were redeemed within the first 180 days after purchase.
(4) Total 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. Historically, small company stocks have been more
volatile than the stocks of larger, more established companies. The fund's
investment process may result in high portfolio turnover, high commission
costs and high capital gains distributions. In addition, its investment
approach may involve higher volatility and risk. International investing
involves special risks, such as political instability and currency
fluctuations. Investing in emerging markets may accentuate these risks. The
fund's performance may be affected by investments in initial public offerings.
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
New Opportunities II
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 2005 2006 2007
Investor Class -9.60% -8.19% 38.55% 9.39% 10.14% 16.52% 35.22%
Russell 2000
Growth Index -19.01% -21.57% 46.56% 5.53% 10.91% 17.07% 16.73%
* 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. Historically, small company stocks have been more
volatile than the stocks of larger, more established companies. The fund's
investment process may result in high portfolio turnover, high commission
costs and high capital gains distributions. In addition, its investment
approach may involve higher volatility and risk. International investing
involves special risks, such as political instability and currency
fluctuations. Investing in emerging markets may accentuate these risks. The
fund's performance may be affected by investments in initial public offerings.
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
PORTFOLIO COMMENTARY
New Opportunities II
Portfolio Managers: Stafford Southwick and Matthew Ferretti
PERFORMANCE SUMMARY
New Opportunities II returned 35.22%* for the fiscal year ended October 31,
2007, well ahead of the 16.73% return of its benchmark, the Russell 2000
Growth Index. Performance during the period reflected the resurgence of
small-cap growth stocks, which outperformed small-cap value issues by a
sizable margin over the past 12 months after lagging for the previous three
years.
Despite an increasingly volatile market environment, good stock selection in
the industrials, consumer discretionary, and information technology sectors
contributed the most to the portfolio's strong absolute performance. In
addition, the market continued to reward companies with improving business
fundamentals, accelerating earnings and revenue growth, and price momentum.
INDUSTRIALS ADDED VALUE
Eight of ten market sectors contributed positively to portfolio performance
compared with the Russell 2000 Growth Index. By far, the industrials sector
added the most value, contributing 7.5 percentage points of outperformance.
The top three relative performance contributors also came from this sector of
the portfolio.
One of the main themes in the portfolio's industrials holdings was an emphasis
on dry bulk carriers, which are large ships that carry dry goods--such as iron
ore, coal, or grains--across oceans. Healthy demand from China led to
increased port congestion and a shortage of ship capacity, which in turn
boosted day rates (and profits) dramatically for dry bulk carriers. Our top
contributors included Diana Shipping, which gained 215% for the reporting
period, and DryShips, which returned about 650% from the time we bought the
stock in December 2006.
Another theme was a substantial overweight in construction & engineering
firms, which benefited from a sharp increase in global demand. The most
notable contributor was construction services provider Foster Wheeler, which
surged by 230% for the reporting period. The company consistently exceeded
earnings expectations, benefiting from its exposure to the booming energy and
power generation industries.
CONSUMER & TECHNOLOGY BOOSTED RESULTS
Aside from industrials, stock selection was most successful in the consumer
discretionary and information technology sectors. The best performers in the
consumer discretionary sector were apparel makers and internet retailers.
Online travel agent
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Priceline.com Inc. 1.9% 1.8%
Koppers Holdings Inc. 1.5% 1.4%
Exterran Holdings, Inc.(1) 1.4% 0.2%
Kinetic Concepts Inc. 1.4% 0.9%
Zoran Corp. 1.4% --
Deckers Outdoor Corp. 1.4% 1.5%
Darling International Inc. 1.3% 1.3%
GFI Group Inc. 1.2% 1.2%
optionsXpress Holdings, Inc. 1.2% --
Brightpoint Inc. 1.2% --
(1) Exterran Holdings, Inc. acquired Hanover Compressor Co. on 8/20/07.
* All fund returns referenced in this commentary are for Investor Class shares.
- ------
12
New Opportunities II
Priceline.com benefited from its exposure to the nascent European market,
where faster growth rates and better pricing helped the company surpass
earnings expectations. Deckers Outdoor, which makes UGG boots and Teva
sandals, enjoyed soaring sales, rising profit margins, and a push toward
international expansion of its brands.
In the information technology sector, stock selection among software and
Internet-related stocks provided virtually all of the outperformance. Vasco
Data Security International, which makes authentication tokens for secure
access to corporate networks, was the top contributor, benefiting from
increased concerns about network data security.
FOREIGN STOCKS AND IPOS HELPED
The portfolio benefited from its exposure to foreign stocks, which generally
produced better returns than the domestic market thanks to improving economic
conditions overseas and a declining U.S. dollar. The portfolio's average
weighting in international stocks was just under 9% for the reporting period.
Examples from the portfolio included Panamanian airline Copa Holdings,
Argentinean telecommunications company Nortel Inversora, and German carbon
fiber producer SGL Carbon.
The portfolio also derived a portion of its returns from participating in a
number of initial public offerings (IPOs). Among the more successful IPOs were
digital marketing firm comScore, which went public on June 26, 2007, and
architectural engineering firm Aecom Technology, which went public on May 9,
2007.
HEALTH CARE DETRACTED
The only sector to detract meaningfully from performance relative to the
benchmark was health care. Cold and flu medication maker Matrixx Initiatives
fell amid a milder-than-expected flu season last winter, while new product
delays and weaker demand led to an earnings disappointment for contact lens
maker Cooper. We sold the bulk of our positions in both stocks during the
reporting period and eliminated our remaining holdings shortly after the end
of the period.
STARTING POINT FOR NEXT REPORTING PERIOD
We continue to seek out companies with improving business fundamentals,
accelerating earnings and revenue growth, and price momentum. As we head into
the 2008 fiscal year, we are finding incrementally more stock ideas in the
health care sector and fewer ideas in the industrials and materials sectors.
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Chemicals 6.3% 3.3%
Oil, Gas & Consumable Fuels 5.3% 1.9%
Health Care Equipment & Supplies 5.2% 7.3%
Software 5.0% 6.1%
Semiconductors & Semiconductor Equipment 4.8% 1.2%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 88.0% 89.8%
Foreign Common Stocks(1) 7.7% 10.1%
TOTAL COMMON STOCKS 95.7% 99.9%
Temporary Cash Investments 4.9% 1.4%
Other Assets and Liabilities (0.6)% (1.3)%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares
- ------
13
SCHEDULE OF INVESTMENTS
New Opportunities II
OCTOBER 31, 2007
Shares Value
Common Stocks -- 95.7%
AEROSPACE & DEFENSE -- 3.2%
30,010 Alliant Techsystems Inc.(1) $ 3,312,804
14,314 EDO Corp. 830,212
115,882 Esterline Technologies Corp.(1) 6,348,016
129,046 Orbital Sciences Corp.(1) 3,294,544
44,568 Triumph Group, Inc. 3,548,504
------------
17,334,080
------------
AUTO COMPONENTS -- 0.5%
122,289 Cooper Tire & Rubber Co. 2,724,599
------------
BEVERAGES -- 1.2%
178,293 PepsiAmericas, Inc. 6,368,626
------------
BIOTECHNOLOGY -- 1.0%
224,561 Cubist Pharmaceuticals Inc.(1) 5,254,727
------------
CAPITAL MARKETS -- 4.1%
82,178 FCStone Group, Inc.(1) 2,896,775
78,571 GFI Group Inc.(1) 6,782,248
51,364 HFF Inc. Cl A(1) 516,208
226,976 optionsXpress Holdings, Inc. 6,754,806
94,154 Stifel Financial Corp.(1) 5,343,240
------------
22,293,277
------------
CHEMICALS -- 6.3%
89,363 Airgas Inc. 4,510,151
58,170 Arch Chemicals, Inc. 2,653,715
319,554 Calgon Carbon Corp.(1) 4,761,355
36,438 Flotek Industries Inc.(1) 1,851,050
50,751 ICO, Inc.(1) 734,874
176,632 Koppers Holdings Inc. 7,913,115
82,132 SGL Carbon AG ORD(1) 4,825,999
125,164 Terra Industries Inc.(1) 4,617,300
55,469 Zoltek Companies, Inc.(1) 2,454,503
------------
34,322,062
------------
COMMERCIAL BANKS -- 0.9%
204,772 BancorpSouth Inc. 4,967,769
------------
COMMERCIAL SERVICES & SUPPLIES -- 3.0%
327,092 Casella Waste Systems, Inc. Cl A(1) 4,818,065
101,993 Copart, Inc.(1) 3,914,491
78,197 CRA International, Inc.(1) 4,049,041
61,053 FTI Consulting, Inc.(1) 3,315,178
------------
16,096,775
------------
Shares Value
COMMUNICATIONS EQUIPMENT -- 3.8%
115,769 Blue Coat Systems, Inc.(1) $ 4,699,064
156,962 Dycom Industries Inc.(1) 4,434,177
230,107 Foundry Networks, Inc.(1) 4,864,461
139,765 Globecomm Systems Inc.(1) 2,157,972
161,501 Plantronics, Inc. 4,417,052
------------
20,572,726
------------
COMPUTERS & PERIPHERALS -- 1.8%
106,837 Novatel Wireless, Inc.(1) 2,777,762
763,632 Quantum Corp.(1) 3,054,528
76,224 Synaptics Inc.(1) 4,142,774
------------
9,975,064
------------
CONSTRUCTION & ENGINEERING -- 1.3%
77,606 Aecom Technology Corp.(1) 2,620,755
30,268 Foster Wheeler Ltd.(1) 4,487,231
------------
7,107,986
------------
CONSUMER FINANCE -- 0.5%
227,807 EZCORP, Inc.(1) 2,997,940
------------
CONTAINERS & PACKAGING -- 0.5%
47,635 Greif, Inc. Cl A 3,029,586
------------
DIVERSIFIED CONSUMER SERVICES -- 0.7%
72,304 DeVry Inc. 3,954,306
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.3%
126,453 Cbeyond, Inc.(1) 4,946,841
128,867 Maxcom Telecomunicaciones, SAB de CV ADR(1) 2,237,131
------------
7,183,972
------------
ELECTRIC UTILITIES -- 1.1%
220,602 Portland General Electric Co. 6,209,946
------------
ELECTRICAL EQUIPMENT -- 2.1%
103,783 American Superconductor Corp.(1) 2,817,708
237,530 GrafTech International Ltd.(1) 4,489,317
58,453 Woodward Governor Co. 3,916,351
------------
11,223,376
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.2%
412,025 Brightpoint Inc.(1) 6,674,805
47,943 Itron Inc.(1) 5,153,393
22,322 Spectrum Control Inc.(1) 383,269
------------
12,211,467
------------
ENERGY EQUIPMENT & SERVICES -- 1.4%
91,112 Exterran Holdings, Inc.(1) 7,671,630
------------
- ------
14
New Opportunities II
Shares Value
FOOD & STAPLES RETAILING -- 1.0%
107,041 Andersons Inc. (The) $ 5,314,586
------------
FOOD PRODUCTS -- 3.1%
86,327 Corn Products International Inc. 3,672,351
240,306 Cosan Ltd. Cl A(1) 3,051,886
715,336 Darling International Inc.(1) 7,196,280
53,743 J.M. Smucker Co. (The) 2,871,488
------------
16,792,005
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 5.2%
100,920 Arthrocare Corp.(1) 6,543,653
45,244 Cooper Companies, Inc. (The) 1,900,248
118,091 Immucor, Inc.(1) 3,808,435
268,502 IRIS International Inc.(1) 4,940,437
126,578 Kinetic Concepts Inc.(1) 7,607,337
82,437 NuVasive, Inc.(1) 3,527,479
------------
28,327,589
------------
HEALTH CARE PROVIDERS & SERVICES -- 3.7%
138,652 AMERIGROUP Corp.(1) 4,852,820
546,400 Amil Participacoes SA ORD(1) 5,129,187
21,482 Chemed Corp. 1,231,348
146,368 Providence Service Corp. (The)(1) 4,653,039
219,884 RehabCare Group, Inc.(1) 4,560,394
------------
20,426,788
------------
HEALTH CARE TECHNOLOGY -- 1.1%
225,605 Omnicell Inc.(1) 5,955,972
------------
HOTELS, RESTAURANTS & LEISURE -- 1.9%
226,465 Burger King Holdings, Inc. 5,987,735
61,181 Home Inns & Hotels Management Inc. ADR(1) 2,693,799
60,102 Monarch Casino & Resort Inc.(1) 1,838,520
------------
10,520,054
------------
HOUSEHOLD DURABLES -- 1.1%
166,885 Tupperware Brands Corp. 6,024,549
------------
INSURANCE -- 1.2%
262,198 Universal American Financial Corp.(1) 6,360,923
------------
INTERNET & CATALOG RETAIL -- 1.9%
112,536 Priceline.com Inc.(1) 10,477,102
------------
INTERNET SOFTWARE & SERVICES -- 3.2%
127,719 Art Technology Group, Inc.(1) 588,785
97,880 Chordiant Software, Inc.(1) 1,408,493
91,910 comScore, Inc.(1) 3,369,421
202,751 NaviSite, Inc.(1) 2,203,903
Shares Value
227,080 Switch & Data Facilities Co. Inc.(1) $ 4,468,934
148,535 Vocus Inc.(1) 5,344,289
------------
17,383,825
------------
IT SERVICES -- 2.2%
74,268 CACI International Inc.(1) 3,999,332
120,258 Mantech International Corp. Cl A(1) 4,781,458
68,132 VeriFone Holdings Inc.(1) 3,367,765
------------
12,148,555
------------
LIFE SCIENCES TOOLS & SERVICES -- 1.9%
114,513 Kendle International Inc.(1) 4,618,309
206,068 PerkinElmer, Inc. 5,670,992
------------
10,289,301
------------
MACHINERY -- 3.1%
76,825 EnPro Industries Inc.(1) 3,150,593
92,196 Manitowoc Co., Inc. (The) 4,541,575
111,983 Tennant Co. 5,281,119
43,096 Valmont Industries, Inc. 4,125,149
------------
17,098,436
------------
MARINE -- 3.1%
147,477 Diana Shipping Inc. 6,312,015
48,634 DryShips Inc. 5,732,003
145,262 Eagle Bulk Shipping Inc. 4,951,982
------------
16,996,000
------------
METALS & MINING -- 0.2%
14,354 Schnitzer Steel Industries, Inc. Cl A 948,369
------------
MULTI-INDUSTRY -- 2.3%
37,322 iShares Dow Jones U.S. Financial Sector Index Fund 4,029,656
72,691 iShares Dow Jones U.S. Healthcare Sector Index
Fund 5,234,480
42,824 iShares Dow Jones U.S. Real Estate Index Fund 3,292,737
------------
12,556,873
------------
OIL, GAS & CONSUMABLE FUELS -- 5.3%
105,763 Cabot Oil & Gas Corp. 4,197,733
90,438 Clean Energy Fuels Corp.(1) 1,617,031
262,879 Concho Resources Inc.(1) 5,123,512
144,897 Encore Acquisition Co.(1) 5,317,720
131,681 Forest Oil Corp.(1) 6,398,381
72,036 GMX Resources Inc.(1) 2,774,106
57,119 Quicksilver Resources Inc.(1) 3,255,783
------------
28,684,266
------------
- ------
15
New Opportunities II
Shares Value
PERSONAL PRODUCTS -- 1.1%
248,128 American Oriental Bioengineering Inc.(1) $ 3,416,722
36,932 Chattem, Inc.(1) 2,744,048
------------
6,160,770
------------
PHARMACEUTICALS -- 0.7%
10,624 Matrixx Initiatives Inc.(1) 183,901
162,338 Obagi Medical Products Inc.(1) 3,545,462
------------
3,729,363
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.8%
326,966 EMCORE Corp.(1) 3,527,963
242,310 Microsemi Corp.(1) 6,447,869
472,096 Microtune, Inc.(1) 2,846,739
329,914 Semtech Corp.(1) 5,644,829
295,799 Zoran Corp.(1) 7,542,874
------------
26,010,274
------------
SOFTWARE -- 5.0%
173,040 Aladdin Knowledge Systems Ltd.(1) 4,144,308
353,124 Aspen Technology, Inc.(1) 6,158,483
270,872 Lawson Software Inc.(1) 3,058,145
264,494 Magma Design Automation, Inc.(1) 3,938,316
44,540 NetScout Systems, Inc.(1) 688,588
158,031 PROS Holdings, Inc.(1) 2,841,397
230,518 Taleo Corp. Cl A(1) 6,442,978
------------
27,272,215
------------
SPECIALTY RETAIL -- 0.6%
206,539 hhgregg, Inc.(1) 3,255,055
------------
TEXTILES, APPAREL & LUXURY GOODS -- 2.9%
57,269 Crocs, Inc.(1) 4,280,858
53,051 Deckers Outdoor Corp.(1) 7,415,999
96,846 Warnaco Group Inc. (The)(1) 3,940,664
------------
15,637,521
------------
TRADING COMPANIES & DISTRIBUTORS -- 0.8%
193,175 Genesis Lease Ltd. ADR 4,238,260
------------
WIRELESS TELECOMMUNICATION SERVICES -- 1.4%
350,804 Syniverse Holdings Inc.(1) 5,854,918
142,737 Virgin Mobile USA, Inc. Cl A(1) 1,734,255
------------
7,589,173
------------
TOTAL COMMON STOCKS
(Cost $421,590,238) 521,697,738
------------
Shares Value
Temporary Cash Investments -- 4.9%
Repurchase Agreement, Bank of America Securities, LLC,
(collateralized by various U.S. Treasury obligations,
2.375%-3.875%, 1/15/09-1/15/25, valued at $221,525), in a joint
trading account at 4.47%, dated 10/31/07, due 11/1/07 (Delivery
value $200,025) $ 200,000
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Treasury obligations, 8.125%,
8/15/19, valued at $27,259,479), in a joint trading account at
4.47%, dated 10/31/07, due 11/1/07 (Delivery value $26,703,315) 26,700,000
------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $26,900,000) 26,900,000
------------
TOTAL INVESTMENT SECURITIES -- 100.6%
(Cost $448,490,238) 548,597,738
------------
OTHER ASSETS AND LIABILITIES -- (0.6)% (3,528,931)
------------
TOTAL NET ASSETS -- 100.0% $545,068,807
============
Notes to Schedule of Investments
ADR = American Depositary Receipt
ORD = Foreign Ordinary Share
(1) Non-income producing.
As of October 31, 2007, securities with an aggregate value of $4,825,999,
which represented 0.9% of total net assets, were valued in accordance with
alternative pricing procedures adopted by the Board of Directors.
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, 2007 to October 31, 2007.
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.
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.
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17
Expenses Paid
Beginning During
Account Ending Period(1) Annualized
Value Account Value 5/1/07 - Expense
5/1/07 10/31/07 10/31/07 Ratio(1)
Heritage
ACTUAL
Investor Class $1,000 $1,264.10 $5.71 1.00%
Institutional Class $1,000 $1,265.50 $4.57 0.80%
A Class $1,000 $1,263.10 $7.13 1.25%
B Class $1,000 $1,060.40(2) $1.86(3) 2.00%
C Class $1,000 $1,258.10 $11.38 2.00%
R Class $1,000 $1,060.90(2) $1.40(3) 1.50%
HYPOTHETICAL
Investor Class $1,000 $1,020.16 $5.09 1.00%
Institutional Class $1,000 $1,021.17 $4.08 0.80%
A Class $1,000 $1,018.90 $6.36 1.25%
B Class $1,000 $1,015.12(4) $10.16(4) 2.00%
C Class $1,000 $1,015.12 $10.16 2.00%
R Class $1,000 $1,017.64(4) $7.63(4) 1.50%
(1) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
(2) Ending account value based on actual return from September 28, 2007
(commencement of sale) through October 31, 2007.
(3) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 33, the number of days in the period from September 28, 2007
(commencement of sale) through October 31, 2007, divided by 365, to reflect
the period. Had the class been available for the full period, the expenses
paid during the period would have been higher.
(4) Ending account value and expenses paid during period assumes the class had
been available throughout the entire period and are calculated using the
class's annualized expense ratio listed in the table above.
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18
Expenses Paid
Beginning Ending During Period(1) Annualized
Account Value Account Value 5/1/07 - Expense
5/1/07 10/31/07 10/31/07 Ratio(1)
New Opportunities II
ACTUAL
Investor Class $1,000 $1,177.50 $7.63 1.39%
Institutional
Class $1,000 $1,140.30(2) $5.79(3) 1.19%
A Class $1,000 $1,177.10 $9.00 1.64%
B Class $1,000 $1,172.40 $13.09 2.39%
C Class $1,000 $1,173.00 $13.09 2.39%
R Class $1,000 $1,044.30(4) $1.75(5) 1.89%
HYPOTHETICAL
Investor Class $1,000 $1,018.20 $7.07 1.39%
Institutional
Class $1,000 $1,019.21(6) $6.06(6) 1.19%
A Class $1,000 $1,016.94 $8.34 1.64%
B Class $1,000 $1,013.16 $12.13 2.39%
C Class $1,000 $1,013.16 $12.13 2.39%
R Class $1,000 $1,015.68(6) $9.60(6) 1.89%
(1) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
(2) Ending account value based on actual return from May 18, 2007
(commencement of sale) through October 31, 2007.
(3) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 166, the number of days in the period from May 18, 2007
(commencement of sale) through October 31, 2007, divided by 365, to reflect
the period. Had the class been available for the full period, the expenses
paid during the period would have been higher.
(4) Ending account value based on actual return from September 28, 2007
(commencement of sale) through October 31, 2007.
(5) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 33, the number of days in the period from September 28, 2007
(commencement of sale) through October 31, 2007, divided by 365, to reflect
the period. Had the class been available for the full period, the expenses
paid during the period would have been higher.
(6) Ending account value and expenses paid during period assumes the class had
been available throughout the entire period and are calculated using the
class's annualized expense ratio listed in the table above.
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19
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007
New
Heritage Opportunities II
ASSETS
Total investment securities, at value
(cost of $2,063,546,809 and
$448,490,238, respectively) $2,947,550,329 $548,597,738
Cash 4,087,199 --
Receivable for investments sold 33,774,082 14,608,853
Receivable for forward foreign currency
exchange contracts 280,294 --
Receivable for capital shares sold 316,765 158,952
Dividends and interest receivable 251,849 15,946
-------------- ----------------
2,986,260,518 563,381,489
-------------- ----------------
LIABILITIES
Disbursements in excess of
demand deposit cash -- 2,757,020
Payable for investments purchased 35,177,810 14,828,045
Payable for forward foreign currency
exchange contracts 838,447 --
Payable for capital shares redeemed 10,350 57,201
Accrued management fees 2,349,980 610,953
Distribution fees payable 11,700 12,821
Service fees (and distribution fees --
A Class and R Class) payable 59,777 46,642
-------------- ----------------
38,448,064 18,312,682
-------------- ----------------
NET ASSETS $2,947,812,454 $545,068,807
============== ================
See Notes to Financial Statements.
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20
OCTOBER 31, 2007
New
Heritage Opportunities II
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $1,933,624,380 $619,936,487
Undistributed net investment income 174,677 --
Accumulated undistributed net realized gain
(loss) on investment and foreign currency
transactions 130,534,968 (174,972,876)
Net unrealized appreciation on investments
and translation of assets and liabilities in
foreign currencies 883,478,429 100,105,196
-------------- ---------------
$2,947,812,454 $545,068,807
============== ===============
INVESTOR CLASS, $0.01 PAR VALUE
Net assets $2,478,451,872 $303,188,828
Shares outstanding 108,541,311 32,184,965
Net asset value per share $22.83 $9.42
INSTITUTIONAL CLASS, $0.01 PAR VALUE
Net assets $155,884,902 $18,384,205
Shares outstanding 6,715,311 1,949,358
Net asset value per share $23.21 $9.43
A CLASS, $0.01 PAR VALUE
Net assets $291,674,186 $202,515,012
Shares outstanding 13,037,122 21,609,987
Net asset value per share $22.37 $9.37
Maximum offering price (net asset value
divided by 0.9425) $23.74 $9.94
B CLASS, $0.01 PAR VALUE
Net assets $83,300 $4,548,591
Shares outstanding 3,651 491,738
Net asset value per share $22.82 $9.25
C CLASS, $0.01 PAR VALUE
Net assets $21,691,666 $16,406,071
Shares outstanding 1,015,804 1,766,031
Net asset value per share $21.35 $9.29
R CLASS, $0.01 PAR VALUE
Net assets $26,528 $26,100
Shares outstanding 1,162 2,772
Net asset value per share $22.83 $9.42
See Notes to Financial Statements.
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21
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007
Heritage New Opportunities II
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes
withheld of $533,874 and $6,277,
respectively) $6,347,689 $2,019,068
Interest 1,380,618 397,480
------------ -------------
7,728,307 2,416,548
------------ -------------
EXPENSES:
Management fees 16,988,392 4,777,631
Distribution fees:
A Class 221,183 --
B Class 35 28,181
C Class 51,393 76,789
Service fees:
A Class 221,183 --
B Class 12 9,394
C Class 17,131 25,596
Distribution and service fees:
A Class 102,220 371,621
R Class 11 11
Directors' fees and expenses 34,018 8,906
Other expenses 25,782 2,819
------------ -------------
17,661,360 5,300,948
------------ -------------
NET INVESTMENT INCOME (LOSS) (9,933,053) (2,884,400)
------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions (net of foreign
taxes withheld of $69,455 for Heritage) 156,047,528 27,581,027
Foreign currency transactions (9,779,239) (49,781)
------------ -------------
146,268,289 27,531,246
------------ -------------
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION) ON:
Investments 661,401,809 75,885,455
Translation of assets and liabilities
in foreign currencies (376,082) (2,303)
------------ -------------
661,025,727 75,883,152
------------ -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) 807,294,016 103,414,398
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $797,360,963 $100,529,998
============ =============
See Notes to Financial Statements.
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22
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006
Heritage New Opportunities II
2007 2006 2007 2006
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment
income (loss) $(9,933,053) $(2,593,589) $(2,884,400) $(1,115,766)
Net realized gain
(loss) 146,268,289 77,033,288 27,531,246 13,290,224
Change in net
unrealized
appreciation
(depreciation) 661,025,727 61,077,072 75,883,152 4,065,418
-------------- -------------- ------------ ------------
Net increase
(decrease) in net
assets resulting
from operations 797,360,963 135,516,771 100,529,998 16,239,876
-------------- -------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized
gains:
Investor
Class (69,993,372) (5,148,265) (4,743,191) (1,390,699)
Institutional
Class (3,848,774) (270,958) -- --
A Class (4,359,065) (151,038) (6,550,114) (1,464,541)
B Class -- -- (271,092) (52,347)
C Class (167,371) (6,480) (370,839) (75,960)
-------------- -------------- ------------ ------------
Decrease in net
assets from
distributions (78,368,582) (5,576,741) (11,935,236) (2,983,547)
-------------- -------------- ------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase
(decrease) in net
assets from
capital share
transactions 1,074,154,725 160,050,098 323,948,017 22,395,246
-------------- -------------- ------------ ------------
NET INCREASE
(DECREASE) IN NET
ASSETS 1,793,147,106 289,990,128 412,542,779 35,651,575
NET ASSETS
Beginning of
period 1,154,665,348 864,675,220 132,526,028 96,874,453
-------------- -------------- ------------ ------------
End of period $2,947,812,454 $1,154,665,348 $545,068,807 132,526,028
============== ============== ============ ============
Undistributed net
investment income $174,677 $86,964 -- --
============== ============== ============ ============
See Notes to Financial Statements.
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23
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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 New
Opportunities II Fund (New Opportunities II) (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. Heritage pursues its objective by investing in companies that are
medium-sized and smaller at the time of purchase that management believes will
increase in value over time. New Opportunities II pursues its objective by
investing in companies that are smaller-sized at the time of purchase that
management believes will increase in value over time. 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 A Class (formerly Advisor Class), the B Class, the C
Class and the R Class. New Opportunities II is authorized to issue the
Investor Class, the Institutional Class, the A Class, the B Class, the C Class
and the R Class. The A Class may incur an initial sales charge. The A Class, B
Class and C Class may be subject to a contingent deferred sales charge. The
share classes differ principally in their respective sales charges and
distribution and shareholder servicing expenses and arrangements. 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 Heritage's B Class and R
Class commenced on September 28, 2007. Sale of New Opportunities II's
Institutional Class and R Class commenced on May 18, 2007 and September 28,
2007, respectively.
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. Securities traded on foreign
securities exchanges and over-the-counter markets are normally completed
before the close of business on days that the New York Stock Exchange (the
Exchange) is open and may also take place on days when the Exchange is not
open. If an event occurs after the value of a security was established but
before the net asset value per share was determined that was likely to
materially change the net asset value, that security would be valued as
determined in accordance with procedures adopted by the Board of Directors. If
the funds determine that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not
reflect the security's fair value, such security is valued as determined by,
or in accordance with procedures adopted by, the Board of Directors or its
designee if such determination would materially impact a fund's net asset
value. Certain other circumstances may cause the funds to use alternative
procedures to value a security such as: a security has been declared in
default; trading in a security has been halted during the trading day; or
there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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. Certain countries impose taxes on realized gains
on the sale of securities registered in their country. The fund records the
foreign tax expense, if any, on an accrual basis. The realized and unrealized
tax provision reduces the net realized gain (loss) on investment transactions
and net unrealized appreciation (depreciation) on investments, respectively.
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.
EXCHANGE TRADED FUNDS -- The funds may invest in exchange traded funds (ETFs).
ETFs are a type of index fund bought and sold on a securities exchange. An ETF
trades like common stock and represents a fixed portfolio of securities
designed to track the performance and dividend yield of a particular domestic
or foreign market index. A fund may purchase an ETF to temporarily gain
exposure to a
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24
portion of the U.S. or a foreign market while awaiting purchase of underlying
securities. The risks of owning an ETF generally reflect the risks of owning
the underlying securities they are designed to track, although the lack of
liquidity on an ETF could result in it being more volatile. Additionally, ETFs
have management fees, which increase their cost.
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 American Century Investment Management, Inc. (ACIM) (the
investment advisor) 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 or American
Century Global Investment Management, Inc. (ACGIM), 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. The funds are no longer subject to examination by tax
authorities for years prior to 2004. At this time, management has not
identified any uncertain tax positions that would materially impact the
financial statements. Accordingly, no provision has been made for federal or
state income taxes. Interest and penalties associated with any federal or
state income tax obligations, if any, are recorded as interest expense.
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 -- Effective March 1, 2007, New Opportunities II may impose a 2.00%
redemption fee on shares held less than 180 days. The fee may not be
applicable to all classes. 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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the funds. In addition, in the normal
course of business, the funds enter into contracts that provide general
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25
indemnifications. The funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the
funds. The risk of material loss from such claims is considered by management
to be remote.
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
On July 27, 2007, the A Class (formerly Advisor Class) shareholders of
Heritage approved a change in the class's fee structure. The change was
approved by the Board of Directors on November 29, 2006 and March 7, 2007.
Effective September 4, 2007, the fee structure change resulted in an increase
of 0.25% in the unified management fee and a simultaneous decrease of 0.25% in
the total distribution and service fee, resulting in no change to the total
operating expense ratio of the class.
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 advisor'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 advisor 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 Heritage is 1.00% for the
Investor Class, A Class, B Class, C Class and R Class. Prior to September 4,
2007, the A Class was 0.25% less at each point within the range for Heritage.
The annual management fee schedule for New Opportunities II ranges from 1.10%
to 1.50% for the Investor Class, A Class, B Class, C Class and R Class. The
Institutional Class of each fund is 0.20% less at each point within the range.
The effective annual management fee for each class of each fund for the year
ended October 31, 2007 was as follows:
Investor, B, C & R Institutional A
Heritage 1.00% 0.80% 0.82%
New Opportunities II 1.41% 1.21% 1.41%
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a separate
Master Distribution and Individual Shareholder Services Plan for each of the A
Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule
12b-1 of the 1940 Act. The plans provide that the A Class will pay American
Century Investment Services, Inc. (ACIS) an annual distribution and service
fee of 0.25%. The plans provide that the B Class and the C Class will each pay
ACIS an annual distribution fee of 0.75% and service fee of 0.25%. The plans
provide that the R Class will pay ACIS an annual distribution and service fee
of 0.50%. Prior to September 4, 2007, the Board of Directors had adopted a
Master Distribution and Shareholder Services Plan for the A Class of Heritage,
pursuant to Rule 12b-1 of the 1940 Act, in which the A Class of Heritage paid
ACIS an annual distribution fee of 0.25% 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 individual shareholder services rendered
by broker/dealers or other independent financial intermediaries for A Class, B
Class, C Class and R Class shares. Prior to September 4, 2007, the service fee
provided compensation for shareholder and administrative services rendered by
ACIS, its affiliates or independent third party providers for A Class shares
of Heritage. Fees incurred under the plans during the year ended October 31,
2007, are detailed in the Statement of Operations.
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26
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 advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
Beginning in December 2006, the funds are eligible to invest in a money market
fund for temporary purposes, which is managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan 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, 2007, were as follows:
Heritage New Opportunities II
Purchases $3,165,638,664 $770,295,680
Proceeds from sales $2,218,672,201 $686,471,015
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows:
Year ended Year ended
October 31, 2007(1) October 31, 2006
Shares Amount Shares Amount
Heritage
INVESTOR
CLASS/SHARES
AUTHORIZED 400,000,000 400,000,000
============ ============
Sold 55,747,908 $1,085,083,773 25,740,185 $398,912,831
Issued in
reinvestment of
distributions 4,258,562 67,285,282 340,144 4,950,050
Redeemed (18,034,415) (331,684,372) (18,925,889) (286,671,872)
------------ -------------- ------------ -------------
41,972,055 820,684,683 7,154,440 117,191,009
------------ -------------- ------------ -------------
INSTITUTIONAL
CLASS/SHARES
AUTHORIZED 40,000,000 40,000,000
============ ============
Sold 4,242,050 81,839,322 1,462,071 22,561,272
Issued in
reinvestment of
distributions 209,986 3,366,082 18,407 270,958
Redeemed (1,347,922) (25,109,011) (1,038,001) (15,838,812)
------------ -------------- ------------ -------------
3,104,114 60,096,393 442,477 6,993,418
------------ -------------- ------------ -------------
A CLASS/SHARES
AUTHORIZED 100,000,000 100,000,000
============ ============
Sold 11,013,744 210,428,398 3,672,246 55,416,145
Issued in
reinvestment of
distributions 280,594 4,352,011 10,538 151,008
Redeemed (2,042,060) (37,629,295) (1,399,822) (20,980,819)
------------ -------------- ------------ -------------
9,252,278 177,151,114 2,282,962 34,586,334
------------ -------------- ------------ -------------
B CLASS/SHARES
AUTHORIZED 35,000,000 N/A
============ ============
Sold 3,651 80,038
------------ --------------
C CLASS/SHARES
AUTHORIZED 35,000,000 100,000,000
============ ============
Sold 920,436 17,272,099 161,096 2,332,876
Issued in
reinvestment of
distributions 10,254 152,781 409 5,689
Redeemed (72,875) (1,307,383) (73,118) (1,059,228)
------------ -------------- ------------ -------------
857,815 16,117,497 88,387 1,279,337
------------ -------------- ------------ -------------
R CLASS/SHARES
AUTHORIZED 30,000,000 N/A
============ ============
Sold 1,162 25,000
------------ --------------
Net increase
(decrease) 55,191,075 $1,074,154,725 9,968,266 $160,050,098
============ ============== ============ =============
(1) September 28, 2007 (commencement of sale) through October 31, 2007 for B
Class and R Class.
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27
Year ended Year ended
October 31, 2007(1) October 31, 2006
Shares Amount Shares Amount
New Opportunities II
INVESTOR
CLASS/SHARES
AUTHORIZED 165,000,000 250,000,000
============ ============
Sold 16,509,991 $136,035,975 1,441,400 $10,692,358
Issued in
connection with
acquisition (Note
8) 11,629,055 90,241,770 -- --
Issued in
reinvestment of
distributions 485,199 3,454,628 170,452 1,227,252
Redeemed (3,170,120) (26,089,511)(2) (1,274,866) (9,437,141)
------------ -------------- ------------ ------------
25,454,125 203,642,862 336,986 2,482,469
------------ -------------- ------------ ------------
INSTITUTIONAL
CLASS/SHARES
AUTHORIZED 50,000,000 50,000,000
============ ============
Sold 1,988,404 17,346,574 -- --
Redeemed (39,046) (344,012)(3) -- --
------------ -------------- ------------ ------------
1,949,358 17,002,562 -- --
------------ -------------- ------------ ------------
A CLASS/SHARES
AUTHORIZED 100,000,000 25,000,000
============ ============
Sold 3,296,265 29,060,351 4,510,446 33,269,039
Issued in
connection with
acquisition (Note
8) 13,909,669 107,660,863 -- --
Issued in
reinvestment of
distributions 908,837 6,452,744 200,465 1,439,338
Redeemed (6,173,894) (49,631,241)(4) (2,174,195) (16,057,123)
------------ -------------- ------------ ------------
11,940,877 93,542,717 2,536,716 18,651,254
------------ -------------- ------------ ------------
B CLASS/SHARES
AUTHORIZED 20,000,000 25,000,000
============ ============
Sold 76,866 633,968 125,112 916,866
Issued in
reinvestment of
distributions 36,631 258,250 6,983 49,789
Redeemed (73,135) (565,516) (37,490) (268,592)
------------ -------------- ------------ ------------
40,362 326,702 94,605 698,063
------------ -------------- ------------ ------------
C CLASS/SHARES
AUTHORIZED 20,000,000 25,000,000
============ ============
Sold 629,498 5,317,298 224,661 1,650,605
Issued in
connection with
acquisition (Note
8) 903,113 6,962,989 -- --
Issued in
reinvestment of
distributions 35,779 253,319 7,017 50,239
Redeemed (390,349) (3,125,432) (156,369) (1,137,384)
------------ -------------- ------------ ------------
1,178,041 9,408,174 75,309 563,460
------------ -------------- ------------ ------------
R CLASS/SHARES
AUTHORIZED 20,000,000 N/A
============ ============
Sold 2,772 25,000
------------ --------------
Net increase
(decrease) 40,565,535 $323,948,017 3,043,616 $22,395,246
============ ============== ============ ============
(1) May 18, 2007 and September 28, 2007 (commencement of sale) through October
31, 2007 for Institutional Class and R Class, respectively.
(2) Net of redemption fees of $26,104.
(3) Net of redemption fees of $5,237.
(4) Net of redemption fees of $7,198.
5. BANK LINE OF CREDIT
The funds, along with certain other funds managed by ACIM or ACGIM, have a
$500,000,000 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 0.40%. The funds did not borrow from the line during year ended
October 31, 2007.
6. RISK FACTORS
There are certain risks involved in investing in foreign securities. These
risks include those resulting from future adverse political, social, and
economic developments, fluctuations in currency exchange rates, the possible
imposition of exchange controls, and other foreign laws or restrictions.
Investing in emerging markets may accentuate these risks.
- ------
28
New Opportunities II's performance may be affected by investments in initial
public offerings (IPOs). The impact of IPOs on a fund's performance depends on
the strength of the IPO market and the size of the fund. IPOs may have less
impact on a fund's performance as its assets grow.
New Opportunities II concentrates its investments in common stocks of small
companies. Because of this, New Opportunities II may be subject to greater
risk and market fluctuations than a fund investing in larger, more established
companies.
New Opportunities II's investment process may result in high portfolio
turnover, high commission costs and high capital gains distributions. In
addition, its investment approach may involve higher volatility and risk.
7. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years October 31, 2007 and
October 31, 2006 were as follows:
Heritage New Opportunities II
2007 2006 2007 2006
DISTRIBUTIONS PAID FROM
Ordinary income -- -- $2,458,338 $1,381,083
Long-term capital gains $78,368,582 $5,576,741 $9,476,898 $1,602,464
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
As October 31, 2007, the components of distributable earnings on a tax-basis
and the federal tax cost of investments were as follows:
Heritage New Opportunities II
Federal tax cost of investments $2,074,207,680 $449,345,169
=============== ================
Gross tax appreciation of investments $878,353,726 $102,380,648
Gross tax depreciation of investments (5,011,077) (3,128,079)
--------------- ----------------
Net tax appreciation (depreciation) of
investments $873,342,649 $99,252,569
=============== ================
Net tax appreciation (depreciation) on
derivatives and translation of assets
and liabilities in foreign currencies $(350,417) $(2,304)
--------------- ----------------
Net tax appreciation (depreciation) $872,992,232 $99,250,265
=============== ================
Undistributed ordinary income $8,427,916 --
Accumulated long-term gains $132,767,926 $4,754,935
Accumulated capital losses -- $(178,872,880)
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, return of capital dividends and the realization for tax
purposes of unrealized gains on certain forward foreign currency contracts.
The accumulated capital losses listed above for New Opportunities II
represents net capital loss carryovers that may be used to offset future
realized capital gains for federal income tax purposes. The capital loss
carryovers for New Opportunities II expire as follows:
2011 2012 2013 2014
$(13,145,846) $(19,655,453) $(42,248,002) $(103,823,579)
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29
8. REORGANIZATION NOTE
On August 30, 2006, the Board of Directors of Kopp Emerging Growth (Emerging
Growth), one fund in a series issued by Kopp Funds, Inc., approved a plan of
reorganization (the 2007 reorganization) pursuant to which New Opportunities
II acquired all of the assets of Emerging Growth in exchange for shares of
equal value of New Opportunities II and the assumption by New Opportunities II
of all liabilities of Emerging Growth. The financial statements and
performance history of New Opportunities II will be carried over in the
post-reorganization. The 2007 reorganization was approved by shareholders of
Emerging Growth on January 12, 2007. The 2007 reorganization was effective at
the close of business on February 23, 2007.
The acquisition was accomplished by a tax-free exchange of shares. On February
23, 2007, Emerging Growth exchanged its shares for shares of New Opportunities
II as follows:
Shares Shares
Original Fund/Class Exchanged New Fund/Class Received
Emerging Growth - New Opportunities II --
Investor Class 8,812,902 Investor Class 11,629,055
Emerging Growth - New Opportunities II --
A Class 10,913,968 A Class 13,909,669
Emerging Growth - New Opportunities II --
C Class 743,919 C Class 903,113
The net assets of Emerging Growth and New Opportunities II immediately before
the acquisition were $204,865,622 and $157,082,448, respectively. Emerging
Growth's unrealized appreciation of $9,092,774 was combined with that of New
Opportunities II. Immediately after the acquisition, the combined net assets
were $361,948,070. New Opportunities II acquired capital loss carryovers of
$(198,135,391) from Emerging Growth.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
10. OTHER TAX INFORMATION (UNAUDITED)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
New Opportunities II hereby designates up to the maximum amount allowable as
qualified dividend income for the fiscal year ended October 31, 2007.
Heritage and New Opportunities II hereby designate $78,368,582 and $9,476,898
of capital gain distributions, respectively, for the fiscal year ended October
31, 2007.
For corporate taxpayers, ordinary income distributions paid during the fiscal
year ended October 31, 2007, by New Opportunities II of $75,483 qualify for
the corporate dividends received deduction.
- ------
30
FINANCIAL HIGHLIGHTS
Heritage
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $15.58 $13.48 $10.76 $10.78 $9.11
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income
(Loss)(1) (0.10) (0.03) (0.06) (0.05) (0.04)
Net Realized and
Unrealized Gain (Loss) 8.42 2.22 2.78 0.03 1.71
------- ------- ------- ------- -------
Total From Investment
Operations 8.32 2.19 2.72 (0.02) 1.67
------- ------- ------- ------- -------
Distributions
From Net Realized Gains (1.07) (0.09) -- -- --
------- ------- ------- ------- -------
Net Asset Value, End of Period $22.83 $15.58 $13.48 $10.76 $10.78
======= ======= ======= ======= =======
TOTAL RETURN(2) 56.41% 16.26% 25.16% (0.09)% 18.33%
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 (0.56)% (0.22)% (0.46)% (0.44)% (0.39)%
Portfolio Turnover Rate 128% 230% 236% 264% 129%
Net Assets, End of Period (in
millions) $2,478 $1,037 $801 $1,148 $1,227
(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.
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31
Heritage
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $15.80 $13.63 $10.87 $10.86 $9.17
------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income
(Loss)(1) (0.07) --(2) (0.03) (0.03) (0.01)
Net Realized and Unrealized
Gain (Loss) 8.55 2.26 2.79 0.04 1.70
------- ------- ------- ------- -------
Total From Investment
Operations 8.48 2.26 2.76 0.01 1.69
------- ------- ------- ------- -------
Distributions
From Net Realized Gains (1.07) (0.09) -- -- --
------- ------- ------- ------- -------
Net Asset Value, End of Period $23.21 $15.80 $13.63 $10.87 $10.86
======= ======= ======= ======= =======
TOTAL RETURN(3) 56.66% 16.59% 25.39% 0.09% 18.43%
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 (0.36)% (0.02)% (0.26)% (0.24)% (0.19)%
Portfolio Turnover Rate 128% 230% 236% 264% 129%
Net Assets, End of Period (in
thousands) $155,885 $57,039 $43,192 $58,259 $73,735
(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.
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32
Heritage
A Class(1)
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $15.32 $13.29 $10.64 $10.68 $9.05
------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income
(Loss)(2) (0.15) (0.08) (0.09) (0.07) (0.06)
Net Realized and
Unrealized Gain (Loss) 8.27 2.20 2.74 0.03 1.69
------- ------- ------- ------- -------
Total From Investment
Operations 8.12 2.12 2.65 (0.04) 1.63
------- ------- ------- ------- -------
Distributions
From Net Realized Gains (1.07) (0.09) -- -- --
------- ------- ------- ------- -------
Net Asset Value, End of Period $22.37 $15.32 $13.29 $10.64 $10.68
======= ======= ======= ======= =======
TOTAL RETURN(3) 56.05% 15.96% 24.91% (0.37)% 18.01%
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 Income
(Loss) to Average
Net Assets (0.81)% (0.47)% (0.71)% (0.69)% (0.64)%
Portfolio Turnover Rate 128% 230% 236% 264% 129%
Net Assets, End of Period (in
thousands) $291,674 $57,995 $19,953 $15,623 $13,668
(1) Prior to September 4, 2007, the A Class was referred to as the Advisor
Class.
(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.
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.
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33
Heritage
B Class
For a Share Outstanding Throughout the Period Indicated
2007(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $21.52
----------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.03)
Net Realized and Unrealized Gain (Loss) 1.33
----------
Total From Investment Operations 1.30
----------
Net Asset Value, End of Period $22.82
==========
TOTAL RETURN(3) 6.04%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 2.00%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets (1.81)%(4)
Portfolio Turnover Rate 128%(5)
Net Assets, End of Period (in thousands) $83
(1) September 28, 2007 (commencement of sale) through October 31, 2007.
(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, 2007.
See Notes to Financial Statements.
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34
Heritage
C Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $14.77 $12.91 $10.41 $10.54 $8.99
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income
(Loss)(1) (0.29) (0.18) (0.17) (0.15) (0.13)
Net Realized and
Unrealized Gain (Loss) 7.94 2.13 2.67 0.02 1.68
------- ------- ------- ------- -------
Total From Investment
Operations 7.65 1.95 2.50 (0.13) 1.55
------- ------- ------- ------- -------
Distributions
From Net Realized Gains (1.07) (0.09) -- -- --
------- ------- ------- ------- -------
Net Asset Value, End of Period $21.35 $14.77 $12.91 $10.41 $10.54
======= ======= ======= ======= =======
TOTAL RETURN(2) 54.88% 15.11% 24.02% (1.23)% 17.24%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 2.00% 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (1.56)% (1.22)% (1.46)% (1.44)% (1.39)%
Portfolio Turnover Rate 128% 230% 236% 264% 129%
Net Assets, End of Period (in
thousands) $21,692 $2,334 $898 $889 $872
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
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.
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35
Heritage
R Class
For a Share Outstanding Throughout the Period Indicated
2007(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $21.52
----------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.02)
Net Realized and Unrealized Gain (Loss) 1.33
----------
Total From Investment Operations 1.31
----------
Net Asset Value, End of Period $22.83
==========
TOTAL RETURN(3) 6.09%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.50%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets (1.22)%(4)
Portfolio Turnover Rate 128%(5)
Net Assets, End of Period (in thousands) $27
(1) September 28, 2007 (commencement of sale) through October 31, 2007.
(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, 2007.
See Notes to Financial Statements.
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36
New Opportunities II
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $7.63 $6.75 $6.29 $5.75 $4.15
-------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income
(Loss)(1) (0.05) (0.06) (0.06) (0.07) (0.05)
Net Realized and
Unrealized Gain (Loss) 2.52 1.16 0.69 0.61 1.65
-------- ------- ------- ------- -------
Total From Investment
Operations 2.47 1.10 0.63 0.54 1.60
-------- ------- ------- ------- -------
Distributions
From Net Realized Gains (0.68) (0.22) (0.17) -- --
-------- ------- ------- ------- -------
Net Asset Value, End of Period $9.42 $7.63 $6.75 $6.29 $5.75
======== ======= ======= ======= =======
TOTAL RETURN(2) 35.22% 16.52% 10.14% 9.39% 38.55%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.41% 1.50% 1.50% 1.50% 1.50%
Ratio of Net Investment Income
(Loss) to Average
Net Assets (0.70)% (0.80)% (0.93)% (1.09)% (1.11)%
Portfolio Turnover Rate 204% 299% 269% 255% 236%
Net Assets, End of Period (in
thousands) $303,189 $51,336 $43,157 $38,917 $32,512
(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.
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37
New Opportunities II
Institutional Class
For a Share Outstanding Throughout the Period Indicated
2007(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $8.27
----------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.03)
Net Realized and Unrealized Gain (Loss) 1.19
----------
Total From Investment Operations 1.16
----------
Net Asset Value, End of Period $9.43
==========
TOTAL RETURN(3) 14.03%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.21%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets (0.65)%(4)
Portfolio Turnover Rate 204%(5)
Net Assets, End of Period (in thousands) $18,384
(1) May 18, 2007 (commencement of sale) through October 31, 2007.
(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, 2007.
See Notes to Financial Statements.
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38
New Opportunities II
A Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006 2005 2004 2003(1)
PER-SHARE DATA
Net Asset Value, Beginning
of Period $7.59 $6.72 $6.26 $5.74 $4.15
-------- ------- ------- ------- ----------
Income From Investment
Operations
Net Investment Income
(Loss)(2) (0.07) (0.08) (0.08) (0.08) (0.05)
Net Realized and
Unrealized Gain (Loss) 2.51 1.16 0.70 0.60 1.64
-------- ------- ------- ------- ----------
Total From Investment
Operations 2.44 1.08 0.62 0.52 1.59
-------- ------- ------- ------- ----------
Distributions
From Net Realized Gains (0.66) (0.21) (0.16) -- --
-------- ------- ------- ------- ----------
Net Asset Value, End of
Period $9.37 $7.59 $6.72 $6.26 $5.74
======== ======= ======== ======= ==========
TOTAL RETURN(3) 34.91% 16.22% 9.91% 9.06% 38.31%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average
Net Assets 1.66% 1.75% 1.75% 1.75% 1.75%(4)
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.95)% (1.05)% (1.18)% (1.34)% (1.47)%(4)
Portfolio Turnover Rate 204% 299% 269% 255% 236%(5)
Net Assets, End of Period
(in thousands) $202,515 $73,383 $47,937 $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.
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39
New Opportunities II
B Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006 2005 2004 2003(1)
PER-SHARE DATA
Net Asset Value, Beginning of
Period $7.49 $6.63 $6.18 $5.71 $4.15
------- ------- ------- ------- ----------
Income From Investment
Operations
Net Investment Income
(Loss)(2) (0.13) (0.14) (0.13) (0.13) (0.08)
Net Realized and
Unrealized Gain (Loss) 2.49 1.15 0.69 0.60 1.64
------- ------- ------- ------- ----------
Total From Investment
Operations 2.36 1.01 0.56 0.47 1.56
------- ------- ------- ------- ----------
Distributions
From Net Realized Gains (0.60) (0.15) (0.11) -- --
------- ------- ------- ------- ----------
Net Asset Value, End of Period $9.25 $7.49 $6.63 $6.18 $5.71
======= ======= ======= ======= ==========
TOTAL RETURN(3) 33.84% 15.46% 9.03% 8.23% 37.59%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 2.41% 2.50% 2.50% 2.50% 2.50%(4)
Ratio of Net Investment
Income (Loss) to Average Net
Assets (1.70)% (1.80)% (1.93)% (2.09)% (2.20)%(4)
Portfolio Turnover Rate 204% 299% 269% 255% 236%(5)
Net Assets, End of Period (in
thousands) $4,549 $3,383 $2,367 $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.
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40
New Opportunities II
C Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006 2005 2004 2003(1)
PER-SHARE DATA
Net Asset Value, Beginning
of Period $7.52 $6.66 $6.20 $5.73 $4.15
------- ------- ------- ------- ---------
Income From Investment
Operations
Net Investment
Income (Loss)(2) (0.13) (0.14) (0.13) (0.13) (0.07)
Net Realized and
Unrealized Gain (Loss) 2.50 1.15 0.70 0.60 1.65
------- ------- ------- ------- ---------
Total From Investment
Operations 2.37 1.01 0.57 0.47 1.58
------- ------- ------- ------- ---------
Distributions
From Net Realized
Gains (0.60) (0.15) (0.11) -- --
------- ------- ------- ------- ---------
Net Asset Value, End of
Period $9.29 $7.52 $6.66 $6.20 $5.73
======= ======= ======= ======= =========
TOTAL RETURN(3) 34.02% 15.24% 9.16% 8.20% 38.07%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average Net
Assets 2.41% 2.50% 2.50% 2.50% 2.22%(4)(5)
Ratio of Net Investment
Income (Loss) to Average
Net Assets (1.70)% (1.80)% (1.93)% (2.09)% (1.97)%(4)(5)
Portfolio Turnover Rate 204% 299% 269% 255% 236%(6)
Net Assets, End of Period
(in thousands) $16,406 $4,424 $3,414 $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 income (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.
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41
New Opportunities II
R Class
For a Share Outstanding Throughout the Period Indicated
2007(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $9.02
--------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.01)
Net Realized and Unrealized Gain (Loss) 0.41
--------
Total From Investment Operations 0.40
--------
Net Asset Value, End of Period $9.42
========
TOTAL RETURN(3) 4.43%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.91%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets (1.61)%(4)
Portfolio Turnover Rate 204%(5)
Net Assets, End of Period (in thousands) $26
(1) September 28, 2007 (commencement of sale) through October 31, 2007.
(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, 2007.
See Notes to Financial Statements.
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42
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 New Opportunities
II Fund (the "Funds"), two of the mutual funds comprising American Century
Mutual Funds, Inc., as of October 31, 2007, 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. The Funds are not required to have, nor were we engaged to
perform, an audit of their internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities owned as of
October 31, 2007, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing
procedures. 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 each
of the respective Funds as of October 31, 2007, 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 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 12, 2007
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43
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007, to vote on the
following proposals. The proposals received the required number of votes of
the American Century Mutual Funds, Inc. or the applicable fund, depending on
the proposal, and were adopted. A summary of voting results is listed below
each proposal.
PROPOSAL 1:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
PROPOSAL 2:
To approve a change in the fee structure of the Advisor Class of Heritage.
This proposal was voted on by the Advisor Class shareholders of Heritage.
Heritage
For: 37,952,388
Against: 1,442,526
Abstain: 1,471,138
Broker Non-Vote: 12,445,460
- ------
45
MANAGEMENT
The individuals listed below serve as directors or officers of the funds. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue
of their engagement as directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, subsidiaries, including the funds' investment advisor, American
Century Investment Management, Inc. (ACIM); the funds' principal underwriter,
American Century Investment Services, Inc. (ACIS); and the funds' transfer
agent, American Century Services, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the funds also serve in similar capacities
for the other 14 investment companies in the American Century family of funds
advised by ACIM or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the funds. The listed officers are
interested persons of the funds and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUNDS: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUNDS: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUNDS: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- ------
46
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUNDS: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUNDS: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUNDS: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUNDS: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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47
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUNDS: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUNDS: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUNDS: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUNDS: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the funds' directors and is available
without charge, upon request, by calling 1-800-345-2021.
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48
APPROVAL OF MANAGEMENT AGREEMENTS
Heritage and New Opportunities II
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors (the "Directors") each year. At
American Century, this process is referred to as the "15(c) Process." As a
part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning Heritage and New Opportunities II (the
"funds") and the services provided to the funds under the management
agreements. The information considered and the discussions held at the
meetings included, but were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the funds under the management
agreements;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the funds and its shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the funds to the cost of owning similar
funds;
* data comparing the funds' performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the funds to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the funds' board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreements, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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49
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreements under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreements, the advisor is responsible for providing or arranging for all
services necessary for the operation of the funds. The board noted that under
the management agreements, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the funds' portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the funds in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
- ------
50
At each quarterly meeting the Directors review investment performance
information for the funds, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the
funds. The Directors also review detailed performance information during the
15(c) Process comparing the funds' performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. Heritage's performance for both the one- and three-year periods
was above the median for its peer group. New Opportunities II's performance
was above the median of its peer group for the one-year period and equal to
the median for the three-year period.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the funds, its profitability in managing the funds, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreements, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the funds specifically, the expenses incurred by the advisor
in providing various functions to the funds, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the funds increase in size, and through
reinvestment in its business to provide shareholders additional content and
services.
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51
COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the funds, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
funds' independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the funds and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the funds' unified fee to the total
expense ratio of other funds in the funds' peer group. The unified fee charged
to shareholders of Heritage was in the lowest quartile of the total expense
ratios of its peer group. The unified fee charged to shareholders of New
Opportunities II was above the median of the total expense ratios of its peer
group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the funds. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the funds. The
Directors analyzed this information and concluded that the fees charged and
services provided to the funds were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the funds. They concluded that the advisor's primary
business is managing mutual funds and it generally does not use the fund or
shareholder information to generate profits in other lines of business, and
therefore does not derive any significant collateral benefits from them. The
Directors noted that the advisor receives proprietary research from
broker-dealers that execute fund portfolio transactions and concluded that
this research is likely to benefit fund shareholders. The Directors also
determined that the advisor is able to provide investment management services
to certain clients other than the funds, at least in part, due to its existing
infrastructure built to serve the fund complex. The Directors concluded,
however, that the assets of those other clients are not material to the
analysis and, in any event, are included with the assets of the funds to
determine breakpoints in the funds' fee schedule, provided they are managed
using the same investment team and strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor concluded that the
investment management agreement between the funds and the advisor is fair and
reasonable in light of the services provided and should be renewed.
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52
SHARE CLASS INFORMATION
Six classes of shares are authorized for sale by the funds: Investor Class,
Institutional Class, A Class, B Class, C Class and R Class. The total expense
ratio of Institutional Class shares is lower than that of Investor Class
shares. The total expense ratios of A Class, B Class, C Class 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; and/or 2) through
certain financial intermediaries (such as banks, broker-dealers, insurance
companies and investment advisors), which may require payment of a transaction
fee to the financial intermediary. The funds' prospectuses contain additional
information regarding eligibility for Investor Class shares.
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 unified
management fee of Institutional Class shares is 0.20% less than the unified
management fee of Investor Class shares.
A CLASS shares are sold primarily through employer-sponsored retirement plans
and 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. The unified management fee for A Class shares is
the same as for Investor Class shares. A Class shares also are subject to a
0.25% annual Rule 12b-1 distribution and service fee.
B CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as 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% after the sixth year. There is no CDSC on shares acquired
through reinvestment of dividends or capital gains. The unified management fee
for B Class shares is the same as for Investor Class shares. B Class shares
also are subject to a 1.00% annual Rule 12b-1 distribution and service 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
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 CDSC of 1.00%. There is no CDSC on shares acquired through
reinvestment of dividends or capital gains. The unified management fee for C
Class shares is the same as for Investor Class shares. C Class shares also are
subject to a Rule 12b-1 distribution and service fee of 1.00%.
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53
R CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as investment advisors, banks, broker-dealers,
and insurance companies. The unified management fee for R Class shares is the
same as for Investor Class shares. R Class shares are subject to a 0.50%
annual Rule 12b-1 distribution and service fee.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
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54
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 advisor,
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 advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The 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
website at sec.gov, and may be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330. The funds also make
their complete schedule of portfolio holdings for the most recent quarter of
their fiscal year available on their website at americancentury.com and, upon
request, by calling 1-800-345-2021.
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55
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® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
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 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 MIDCAP® VALUE 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 lower price-to-book
ratios and lower forecasted growth values.
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.
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54
[back cover]
[CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
1-800-345-2021 or 816-531-5575
INVESTORS USING ADVISORS:
1-800-378-9878
BUSINESS, NOT-FOR-PROFIT,
EMPLOYER-SPONSORED RETIREMENT PLANS:
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL PROFESSIONALS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investments
P.O. Box 419200
Kansas City, MO 64141-6200
PRSRT STD
U.S. POSTAGE PAID
AMERICAN CENTURY
COMPANIES
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0712
SH-ANN-57615S
[front cover]
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter]
New Opportunities Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century® New
Opportunities Fund for the 12 months ended October 31, 2007. I am honored to
be addressing you in the "Our Message" space long devoted to company founder
Jim Stowers, Jr. and his son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
NEW OPPORTUNITIES
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 9
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 12
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 13
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 14
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 15
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 19
Report of Independent Registered Public Accounting Firm . . . . . . . 20
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 21
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Approval of Management Agreement for New Opportunities. . . . . . . . 25
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 29
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of chief investment officer]
By Steve Lurito, Chief Investment Officer, U.S. Growth Equity
STOCK RETURNS, VOLATILITY UP
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007. Stocks rallied for much of the first half of the fiscal year, touching
record highs in July, as the worldwide economic expansion drove strong
corporate earnings. But the sub-prime mortgage crisis blossomed in late July
and early August in the form of massive losses for banks, residential lenders,
and firms that securitized these subprime loans. This crisis caused a sharp
tightening of lending standards, removing the easy credit that propelled
strong consumer spending and funded a record amount of leveraged buyouts. As a
result, the U.S. stock market came under pressure late in the fiscal year.
By October, stock market volatility surged and credit markets seized up. To
relieve the pressure, the Federal Reserve (the Fed) lowered its benchmark
federal funds rate target in September and again in October -- the Fed's first
rate cuts since June 2003. Markets rallied briefly at fiscal year-end, though
there were concerns heading into November about the future course of corporate
earnings.
GROWTH SHARES LED
Growth stocks led the market during the 12 months, outpacing value-oriented
shares across all market capitalizations. That's because the deceleration in
corporate earnings cast a brighter spotlight on the relative earnings power of
growth companies, providing a favorable context for our growth portfolios and
growth stocks in general. We took advantage of this favorable backdrop,
enjoying a solid year of outperformance.
Looking at returns by sector, energy and materials performed best, supported
by booming global demand for commodities. In contrast, the aforementioned
credit crisis weakened consumer discretionary and financial shares -- the only
two segments of the S&P 500 Index to decline during the period.
We expect a continued favorable environment for growth-stock investing:
interest rates are low, global growth continues to provide new markets for
goods and services, and inflation remains contained.
U.S. Stock Index Returns
For the 12 months ended October 31, 2007
RUSSELL 1000 INDEX (LARGE-CAP) 15.03%
Russell 1000 Growth Index 19.23%
Russell 1000 Value Index 10.83%
RUSSELL MIDCAP INDEX 15.24%
Russell Midcap Growth Index 19.72%
Russell Midcap Value Index 9.73%
RUSSELL 2000 INDEX (SMALL-CAP) 9.27%
Russell 2000 Growth Index 16.73%
Russell 2000 Value Index 2.05%
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2
PERFORMANCE
New Opportunities
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years 10 years Inception Date
NEW OPPORTUNITIES 33.23% 16.42% 10.07% 9.85% 12/26/96
RUSSELL 2000 GROWTH INDEX(1) 16.73% 18.57% 4.75% 5.79%(2) --
(1) Data provided by Lipper Inc. - A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(2) Since 12/31/96, the date nearest the fund'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. Historically, small company stocks have been more
volatile than the stocks of larger, more established companies. The fund's
investment process may result in high portfolio turnover, high commission
costs and high capital gains distributions. In addition, its investment
approach may involve higher volatility and risk. International investing
involves special risks, such as political instability and currency
fluctuations. Investing in emerging markets may accentuate these risks. The
fund's performance may be affected by investments in initial public offerings.
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.
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3
New Opportunities
Growth of $10,000 Over 10 Years
$10,000 investment made October 31, 1997
One-Year Returns Over 10 Years
Periods ended October 31
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
New Opportunities -10.17% 92.03% 83.28% -53.81% -16.46% 26.18% 0.00% 11.26% 14.39% 33.23%
Russell 2000
Growth Index -15.86% 29.28% 16.16% -31.50% -21.57% 46.56% 5.53% 10.91% 17.07% 16.73%
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. Historically, small company stocks have been more
volatile than the stocks of larger, more established companies. The fund's
investment process may result in high portfolio turnover, high commission
costs and high capital gains distributions. In addition, its investment
approach may involve higher volatility and risk. International investing
involves special risks, such as political instability and currency
fluctuations. Investing in emerging markets may accentuate these risks. The
fund's performance may be affected by investments in initial public offerings.
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.
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4
PORTFOLIO COMMENTARY
New Opportunities
Portfolio Managers: Stafford Southwick and Matthew Ferretti
PERFORMANCE SUMMARY
New Opportunities returned 33.23% for the fiscal year ended October 31, 2007,
well ahead of the 16.73% return of its benchmark, the Russell 2000 Growth
Index. Performance during the period reflected the resurgence of small-cap
growth stocks, which outperformed small-cap value issues by a sizable margin
over the past 12 months after lagging for the previous three years.
Despite an increasingly volatile market environment, good stock selection in
the industrials, consumer discretionary, and information technology sectors
contributed the most to the portfolio's strong absolute performance. In
addition, the market continued to reward companies with improving business
fundamentals, accelerating earnings and revenue growth, and price momentum.
INDUSTRIALS ADDED VALUE
Eight of ten market sectors contributed positively to portfolio performance
compared with the Russell 2000 Growth Index. By far, the industrials sector
added the most value, contributing 7.5 percentage points of outperformance.
The top three relative performance contributors also came from this sector of
the portfolio.
One of the main themes in the portfolio's industrials holdings was an emphasis
on dry bulk carriers, which are large ships that carry dry goods -- such as
iron ore, coal, or grains -- across oceans. Healthy demand from China led to
increased port congestion and a shortage of ship capacity, which in turn
boosted day rates (and profits) dramatically for dry bulk carriers. Our top
contributors included Diana Shipping, which gained 215% for the reporting
period, and DryShips, which returned about 650% from the time we bought the
stock in December 2006.
CONSUMER & TECHNOLOGY BOOSTED RESULTS
Aside from industrials, stock selection was most successful in the consumer
discretionary and information technology sectors. The best performers in the
consumer discretionary sector were apparel makers and internet retailers.
Online travel agent Priceline.com benefited from its exposure to the nascent
European market, where faster growth rates and better pricing helped the
company surpass earnings expectations.
On the apparel side, footwear companies generated the highest returns. Deckers
Outdoor, which makes UGG boots and Teva sandals, enjoyed soaring sales, rising
profit margins, and a push toward international expansion of its brands. Crocs
also rallied sharply thanks to the huge popularity of the company's ubiquitous
shoes and sandals.
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Priceline.com Inc. 1.9% 2.2%
Koppers Holdings Inc. 1.5% 1.3%
Exterran Holdings, Inc.(1) 1.4% 0.2%
Zoran Corp. 1.4% --
Kinetic Concepts Inc. 1.4% 0.9%
Deckers Outdoor Corp. 1.4% 1.6%
GFI Group Inc. 1.3% 1.1%
Darling International Inc. 1.3% 1.1%
Esterline Technologies Corp. 1.3% 0.8%
Universal American Financial Corp. 1.3% --
(1) Exterran Holdings, Inc. acquired Hanover Compressor Co. on 8/20/07.
- ------
5
New Opportunities
In the information technology sector, stock selection among software and
Internet-related stocks provided virtually all of the outperformance. Vasco
Data Security International, which makes authentication tokens for secure
access to corporate networks, was the top contributor, benefiting from
increased concerns about network data security.
FOREIGN STOCKS AND IPOS HELPED
The portfolio benefited from its exposure to foreign stocks, which generally
produced better returns than the domestic market thanks to improving economic
conditions overseas and a declining U.S. dollar. The portfolio's average
weighting in international stocks was just under 9% for the reporting period.
Examples from the portfolio included Panamanian airline Copa Holdings, South
American telecommunications company Telecom Argentina, and German carbon fiber
producer SGL Carbon.
The portfolio also derived a portion of its returns from participating in a
number of initial public offerings (IPOs). Among the more successful IPOs were
digital marketing firm comScore, which went public on June 26, 2007, and
architectural engineering firm Aecom Technology, which went public on May 9,
2007.
HEALTH CARE DETRACTED
The only sector to detract meaningfully from performance relative to the
benchmark was health care. Cold and flu medication maker Matrixx Initiatives
fell amid a milder-than-expected flu season last winter, while new product
delays and weaker demand led to an earnings disappointment for contact lens
maker Cooper. We sold the bulk of our positions in both stocks during the
reporting period and eliminated our remaining holdings shortly after the end
of the period.
STARTING POINT FOR NEXT REPORTING PERIOD
We continue to seek out companies with improving business fundamentals,
accelerating earnings and revenue growth, and price momentum. As we head into
the 2008 fiscal year, we are finding incrementally more stock ideas in the
health care sector and fewer ideas in the industrials and materials sectors.
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Chemicals 6.4% 3.3%
Oil, Gas & Consumable Fuels 5.2% 1.8%
Health Care Equipment & Supplies 5.2% 7.1%
Software 5.0% 5.9%
Semiconductors & Semiconductor Equipment 4.9% 1.4%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 88.3% 89.4%
Foreign Common Stocks(1) 7.7% 10.7%
TOTAL COMMON STOCKS 96.0% 100.1%
Temporary Cash Investments 4.4% 0.6%
Other Assets and Liabilities (0.4)% (0.7)%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
- ------
6
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, 2007 to October 31, 2007.
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.
- ------
7
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
Account Account Period* Annualized
Value Value 5/1/07 - Expense
5/1/07 10/31/07 10/31/07 Ratio*
Actual $1,000 $1,173.70 $8.16 1.49%
Hypothetical $1,000 $1,017.69 $7.58 1.49%
* Expenses are equal to the fund's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
- ------
8
SCHEDULE OF INVESTMENTS
New Opportunities
OCTOBER 31, 2007
Shares ($ IN THOUSANDS) Value
Common Stocks -- 96.0%
AEROSPACE & DEFENSE -- 3.2%
15,192 Alliant Techsystems Inc.(1) $ 1,677
7,227 EDO Corp. 419
62,357 Esterline Technologies Corp.(1) 3,416
61,587 Orbital Sciences Corp.(1) 1,572
20,819 Triumph Group, Inc. 1,658
--------
8,742
--------
AUTO COMPONENTS -- 0.5%
57,269 Cooper Tire & Rubber Co. 1,276
--------
BEVERAGES -- 1.2%
89,484 PepsiAmericas, Inc. 3,196
--------
BIOTECHNOLOGY -- 1.0%
110,524 Cubist Pharmaceuticals Inc.(1) 2,586
--------
CAPITAL MARKETS -- 4.3%
41,300 FCStone Group, Inc.(1) 1,456
41,865 GFI Group Inc.(1) 3,614
25,450 HFF Inc. Cl A(1) 256
113,284 optionsXpress Holdings, Inc. 3,371
54,240 Stifel Financial Corp.(1) 3,078
--------
11,775
--------
CHEMICALS -- 6.4%
42,849 Airgas Inc. 2,163
27,478 Arch Chemicals, Inc. 1,254
160,951 Calgon Carbon Corp.(1) 2,398
18,640 Flotek Industries Inc.(1) 947
25,562 ICO, Inc.(1) 370
88,965 Koppers Holdings Inc. 3,986
43,652 SGL Carbon AG ORD(1) 2,565
66,361 Terra Industries Inc.(1) 2,448
27,007 Zoltek Companies., Inc.(1) 1,195
--------
17,326
--------
COMMERCIAL BANKS -- 0.9%
100,717 BancorpSouth Inc. 2,443
--------
COMMERCIAL SERVICES & SUPPLIES -- 2.8%
157,622 Casella Waste Systems, Inc. Cl A(1) 2,321
48,268 Copart, Inc.(1) 1,853
37,833 CRA International, Inc.(1) 1,959
28,641 FTI Consulting, Inc.(1) 1,555
--------
7,688
--------
Shares ($ IN THOUSANDS) Value
COMMUNICATIONS EQUIPMENT -- 3.8%
57,272 Blue Coat Systems, Inc.(1) $ 2,325
80,905 Dycom Industries Inc.(1) 2,286
110,565 Foundry Networks, Inc.(1) 2,337
67,920 Globecomm Systems Inc.(1) 1,049
81,187 Plantronics, Inc. 2,220
--------
10,217
--------
COMPUTERS & PERIPHERALS -- 1.8%
53,811 Novatel Wireless, Inc.(1) 1,399
369,537 Quantum Corp.(1) 1,478
35,341 Synaptics Inc.(1) 1,921
--------
4,798
--------
CONSTRUCTION & ENGINEERING -- 1.0%
38,274 Aecom Technology Corp.(1) 1,293
10,614 Foster Wheeler Ltd.(1) 1,573
--------
2,866
--------
CONSUMER FINANCE -- 0.5%
107,099 EZCORP, Inc. Cl A(1) 1,409
--------
CONTAINERS & PACKAGING -- 0.5%
22,138 Greif, Inc. Cl A 1,408
--------
DIVERSIFIED CONSUMER SERVICES -- 0.7%
34,941 DeVry Inc. 1,911
--------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.3%
63,691 Cbeyond, Inc.(1) 2,492
64,079 Maxcom Telecomunicaciones, SAB de CV ADR(1) 1,112
--------
3,604
--------
ELECTRIC UTILITIES -- 1.1%
109,695 Portland General Electric Co. 3,088
--------
ELECTRICAL EQUIPMENT -- 2.2%
56,212 American Superconductor Corp.(1) 1,526
121,506 GrafTech International Ltd.(1) 2,297
29,901 Woodward Governor Co. 2,003
--------
5,826
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.3%
204,881 Brightpoint Inc.(1) 3,319
25,453 Itron Inc.(1) 2,736
10,271 Spectrum Control Inc.(1) 176
--------
6,231
--------
ENERGY EQUIPMENT & SERVICES -- 1.4%
46,150 Exterran Holdings, Inc.(1) 3,886
--------
- ------
9
New Opportunities
Shares ($ IN THOUSANDS) Value
FOOD & STAPLES RETAILING -- 1.0%
52,683 Andersons Inc. (The) $ 2,616
--------
FOOD PRODUCTS -- 3.1%
42,526 Corn Products International Inc. 1,809
117,359 Cosan Ltd. Cl A(1) 1,490
353,049 Darling International Inc.(1) 3,552
27,135 J.M. Smucker Co. (The) 1,450
--------
8,301
--------
HEALTH CARE EQUIPMENT & SUPPLIES -- 5.2%
50,601 Arthrocare Corp.(1) 3,281
20,627 Cooper Companies, Inc. (The) 866
58,295 Immucor, Inc.(1) 1,880
137,140 IRIS International Inc.(1) 2,523
62,941 Kinetic Concepts Inc.(1) 3,783
37,266 NuVasive, Inc.(1) 1,595
--------
13,928
--------
HEALTH CARE PROVIDERS & SERVICES -- 3.7%
68,945 AMERIGROUP Corp.(1) 2,413
268,700 Amil Participacoes SA ORD(1) 2,522
8,628 Chemed Corp. 495
73,966 Providence Service Corp. (The)(1) 2,351
102,505 RehabCare Group, Inc.(1) 2,126
--------
9,907
--------
HEALTH CARE TECHNOLOGY -- 1.1%
112,589 Omnicell Inc.(1) 2,972
--------
HOTELS, RESTAURANTS & LEISURE -- 2.0%
119,495 Burger King Holdings, Inc. 3,160
27,420 Home Inns & Hotels Management Inc. ADR(1) 1,207
29,886 Monarch Casino & Resort Inc.(1) 914
--------
5,281
--------
HOUSEHOLD DURABLES -- 1.1%
82,243 Tupperware Brands Corp. 2,969
--------
INSURANCE -- 1.3%
139,970 Universal American Financial Corp.(1) 3,396
--------
INTERNET & CATALOG RETAIL -- 1.9%
56,639 Priceline.com Inc.(1) 5,273
--------
INTERNET SOFTWARE & SERVICES -- 3.3%
58,000 Art Technology Group, Inc.(1) 267
52,102 Chordiant Software, Inc.(1) 750
46,293 comScore, Inc.(1) 1,697
Shares ($ IN THOUSANDS) Value
91,056 NaviSite, Inc.(1) $ 990
112,917 Switch & Data Facilities Co. Inc.(1) 2,222
86,674 Vocus Inc.(1) 3,119
--------
9,045
--------
IT SERVICES -- 2.1%
33,853 CACI International Inc.(1) 1,823
57,760 Mantech International Corp. Cl A(1) 2,297
33,341 VeriFone Holdings Inc.(1) 1,648
--------
5,768
--------
LIFE SCIENCES TOOLS & SERVICES -- 1.9%
57,156 Kendle International Inc.(1) 2,305
101,510 PerkinElmer, Inc. 2,794
--------
5,099
--------
MACHINERY -- 3.1%
37,218 EnPro Industries Inc.(1) 1,526
45,792 Manitowoc Co., Inc. (The) 2,256
56,294 Tennant Co. 2,655
21,502 Valmont Industries, Inc. 2,058
--------
8,495
--------
MARINE -- 3.2%
76,049 Diana Shipping Inc. 3,255
24,183 DryShips Inc. 2,850
76,384 Eagle Bulk Shipping Inc. 2,604
--------
8,709
--------
METALS & MINING -- 0.2%
7,164 Schnitzer Steel Industries, Inc. Cl A 473
--------
MULTI-INDUSTRY -- 2.4%
19,518 iShares Dow Jones U.S. Financial Sector Index Fund 2,107
36,519 iShares Dow Jones U.S. Healthcare Sector Index Fund 2,630
21,716 iShares Dow Jones U.S. Real Estate Index Fund 1,670
--------
6,407
--------
OIL, GAS & CONSUMABLE FUELS -- 5.2%
52,137 Cabot Oil & Gas Corp. 2,069
45,177 Clean Energy Fuels Corp.(1) 808
133,771 Concho Resources Inc.(1) 2,607
68,259 Encore Acquisition Co.(1) 2,505
65,779 Forest Oil Corp.(1) 3,197
34,573 GMX Resources Inc.(1) 1,331
26,115 Quicksilver Resources Inc.(1) 1,489
--------
14,006
--------
- ------
10
New Opportunities
Shares ($ IN THOUSANDS) Value
PERSONAL PRODUCTS -- 1.0%
113,890 American Oriental Bioengineering Inc.(1) $ 1,568
16,782 Chattem, Inc.(1) 1,247
--------
2,815
--------
PHARMACEUTICALS -- 0.7%
4,978 Matrixx Initiatives Inc.(1) 86
80,723 Obagi Medical Products Inc.(1) 1,763
--------
1,849
--------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.9%
161,680 EMCORE Corp.(1) 1,745
126,525 Microsemi Corp.(1) 3,367
225,546 Microtune, Inc.(1) 1,360
170,029 Semtech Corp.(1) 2,909
149,578 Zoran Corp.(1) 3,814
--------
13,195
--------
SOFTWARE -- 5.0%
83,780 Aladdin Knowledge Systems Ltd.(1) 2,007
183,536 Aspen Technology, Inc.(1) 3,201
133,012 Lawson Software Inc.(1) 1,502
122,387 Magma Design Automation, Inc.(1) 1,822
22,148 NetScout Systems, Inc.(1) 342
78,942 PROS Holdings, Inc.(1) 1,419
115,105 Taleo Corp. Cl A(1) 3,217
--------
13,510
--------
SPECIALTY RETAIL -- 0.6%
100,990 hhgregg, Inc.(1) 1,592
--------
TEXTILES, APPAREL & LUXURY GOODS -- 2.9%
28,009 Crocs, Inc.(1) 2,094
26,836 Deckers Outdoor Corp.(1) 3,751
47,648 Warnaco Group Inc. (The)(1) 1,939
--------
7,784
--------
Shares ($ IN THOUSANDS) Value
TRADING COMPANIES & DISTRIBUTORS -- 0.8%
99,090 Genesis Lease Ltd. ADR $ 2,174
--------
WIRELESS TELECOMMUNICATION SERVICES -- 1.4%
175,956 Syniverse Holdings Inc.(1) 2,937
73,274 Virgin Mobile USA, Inc. Cl A(1) 890
--------
3,827
--------
TOTAL COMMON STOCKS
(Cost $209,126) 259,667
--------
Temporary Cash Investments -- 4.4%
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Treasury obligations, 8.125%, 8/15/19,
valued at $12,047), in a joint trading account at 4.47%, dated
10/31/07, due 11/1/07 (Delivery value $11,801)
(Cost $11,800) 11,800
--------
TOTAL INVESTMENT SECURITIES -- 100.4%
(Cost $220,926) 271,467
--------
OTHER ASSETS AND LIABILITIES -- (0.4)% (1,039)
--------
TOTAL NET ASSETS -- 100.0% $270,428
========
Notes to Schedule of Investments
ADR = American Depositary Receipt
ORD = Foreign Ordinary Share
(1) Non-income producing.
As of October 31, 2007, securities with an aggregate value of $2,565 (in
thousands), which represented 0.9% of total net assets, were valued in
accordance with alternative pricing procedures adopted by the Board of
Directors.
See Notes to Financial Statements.
- ------
11
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
ASSETS
Investment securities, at value (cost of $220,926) $271,467
Cash 52
Receivable for investments sold 7,281
---------
278,800
---------
LIABILITIES
Payable for investments purchased 8,032
Accrued management fees 340
---------
8,372
---------
NET ASSETS $270,428
=========
CAPITAL SHARES, $0.01 PAR VALUE
Authorized 300,000
=========
Outstanding 31,528
=========
NET ASSET VALUE PER SHARE $8.58
=========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $286,429
Accumulated net realized loss on investment and foreign currency
transactions (66,505)
Net unrealized appreciation on investments and translation of assets
and liabilities in foreign currencies 50,504
---------
$270,428
=========
See Notes to Financial Statements.
- ------
12
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends $ 1,505
Interest 191
---------
1,696
---------
EXPENSES:
Management fees 3,765
Directors' fees and expenses 5
Other expenses 8
---------
3,778
---------
NET INVESTMENT INCOME (LOSS) (2,082)
---------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment and foreign currency
transactions 53,832
Change in net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign currencies 20,464
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) 74,296
---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $72,214
=========
See Notes to Financial Statements.
- ------
13
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006 (AMOUNTS IN THOUSANDS)
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $(2,082) $(2,176)
Net realized gain (loss) 53,832 35,957
Change in net unrealized appreciation (depreciation) 20,464 (894)
-------- --------
Net increase (decrease) in net assets resulting from
operations 72,214 32,887
-------- --------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 15,959 25,292
Payments for shares redeemed(1) (65,621) (50,767)
-------- --------
Net increase (decrease) in net assets from capital share
transactions (49,662) (25,475)
-------- --------
NET INCREASE (DECREASE) IN NET ASSETS 22,552 7,412
NET ASSETS
Beginning of period 247,876 240,464
-------- --------
End of period $270,428 $247,876
======== ========
TRANSACTIONS IN SHARES OF THE FUND
Sold 2,134 3,875
Redeemed (9,111) (8,088)
-------- --------
Net increase (decrease) in shares of the fund (6,977) (4,213)
======== ========
(1) Net of redemption fees of $12 and $62, respectively.
See Notes to Financial Statements.
- ------
14
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007 (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 management believes will increase in value
over time. 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will
commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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.
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.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of 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.
- ------
15
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
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 or American
Century Global Investment Management, Inc. (ACGIM), 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.
EXCHANGE TRADED FUNDS -- The fund may invest in exchange traded funds (ETFs).
ETFs are a type of index fund bought and sold on a securities exchange. An ETF
trades like common stock and represents a fixed portfolio of securities
designed to track the performance and dividend yield of a particular domestic
or foreign market index. A fund may purchase an ETF to temporarily gain
exposure to a portion of the U.S. or a foreign market while awaiting purchase
of underlying securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities they are designed to track, although
the lack of liquidity on an ETF could result in it being more volatile.
Additionally, ETFs have management fees, which increase their cost.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions that would materially impact the financial statements.
Accordingly, no provision has been made for federal or state income taxes.
Interest and penalties associated with any federal or state income tax
obligations, if any, are recorded as interest expense.
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 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 help cover
transaction costs that long-term investors may bear when a fund sells
securities to meet investor redemptions.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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)
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 advisor'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 advisor 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 the fund ranges from 1.10% to 1.50%. The effective
annual management fee for the fund for the year ended October 31, 2007 was
1.50%.
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16
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
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 advisor, ACIM, the distributor of the corporation, American Century
Investment Services, Inc., and the corporation's transfer agent, American
Century Services, LLC.
Beginning in December 2006, the fund is eligible to invest in a money market
fund for temporary purposes, which is managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan 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, 2007, were $499,243 and $559,163,
respectively.
4. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a $500
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 0.40%. The fund did not borrow from the line during the year ended
October 31, 2007.
5. RISK FACTORS
The fund concentrates its investments in common stocks of small companies.
Because of this, the fund may be subject to greater risk and market
fluctuations than a fund investing in larger, more established companies. The
fund's investment process may result in high portfolio turnover, high
commission costs and high capital gains distributions. In addition, its
investment approach may involve higher volatility and risk. There are certain
risks involved in investing in foreign securities. These risks include those
resulting from future adverse political, social, and economic developments,
fluctuations in currency exchange rates, the possible imposition of exchange
controls, and other foreign laws or restrictions. Investing in emerging
markets may accentuate these risks. The fund's performance may be affected by
investments in initial public offerings (IPOs). The impact of IPOs on a fund's
performance depends on the strength of the IPO market and the size of the
fund. IPOs may have less impact on a fund's performance as its assets grow.
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17
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
6. FEDERAL TAX INFORMATION
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
There were no distributions paid by the fund during the years ended October
31, 2007 and October 31, 2006.
As of October 31, 2007, the components of distributable earnings on a
tax-basis and the federal tax cost of investments were as follows:
Federal tax cost of investments $221,066
=========
Gross tax appreciation of investments $52,035
Gross tax depreciation of investments (1,634)
---------
Net tax appreciation (depreciation) of investments $50,401
=========
Net tax appreciation (depreciation) on translation of assets and
liabilities in foreign currencies $(37)
---------
Net tax appreciation (depreciation) $50,364
=========
Accumulated capital losses $(66,365)
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 $(28,666) and
$(37,699) expire in 2008 and 2009, respectively.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
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18
FINANCIAL HIGHLIGHTS
New Opportunities
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $6.44 $5.63 $5.06 $5.06 $4.01
-------- -------- -------- -------- --------
Income From
Investment Operations
Net Investment
Income (Loss) (0.07) (0.06) (0.06) (0.06) (0.04)
Net Realized and
Unrealized Gain
(Loss) 2.21 0.87 0.63 0.06 1.09
-------- -------- -------- -------- --------
Total From
Investment Operations 2.14 0.81 0.57 -- 1.05
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $8.58 $6.44 $5.63 $5.06 $5.06
======== ======== ======== ======== ========
TOTAL RETURN(1) 33.23% 14.39% 11.26% 0.00% 26.18%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.50% 1.50% 1.50% 1.49% 1.50%
Ratio of Net
Investment Income
(Loss ) to Average
Net Assets (0.83)% (0.84)% (0.98)% (1.04)% (0.98)%
Portfolio
Turnover Rate 201% 298% 260% 269% 217%
Net Assets, End of
Period (in thousands) $270,428 $247,876 $240,464 $273,555 $318,226
(1) Total return assumes reinvestment of net investment income and capital
gains distributions, if any.
See Notes to Financial Statements.
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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 New Opportunities Fund (the "Fund"),
one of the mutual funds comprising American Century Mutual Funds, Inc., as of
October 31, 2007, and the related statement 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 each of the five years
in the period then ended. 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. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of October 31, 2007,
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. 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, 2007, 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 each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 12, 2007
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20
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007, to vote on the
following proposal. The proposal received the required number of votes of the
American Century Mutual Funds, Inc. and was adopted. A summary of voting
results is listed below the proposal.
PROPOSAL:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
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21
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 directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, 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, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the fund also serve in similar capacities for
the other 14 investment companies in the American Century family of funds
advised by ACIM, or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the fund. The listed officers are
interested persons of the fund and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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22
INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
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 (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUND: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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23
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUND: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the fund's directors and is available
without charge, upon request, by calling 1-800-345-2021.
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24
APPROVAL OF MANAGEMENT AGREEMENT
New Opportunities
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning New Opportunities (the "fund") and the
services provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund under the management
agreement;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the fund and its shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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25
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
- ------
26
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance fell below the median for both the one-
and three-year periods during part of the past year. The board discussed the
fund's performance with the advisor and was satisfied with the efforts being
undertaken by the advisor.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the fund, its profitability in managing the fund, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
27
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was above the median of the total expense ratios
of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor concluded that the
investment management agreement between the fund and the advisor is fair and
reasonable in light of the services provided and should be renewed.
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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 advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at americancentury.com and, upon request, by calling
1-800-345-2021.
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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 RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 100® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
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 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 MIDCAP® VALUE 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 lower price-to-book
ratios and lower forecasted growth values.
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.
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30
NOTES
- ------
31
NOTES
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32
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
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 PROFESSIONALS, 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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investments
P.O. Box 419200
Kansas City, MO 64141-6200
PRSRT STD
U.S. POSTAGE PAID
AMERICAN CENTURY
COMPANIES
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0712
SH-ANN-57609S
[front cover]
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter]
Balanced Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century® Balanced Fund
for the 12 months ended October 31, 2007. I am honored to be addressing you in
the "Our Message" space long devoted to company founder Jim Stowers, Jr. and
his son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Market Returns. . . . . . . . . . . . . . . . . . . . . . . . . 2
BALANCED
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Stock Holdings . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Stock Industries. . . . . . . . . . . . . . . . . . . . . . 5
Key Fixed-Income Portfolio Statistics. . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 9
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 20
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 21
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 22
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 23
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 29
Report of Independent Registered Public Accounting Firm . . . . . . . 32
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 33
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Approval of Management Agreement for Balanced . . . . . . . . . . . . 38
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 42
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 43
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 44
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS ROSE DESPITE INCREASE IN VOLATILITY
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007. The bulk of the market's gains occurred between late 2006 and mid-2007,
driven by better-than-expected corporate earnings growth and robust merger
activity, which continued at a brisk pace thanks to leveraged buy-outs from
private equity firms.
After reaching all-time highs in mid-July, however, the major stock indexes
reversed course, declining sharply as a meltdown in the subprime lending
industry led to a credit crisis. Tighter lending standards crimped funding for
leveraged buy-outs, removing an important leg of support for the stock market,
and rising energy and commodity prices sparked inflation worries despite
slowing economic activity.
As investors grew increasingly risk-averse, the Federal Reserve (the Fed)
lowered its discount rate in mid-August and federal funds rate target in both
September and October -- the Fed's first rate cuts since June 2003. The Fed's
actions helped alleviate some of the credit and economic concerns, allowing
the major stock indexes to stage an uneven but solid recovery during the last
two months of the period.
A SHIFTING LANDSCAPE FOR BONDS
The U.S. bond market also advanced for the 12-month period as the economy
downshifted and the Fed cut short-term interest rates. However, bond market
volatility increased markedly as the subprime mortgage meltdown spread to the
credit markets.
Although bond yields generally declined across the board, shorter-term yields
fell the most -- the two-year Treasury note yield declined from 4.70% to
3.95%, reflecting the change in Fed rate policy. In contrast, longer-term
yields fell modestly -- the 10-year Treasury bond yield edged down from 4.60%
to 4.47% -- as investors worried about the potential long-term inflation
effects of the Fed rate cuts, higher energy and commodity prices, and a weaker
dollar.
Treasury and government agency bonds generated the best returns in the bond
market, benefiting from a flight to quality. Higher-quality mortgage-backed
securities also held up well. Corporate bonds lagged, held back by growing
concerns about credit quality.
U.S. Market Returns
For the 12 months ended October 31, 2007
STOCK INDICES
Russell 1000 Index (large-cap) 15.03%
Russell Midcap Index 15.24%
Russell 2000 Index (small-cap) 9.27%
CITIGROUP US BOND MARKET INDICES
Broad Investment-Grade (multi-sector) 5.50%
Treasury 5.93%
Agency 5.78%
Mortgage 5.65%
Credit (investment-grade corporate) 4.69%
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2
PERFORMANCE
Balanced
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years 10 years Inception Date
INVESTOR CLASS 8.92% 10.20% 5.92% 9.06% 10/20/88
BLENDED INDEX 10.95% 10.18% 6.96% 10.32%(1) --
S&P 500 INDEX(2) 14.56% 13.88% 7.10% 11.88%(1) --
CITIGROUP US BROAD
INVESTMENT-GRADE
BOND INDEX 5.50% 4.52% 5.95% 7.41%(1) --
Institutional Class 9.07% 10.40% -- 4.25% 5/1/00
Advisor Class 8.65% 9.93% 5.65% 6.45% 1/6/97
(1) Since 10/31/88, the date nearest the Investor Class's inception for which
data are available.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
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.
International investing involves special risks, such as political instability
and currency fluctuations.
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
Balanced
Growth of $10,000 Over 10 Years
$10,000 investment made October 31, 1997
One-Year Returns Over 10 Years
Periods ended October 31
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investor Class 10.46% 12.03% 5.90% -10.46% -6.80% 15.92% 8.46% 6.89% 11.04% 8.92%
Blended index 17.47% 15.17% 6.84% -10.54% -6.64% 14.57% 7.99% 5.78% 11.83% 10.95%
S&P 500 Index 21.99% 25.67% 6.09% -24.90% -15.11% 20.80% 9.42% 8.72% 16.34% 14.56%
Citigroup US
Broad
Investment-Grade
Bond Index 9.40% 0.49% 7.28% 14.61% 5.75% 4.99% 5.70% 1.24% 5.24% 5.50%
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.
International investing involves special risks, such as political instability
and currency fluctuations.
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.
- ------
4
PORTFOLIO COMMENTARY
Balanced
Equity Portfolio Managers: Bill Martin, Tom Vaiana, Fei Zou
Fixed-Income Portfolio Managers: Dave MacEwen, Bob Gahagan, Jim Keegan, Jeff
Houston, Hando Aguilar, Brian Howell, John Walsh, Dan Shiffman, Jim Platz, and
Seth Plunkett
PERFORMANCE SUMMARY
Balanced returned 8.92%* for the fiscal year ended October 31, 2007, compared
with the 10.95% return of its benchmark (a blended index consisting of 60% S&P
500 Index and 40% Citigroup US Broad Investment-Grade [BIG] Bond Index).
Both the fund and the benchmark enjoyed solid returns thanks to double-digit
gains for stocks and a moderate advance for bonds. The portfolio's equity
component trailed the S&P 500 for the reporting period and was primarily
responsible for the fund's overall underperformance versus its benchmark. The
fixed-income portion of the portfolio modestly outperformed the Citigroup BIG
Index. (It's worth noting that the fund's results reflected operating
expenses, while the benchmark's return did not.)
STOCK COMPONENT LAGGED
The stock portion of the Balanced portfolio underperformed the S&P 500,
largely because of stock selection in the information technology and health
care sectors.
Stock choices among computer hardware makers and Internet-related companies
detracted the most from relative results in the information technology sector.
An overweight position in printer manufacturer Lexmark International hurt
performance as the company reported disappointing profits and lowered its
earnings outlook amid tougher price competition and higher operating costs.
Health care providers and bio-technology stocks were the main contributors to
underperformance in the health care sector. The portfolio's biggest individual
detractor from relative performance was biotechnology firm Amgen, which faced
a challenging regulatory and competitive environment for its top-selling drug.
On the positive side, the fund's foreign stocks contributed meaningfully to
performance. In addition, stock selection added value in the energy and
materials sectors; five of the top six relative performance contributors came
from these two sectors. Chemicals stocks were
Balanced's Top Ten Stock Holdings as of October 31, 2007
% of % of
equity holdings S&P 500 Index
Exxon Mobil Corp. 5.5% 3.7%
International Business
Machines Corp. 3.1% 1.2%
Johnson & Johnson 2.9% 1.4%
Hewlett-Packard Co. 2.8% 1.0%
Citigroup Inc. 2.8% 1.5%
ConocoPhillips 2.6% 1.0%
JPMorgan Chase & Co. 2.6% 1.2%
Walt Disney Co. (The) 2.0% 0.5%
Intel Corp. 2.0% 1.2%
Lockheed Martin Corp. 1.9% 0.3%
Balanced's Top Five Stock Industries as of October 31, 2007
% of % of
equity holdings S&P 500 Index
Oil, Gas & Consumable Fuels 11.1% 9.4%
Diversified Financial Services 7.1% 5.1%
Media 4.9% 2.8%
IT Services 4.8% 2.0%
Computers & Peripherals 4.8% 3.5%
*All fund returns referenced in this commentary are for Investor Class shares.
- ------
5
Balanced
the best performers in the materials sector, led by Lyondell Chemical, which
agreed to be acquired at a premium by Dutch chemicals company Basell
International Holdings in July 2007. The top contributor in the energy sector
was Canadian oil and natural gas producer EnCana, which benefited from higher
refining profit margins as gas and oil prices surged.
FIXED-INCOME BOOSTED RESULTS
The portfolio's bond component advanced and modestly outpaced the return of
the Citigroup BIG Index during the reporting period, with much of the
outperformance occurring over the last six months.
A defensive position with regard to sector allocation contributed favorably to
relative performance. The portfolio benefited from an underweight position in
corporate bonds -- to protect against increasing event and credit risk -- as
corporate securities lagged other sectors of the bond market. In addition, a
shift to an overweight position in Treasury bonds added value as a flight to
quality boosted Treasury bonds in the last few months of the period.
The portfolio's mortgage-backed securities, which represented the largest
sector weighting in the bond component, produced mixed results. Bonds backed
by fixed-rate mortgages held up well despite the meltdown in the subprime
mortgage market. In contrast, spillover fears from the residential subprime
mess and a sharp increase in supply weighed on the performance of commercial
mortgage-backed securities.
A steeper yield curve provided a lift to performance as the bond portion of
the portfolio was positioned to benefit from a wider gap between short- and
long-term interest rates. During the reporting period, short-term rates fell
substantially, while longer-term rates declined modestly.
STARTING POINT FOR NEXT REPORTING PERIOD
Both the stock and bond markets experienced increased volatility in recent
months, and this appears likely to continue as we move into 2008. The ripple
effects of the subprime mortgage fiasco on the rest of the economy are still
playing out, leading to considerable uncertainty about the economic
environment. In addition, the Federal Reserve provided a balanced outlook
following its most recent interest rate cut, suggesting that the Fed may be on
hold in the coming months.
We will continue to focus on our disciplined investment approaches for both
the stock and bond components of the portfolio, seeking to take advantage of
investment opportunities created by the volatile market environment.
Key Fixed-Income Portfolio Statistics
As of As of
10/31/07 4/30/07
Weighted Average Maturity 4.5 years 4.4 years
Average Duration (Effective) 5.0 years 4.6 years
Types of Investments in Portfolio
% of fund % of fund
investments investments
as of as of
10/31/07 4/30/07
Common Stocks 52.8% 50.2%
Mortgage- & Asset-Backed Securities 18.2% 17.5%
U.S. Treasury Securities 9.0% 6.7%
Corporate Bonds 5.8% 4.7%
U.S. Government Agency Securities 2.4% 5.4%
Other 0.2% 0.2%
Temporary Cash Investments 1.7% 2.2%
Temporary Cash Investments - Securities
Lending Collateral 9.9% 13.1%
- ------
6
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, 2007 to October 31, 2007.
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.
- ------
7
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 5/1/07 - Expense
5/1/07 10/31/07 10/31/07 Ratio*
ACTUAL
Investor Class $1,000 $1,026.20 $4.60 0.90%
Institutional
Class $1,000 $1,027.20 $3.58 0.70%
Advisor Class $1,000 $1,024.90 $5.87 1.15%
HYPOTHETICAL
Investor Class $1,000 $1,020.67 $4.58 0.90%
Institutional
Class $1,000 $1,021.68 $3.57 0.70%
Advisor Class $1,000 $1,019.41 $5.85 1.15%
*Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
- ------
8
SCHEDULE OF INVESTMENTS
Balanced
OCTOBER 31, 2007
Shares/Principal Amount ($ IN THOUSANDS) Value
Common Stocks -- 60.3%
AEROSPACE & DEFENSE -- 1.4%
15,703 Boeing Co. $ 1,547
3,813 Cubic Corp. 172
69,359 Lockheed Martin Corp. 7,632
---------
9,351
---------
AIR FREIGHT & LOGISTICS -- 0.5%
5,054 C.H. Robinson Worldwide Inc. 252
9,126 FedEx Corporation 943
31,089 United Parcel Service, Inc. Cl B 2,335
---------
3,530
---------
AIRLINES(1)
21,568 Southwest Airlines Co. 306
---------
AUTO COMPONENTS -- 0.3%
17,523 Magna International Inc. Cl A 1,660
---------
AUTOMOBILES -- 0.2%
117,200 Ford Motor Co.(2) 1,040
---------
BEVERAGES -- 1.0%
83,798 Coca-Cola Enterprises Inc. 2,163
75,958 Pepsi Bottling Group Inc. 3,272
21,011 PepsiAmericas, Inc. 751
---------
6,186
---------
BIOTECHNOLOGY -- 1.0%
37,043 Biogen Idec Inc.(2) 2,757
1,583 Cubist Pharmaceuticals Inc.(2) 37
76,771 Gilead Sciences, Inc.(2) 3,547
---------
6,341
---------
BUILDING PRODUCTS(1)
4,714 Goodman Global, Inc.(2) 116
---------
CAPITAL MARKETS -- 2.2%
18,785 Goldman Sachs Group, Inc. (The) 4,657
99,371 Morgan Stanley 6,684
33,442 State Street Corp. 2,668
---------
14,009
---------
CHEMICALS -- 0.6%
783 Celanese Corp., Series A 33
5,306 CF Industries Holdings, Inc. 466
52,023 Mosaic Co. (The)(2) 3,631
---------
4,130
---------
COMMERCIAL BANKS -- 0.7%
8,073 Royal Bank of Canada 478
118,706 Wells Fargo & Co. 4,037
---------
4,515
---------
Shares/Principal Amount ($ IN THOUSANDS) Value
COMMERCIAL SERVICES & SUPPLIES -- 0.4%
62,230 Deluxe Corp. $ 2,511
6,124 Republic Services, Inc. 209
---------
2,720
---------
COMMUNICATIONS EQUIPMENT -- 1.4%
217,574 Cisco Systems Inc.(2) 7,193
50,934 QUALCOMM Inc. 2,176
---------
9,369
---------
COMPUTERS & PERIPHERALS -- 2.9%
31,887 Apple Inc.(2) 6,057
215,073 Hewlett-Packard Co. 11,115
54,512 Seagate Technology 1,518
---------
18,690
---------
CONSTRUCTION & ENGINEERING -- 0.5%
43,936 Chicago Bridge & Iron Company New York Shares 2,196
3,916 EMCOR Group Inc.(2) 135
4,859 Fluor Corp. 768
---------
3,099
---------
CONSUMER FINANCE -- 0.9%
74,563 American Express Co. 4,544
51,947 Discover Financial Services 1,003
---------
5,547
---------
CONTAINERS & PACKAGING -- 0.3%
15,595 Owens-Illinois Inc.(2) 693
43,749 Rock-Tenn Co. Cl A 1,275
---------
1,968
---------
DIVERSIFIED CONSUMER SERVICES -- 0.2%
18,664 Sotheby's 1,011
---------
DIVERSIFIED FINANCIAL SERVICES -- 4.3%
141,106 Bank of America Corp.(5) 6,813
263,288 Citigroup Inc.(5) 11,031
217,025 JPMorgan Chase & Co.(5) 10,200
---------
28,044
---------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4%
149,658 AT&T Inc. 6,255
2,525 CenturyTel Inc. 111
55,507 Verizon Communications Inc. 2,557
---------
8,923
---------
ELECTRIC UTILITIES -- 1.5%
6,913 Edison International 402
44,109 Entergy Corp. 5,288
14,505 FPL Group, Inc. 992
116,440 Reliant Energy, Inc.(2) 3,204
---------
9,886
---------
- ------
9
BALANCED
Shares/Principal Amount ($ IN THOUSANDS) Value
ELECTRICAL EQUIPMENT -- 0.3%
5,291 Emerson Electric Co. $ 277
73,630 GrafTech International Ltd.(2) 1,391
---------
1,668
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.2%
37,071 Avnet, Inc.(2) 1,547
---------
ENERGY EQUIPMENT & SERVICES -- 1.4%
4,426 Cameron International Corp.(2) 431
14,063 Halliburton Co. 554
88,464 National Oilwell Varco, Inc.(2) 6,479
19,588 Schlumberger Ltd. 1,892
---------
9,356
---------
FOOD & STAPLES RETAILING -- 1.0%
220,886 Kroger Co. (The) 6,492
---------
FOOD PRODUCTS -- 0.4%
46,049 General Mills, Inc. 2,658
---------
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.2%
124,264 Baxter International Inc. 7,457
66,691 Becton, Dickinson & Co. 5,566
15,255 Mettler-Toledo International, Inc.(2) 1,622
---------
14,645
---------
HEALTH CARE PROVIDERS & SERVICES -- 0.8%
1,388 AMERIGROUP Corp.(2) 49
17,368 Express Scripts, Inc.(2) 1,096
50,236 Humana Inc.(2) 3,765
23,313 WellCare Health Plans Inc.(2)(3) 564
---------
5,474
---------
HOTELS, RESTAURANTS & LEISURE -- 0.9%
23,796 Choice Hotels International Inc. 922
86,720 McDonald's Corporation 5,177
---------
6,099
---------
HOUSEHOLD DURABLES -- 0.2%
2,591 Garmin Ltd. 278
32,556 Tupperware Brands Corp. 1,176
---------
1,454
---------
HOUSEHOLD PRODUCTS -- 0.7%
5,992 Colgate-Palmolive Co. 457
36,596 Energizer Holdings Inc.(2) 3,817
8,588 Procter & Gamble Co. (The) 597
---------
4,871
---------
INDUSTRIAL CONGLOMERATES -- 1.0%
152,791 General Electric Co. 6,289
---------
INSURANCE -- 2.2%
20,733 Ace, Ltd. 1,257
60,874 Arch Capital Group Ltd.(2) 4,552
36,396 Aspen Insurance Holdings Ltd. 996
Shares/Principal Amount ($ IN THOUSANDS) Value
103,228 Axis Capital Holdings Ltd. $ 4,102
18,964 Berkley (W.R.) Corp. 571
77,823 Endurance Specialty Holdings Ltd. 3,051
1,771 Travelers Companies, Inc. (The) 92
---------
14,621
---------
INTERNET & CATALOG RETAIL -- 0.8%
55,681 Amazon.com, Inc.(2) 4,964
---------
INTERNET SOFTWARE & SERVICES -- 0.9%
8,304 Google Inc. Cl A(2) 5,871
---------
IT SERVICES -- 2.9%
156,602 Accenture Ltd. Cl A 6,115
105,323 International Business Machines Corp. 12,230
14,850 Total System Services Inc.(3) 445
---------
18,790
---------
LEISURE EQUIPMENT & PRODUCTS -- 0.3%
61,114 Eastman Kodak Co.(3) 1,752
---------
MACHINERY -- 1.1%
15,553 Cummins Inc. 1,866
26,445 Deere & Co. 4,096
13,671 SPX Corp. 1,385
---------
7,347
---------
MEDIA -- 2.9%
116,025 DIRECTV Group, Inc. (The)(2) 3,072
119,974 EchoStar Communications Corp. Cl A(2) 5,874
8,645 Omnicom Group Inc. 441
26,199 Regal Entertainment Group Cl A(3) 591
25,880 Viacom Inc. Cl B(2) 1,069
231,014 Walt Disney Co. (The) 8,000
---------
19,047
---------
METALS & MINING -- 0.9%
7,052 AK Steel Holding Corp.(2) 354
3,593 Freeport-McMoRan Copper & Gold, Inc. 423
37,344 Southern Copper Corp.(3) 5,216
---------
5,993
---------
MULTILINE RETAIL -- 0.4%
104,797 Big Lots, Inc.(2) 2,513
3,905 Dollar Tree Stores Inc.(2) 150
---------
2,663
---------
OFFICE ELECTRONICS -- 0.4%
155,465 Xerox Corp.(2) 2,711
---------
OIL, GAS & CONSUMABLE FUELS -- 6.7%
53,975 Chevron Corp. 4,939
121,154 ConocoPhillips 10,293
78,435 EnCana Corp. 5,467
- ------
10
BALANCED
Shares/Principal Amount ($ IN THOUSANDS) Value
235,268 Exxon Mobil Corp. $ 21,642
15,935 Valero Energy Corp. 1,122
---------
43,463
---------
PHARMACEUTICALS -- 2.7%
30,344 Biovail Corp. 607
79,035 Eli Lilly and Company 4,280
175,623 Johnson & Johnson 11,446
8,435 Merck & Co., Inc. 491
14,230 Watson Pharmaceuticals, Inc.(2) 435
---------
17,259
---------
ROAD & RAIL -- 0.5%
10,075 Burlington Northern Santa Fe Corp. 878
11,939 CSX Corp. 535
11,605 Norfolk Southern Corp. 599
7,845 Union Pacific Corp. 1,004
---------
3,016
---------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.0%
89,686 Applied Materials, Inc. 1,742
419 ASM International N.V.(3) 12
286,226 Intel Corp. 7,699
82,190 NVIDIA Corp.(2) 2,908
17,046 Texas Instruments Inc. 556
---------
12,917
---------
SOFTWARE -- 2.6%
145,424 Adobe Systems Inc.(2) 6,966
33,181 BMC Software Inc.(2) 1,123
186,046 Microsoft Corporation 6,848
77,608 Oracle Corp.(2) 1,721
---------
16,658
---------
SPECIALTY RETAIL -- 2.0%
39,695 AutoZone, Inc.(2) 4,938
4,213 Buckle Inc. (The) 182
152,521 RadioShack Corp. 3,145
159,882 TJX Companies, Inc. (The) 4,625
---------
12,890
---------
THRIFTS & MORTGAGE FINANCE -- 0.1%
31,132 Washington Mutual, Inc. 868
---------
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
5,052 United States Cellular Corp.(2) 476
---------
TOTAL COMMON STOCKS
(Cost $326,785) 392,300
---------
Shares/Principal Amount ($ IN THOUSANDS) Value
U.S. Government Agency Mortgage-Backed Securities(4) -- 12.3%
$ 112 FHLMC, 7.00%, 10/1/12(5) $ 116
2,293 FHLMC, 4.50%, 1/1/19(5) 2,224
144 FHLMC, 6.50%, 1/1/28(5) 149
1,130 FHLMC, 5.50%, 12/1/33(5) 1,115
280 FHLMC, 6.50%, 7/1/47(5) 284
16,458 FNMA, 6.00%, settlement date 11/13/07(6) 16,580
5,390 FNMA, 6.50%, settlement date 11/13/07(6) 5,517
127 FNMA, 6.00%, 2/1/09(5) 128
17 FNMA, 6.50%, 5/1/11(5) 17
193 FNMA, 7.50%, 11/1/11(5) 199
1 FNMA, 6.50%, 10/1/12(5) 1
9 FNMA, 6.50%, 5/1/13(5) 9
14 FNMA, 6.50%, 5/1/13(5) 15
6 FNMA, 6.50%, 6/1/13(5) 6
15 FNMA, 6.50%, 6/1/13(5) 16
35 FNMA, 6.50%, 6/1/13(5) 36
35 FNMA, 6.50%, 6/1/13(5) 36
7 FNMA, 6.50%, 6/1/13(5) 7
121 FNMA, 6.00%, 1/1/14(5) 123
424 FNMA, 6.00%, 4/1/14(5) 432
1,799 FNMA, 4.50%, 5/1/19(5) 1,744
920 FNMA, 4.50%, 5/1/19(5) 891
3,526 FNMA, 5.00%, 9/1/20(5) 3,474
28 FNMA, 6.50%, 1/1/28(5) 29
131 FNMA, 7.00%, 1/1/28(5) 138
174 FNMA, 6.50%, 1/1/29(5) 180
193 FNMA, 7.50%, 7/1/29(5) 205
32 FNMA, 7.00%, 5/1/30(5) 33
89 FNMA, 7.50%, 9/1/30(5) 94
134 FNMA, 6.50%, 9/1/31(5) 138
46 FNMA, 7.00%, 9/1/31(5) 48
265 FNMA, 6.50%, 1/1/32(5) 273
516 FNMA, 7.00%, 6/1/32(5) 540
260 FNMA, 6.50%, 8/1/32(5) 268
1,597 FNMA, 5.50%, 6/1/33(5) 1,578
2,104 FNMA, 5.50%, 7/1/33(5) 2,080
1,719 FNMA, 5.50%, 8/1/33(5) 1,699
1,037 FNMA, 5.50%, 9/1/33(5) 1,025
8,242 FNMA, 5.00%, 11/1/33(5) 7,935
7,608 FNMA, 5.50%, 1/1/34(5) 7,520
5,049 FNMA, 4.50%, 9/1/35(5) 4,710
5,782 FNMA, 5.00%, 2/1/36(5) 5,557
2,633 FNMA, 5.50%, 4/1/36(5) 2,598
- ------
11
BALANCED
Shares/Principal Amount ($ IN THOUSANDS) Value
$ 3,697 FNMA, 6.50%, 8/1/37(5) $ 3,760
136 FNMA, 6.50%, 6/1/47(5) 138
359 FNMA, 6.50%, 8/1/47(5) 364
504 FNMA, 6.50%, 8/1/47(5) 512
459 FNMA, 6.50%, 9/1/47(5) 466
787 FNMA, 6.50%, 9/1/47(5) 798
455 FNMA, 6.50%, 9/1/47(5) 462
565 FNMA, 6.50%, 9/1/47(5) 573
63 FNMA, 6.50%, 9/1/47(5) 64
230 GNMA, 7.00%, 4/20/26(5) 242
125 GNMA, 7.50%, 8/15/26(5) 133
35 GNMA, 7.00%, 2/15/28(5) 37
93 GNMA, 7.50%, 2/15/28(5) 98
59 GNMA, 7.00%, 12/15/28(5) 63
45 GNMA, 8.00%, 12/15/29(5) 48
273 GNMA, 7.00%, 5/15/31(5) 288
1,653 GNMA, 5.50%, 11/15/32(5) 1,646
---------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(Cost $79,732) 79,459
---------
U.S. Treasury Securities -- 10.3%
1,640 U.S. Treasury Bonds, 8.125%, 8/15/19(3)(5) 2,151
1,165 U.S. Treasury Bonds, 8.125%, 8/15/21(3)(5) 1,561
4,200 U.S. Treasury Bonds, 7.125%, 2/15/23(3)(5) 5,265
6,515 U.S. Treasury Bonds, 6.125%, 11/15/27(3)(5) 7,625
310 U.S. Treasury Bonds, 6.25%, 5/15/30(3)(5) 373
929 U.S. Treasury Bonds, 4.75%, 2/15/37(3)(5) 929
6,500 U.S. Treasury Notes, 4.625%, 10/31/11(3)(5) 6,631
758 U.S. Treasury Notes, 4.875%, 6/30/12(3)(5) 782
7,000 U.S. Treasury Notes, 4.125%, 8/31/12(3)(5) 6,995
4,000 U.S. Treasury Notes, 4.25%, 8/15/14(3)(5) 3,993
7,600 U.S. Treasury Notes, 4.50%, 11/15/15(3)(5) 7,662
3,138 U.S. Treasury Notes, 4.625%, 2/15/17(3)(5) 3,180
12,420 U.S. Treasury Notes, 4.50%, 5/15/17(3)(5) 12,459
7,200 U.S. Treasury Notes, 4.75%, 8/15/17(3)(5) 7,361
---------
TOTAL U.S. TREASURY SECURITIES
(Cost $66,028) 66,967
---------
Shares/Principal Amount ($ IN THOUSANDS) Value
Collateralized Mortgage Obligations(4) -- 7.4%
$ 2,389 Banc of America Alternative Loan Trust, Series 2007-2,
Class 2A4, 5.75%, 6/25/37(5) $ 2,385
12,260 Banc of America Commercial Mortgage Inc. STRIPS -
COUPON, Series 2004-1, Class XP, VRN, 0.80%, 11/1/07(5) 212
2,169 Banc of America Commercial Mortgage Inc., Series 2004-2,
Class A3 SEQ, 4.05%, 11/10/38(5) 2,117
16,394 Bear Stearns Commercial Mortgage Securities Trust STRIPS
- COUPON, Series 2004 T16, Class X2, VRN, 0.91%,
11/1/07(5) 444
1,548 Bear Stearns Commercial Mortgage Securities Trust,
Series 2006 BBA7, Class A1, VRN, 5.20%, 11/15/07, resets
monthly off the 1-month LIBOR plus 0.11% with no caps
(Acquired 6/5/06, Cost $1,548)(5)(7) 1,539
2,900 Bear Stearns Commercial Mortgage Securities Trust,
Series 2006 PW14, Class A4 SEQ, 5.20%, 12/1/38(5) 2,816
84 Commercial Mortgage Pass-Through Certificates, Series
2005 F10A, Class A1, VRN, 5.19%, 11/15/07, resets
monthly off the 1-month LIBOR plus 0.10% with no caps
(Acquired 3/18/05, Cost $84)(5)(7) 84
171 Commercial Mortgage Pass-Through Certificates, Series
2005 FL11, Class A1, VRN, 5.24%, 11/15/07, resets
monthly off the 1-month LIBOR plus 0.15% with no caps
(Acquired 11/18/05, Cost $171)(5)(7) 171
5,047 Countrywide Home Loan Mortgage Pass-Through Trust,
Series 2007-16, Class A1, 6.50%, 10/25/37(5) 5,085
5,000 Credit Suisse First Boston Mortgage Securities Corp.,
Series 2002 CKP1, Class B, 6.57%, 12/15/35(5) 5,251
1,554 Credit Suisse First Boston Mortgage Securities Corp.,
Series 2003 AR28, Class 2A1, 4.41%, 12/25/33(5) 1,563
1,200 Credit Suisse Mortgage Capital Certificates, Series 2007
TF2A, Class A1, VRN, 5.27%, 11/15/07, resets monthly off
the 1-month LIBOR plus 0.18% with no caps(5) 1,200
287 FHLMC, Series 77, Class H, 8.50%, 9/15/20(5) 309
477 FHLMC, Series 2541, Class EA, 5.00%, 3/1/16(5) 477
1,933 FHLMC, Series 2567, Class OD, 5.00%, 8/15/15(5) 1,931
1,068 FHLMC, Series 2937, Class KA, 4.50%, 12/15/14(5) 1,063
- ------
12
BALANCED
Shares/Principal Amount ($ IN THOUSANDS) Value
$ 2,886 FNMA, Series 2005-63, Class HA SEQ, 5.00%, 4/25/23(5) $ 2,870
3,500 GMAC Commercial Mortgage Securities, Inc., Series 2005
C1, Class A2 SEQ, 4.47%, 5/10/43(5) 3,451
488 Greenwich Capital Commercial Funding Corp., Series 2006
FL4A, Class A1, VRN, 5.22%, 11/5/07, resets monthly off
the 1-month LIBOR plus 0.09% with no caps (Acquired
12/14/06, Cost $488)(5)(7) 487
330 GS Mortgage Securities Corp. II, Series 2007 EOP, Class
A1 VRN, 5.21%, 11/6/07, resets monthly off the 1-month
LIBOR plus 0.09% with no caps(5) 327
3,200 LB-UBS Commercial Mortgage Trust, Series 2003 C3, Class
A3 SEQ, 3.85%, 5/11/27(5) 3,069
1,000 LB-UBS Commercial Mortgage Trust, Series 2004 C4, Class
A2, VRN, 4.57%, 11/10/07(5) 994
1,330 LB-UBS Commercial Mortgage Trust, Series 2005 C2, Class
A2 SEQ, 4.82%, 4/15/30(5) 1,322
3,000 LB-UBS Commercial Mortgage Trust, Series 2005 C3, Class
A3 SEQ, 4.65%, 7/30/30(5) 2,934
273 Lehman Brothers Floating Rate Commercial Mortgage Trust,
Series 2006 LLFA, Class A1, VRN, 5.17%, 11/15/07, resets
monthly off the 1-month LIBOR plus 0.08% with no caps
(Acquired 8/7/06, Cost $273)(5)(7) 273
107 MASTR Alternative Loans Trust, Series 2003-8, Class 4A1,
7.00%, 12/25/33(5) 109
822 Merrill Lynch Floating Trust, Series 2006-1, Class A1,
VRN, 5.16%, 11/15/07, resets monthly off the 1-month
LIBOR plus 0.07% with no caps (Acquired 10/31/06, Cost
$822)(5)(7) 818
892 Thornburg Mortgage Securities Trust, Series 2006-5,
Class A1, VRN, 4.99%, 11/26/07, resets monthly off the
1-month LIBOR plus 0.12% with no caps(5) 880
895 Wachovia Bank Commercial Mortgage Trust, Series 2006
C23, Class A4, 5.42%, 1/15/45(5) 884
875 Washington Mutual Mortgage Pass-Through Certificates,
Series 2005 AR4, Class A3, 4.59%, 4/25/35(5) 866
Shares/Principal Amount ($ IN THOUSANDS) Value
$ 2,537 Wells Fargo Mortgage Backed Securities Trust, Series
2007-11, Class A19 SEQ, 6.00%, 8/25/37(5) $ 2,541
---------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $48,616) 48,472
---------
Corporate Bonds -- 6.6%
AEROSPACE & DEFENSE -- 0.3%
262 Honeywell International Inc., 5.30%, 3/15/17(5) 258
378 Lockheed Martin Corp., 6.15%, 9/1/36(5) 390
530 United Technologies Corp., 4.375%, 5/1/10(5) 526
454 United Technologies Corp., 6.05%, 6/1/36(5) 471
---------
1,645
---------
AUTOMOBILES -- 0.1%
330 DaimlerChrysler N.A. Holding Corp., 6.50%, 11/15/13(5) 347
---------
BEVERAGES -- 0.3%
580 Coca-Cola Company (The), 5.35%, 11/15/17(5) 577
421 Miller Brewing Co., 4.25%, 8/15/08 (Acquired 1/6/04,
Cost $428)(5)(7) 418
670 SABMiller plc, 6.20%, 7/1/11 (Acquired 6/27/06, Cost
$670)(5)(7) 692
---------
1,687
---------
CAPITAL MARKETS -- 0.1%
331 Merrill Lynch & Co., Inc., 4.25%, 2/8/10(5) 323
609 Merrill Lynch & Co., Inc., 4.79%, 8/4/10(5) 601
---------
924
---------
CHEMICALS(1)
240 Rohm and Haas Co., 5.60%, 3/15/13(5) 240
---------
COMMERCIAL BANKS -- 0.3%
450 PNC Bank N.A., 4.875%, 9/21/17(5) 414
328 PNC Funding Corp., 5.125%, 12/14/10(5) 329
373 Wachovia Bank N.A., 4.80%, 11/1/14(5) 356
583 Wachovia Bank N.A., 4.875%, 2/1/15(5) 557
516 Wells Fargo & Co., 4.625%, 8/9/10(5) 511
---------
2,167
---------
COMMERCIAL SERVICES & SUPPLIES -- 0.1%
100 Deluxe Corp., 7.375%, 6/1/15(5) 100
230 Pitney Bowes, Inc., 5.75%, 9/15/17(5) 233
---------
333
---------
- ------
13
BALANCED
Shares/Principal Amount ($ IN THOUSANDS) Value
CONSUMER FINANCE -- 0.1%
$ 250 American Express Centurion Bank, 4.375%, 7/30/09(5) $ 248
300 American Express Centurion Bank, 5.55%, 10/17/12(5) 303
---------
551
---------
DIVERSIFIED FINANCIAL SERVICES -- 0.6%
820 Bank of America Corp., 4.375%, 12/1/10(5) 809
420 Bank of America N.A., 5.30%, 3/15/17(5) 407
360 Bank of America N.A., 6.00%, 10/15/36(5) 351
722 Citigroup Inc., 5.00%, 9/15/14(5) 702
279 Citigroup Inc., 6.125%, 8/25/36(5) 273
340 General Electric Capital Corp., 6.125%, 2/22/11(5) 352
450 General Electric Capital Corp., 5.625%, 9/15/17(5) 455
516 John Deere Capital Corp., 4.50%, 8/25/08(5) 514
532 John Deere Capital Corp., 5.50%, 4/13/17(5) 531
450 Pricoa Global Funding I, 5.40%, 10/18/12 (Acquired
10/11/07, Cost $450)(5)(7) 454
---------
4,848
---------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.5%
517 AT&T Corp., 7.30%, 11/15/11(5) 559
350 AT&T Inc., 6.80%, 5/15/36(5) 384
70 BellSouth Corp., 6.875%, 10/15/31(5) 76
219 Embarq Corp., 7.08%, 6/1/16(5) 229
120 Qwest Corp., 7.875%, 9/1/11(5) 127
120 Qwest Corp., 7.50%, 10/1/14(5) 126
490 Telecom Italia Capital SA, 4.00%, 1/15/10(5) 479
220 Telecom Italia Capital SA, 5.25%, 10/1/15(5) 212
280 Telefonica Emisiones SAU, 7.05%, 6/20/36(5) 309
304 Verizon Communications Inc., 5.55%, 2/15/16(5) 306
216 Verizon Communications Inc., 6.25%, 4/1/37(5) 224
---------
3,031
---------
ELECTRIC UTILITIES -- 0.3%
420 Carolina Power & Light Co., 5.15%, 4/1/15(5) 415
401 Cleveland Electric Illuminating Co. (The), 5.70%,
4/1/17(5) 393
266 Florida Power Corp., 4.50%, 6/1/10(5) 264
Shares/Principal Amount ($ IN THOUSANDS) Value
$ 230 Florida Power Corp., 6.35%, 9/15/37(5) $ 242
345 Southern California Edison Co., 5.625%, 2/1/36(5) 330
190 Toledo Edison Co., 6.15%, 5/15/37(5) 178
---------
1,822
---------
FOOD & STAPLES RETAILING -- 0.2%
330 CVS Caremark Corp., 5.75%, 6/1/17(5) 329
449 Wal-Mart Stores, Inc., 4.125%, 7/1/10(5) 442
468 Wal-Mart Stores, Inc., 5.875%, 4/5/27(5) 460
330 Wal-Mart Stores, Inc., 6.50%, 8/15/37(5) 348
---------
1,579
---------
FOOD PRODUCTS -- 0.2%
690 Cadbury Schweppes U.S. Finance LLC, 3.875%, 10/1/08
(Acquired 6/14/05 - 10/17/06, Cost $676)(5)(7) 683
170 General Mills Inc., 5.65%, 9/10/12(5) 173
220 Kellogg Co., 6.60%, 4/1/11(5) 230
330 Kraft Foods Inc., 6.00%, 2/11/13(5) 340
---------
1,426
---------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.2%
710 Baxter Finco BV, 4.75%, 10/15/10(5) 707
500 Baxter International Inc., 5.90%, 9/1/16(5) 512
---------
1,219
---------
HOTELS, RESTAURANTS & LEISURE -- 0.2%
230 McDonald's Corp., 6.30%, 10/15/37(5) 235
540 Royal Caribbean Cruises Ltd., 7.00%, 6/15/13(5) 545
460 Yum! Brands, Inc., 6.875%, 11/15/37(5) 461
---------
1,241
---------
HOUSEHOLD PRODUCTS -- 0.1%
230 Kimberly-Clark Corp., 6.125%, 8/1/17(5) 243
320 Procter & Gamble Co. (The), 5.55%, 3/5/37(5) 315
---------
558
---------
INDUSTRIAL CONGLOMERATES -- 0.2%
1,208 General Electric Co., 5.00%, 2/1/13(5) 1,200
---------
INSURANCE -- 0.3%
560 Allstate Financial Global Funding, 4.25%, 9/10/08
(Acquired 9/3/03, Cost $559)(5)(7) 557
423 Hartford Financial Services Group Inc. (The), 5.375%,
3/15/17(5) 414
- ------
14
BALANCED
Shares/Principal Amount ($ IN THOUSANDS) Value
$ 460 Lincoln National Corp., 6.30%, 10/9/37(5) $ 462
270 Prudential Financial, Inc., 5.40%, 6/13/35(5) 240
230 Travelers Companies, Inc. (The), 6.25%, 6/15/37(5) 228
---------
1,901
---------
IT SERVICES -- 0.1%
480 International Business Machines Corp., 5.70%, 9/14/17(5) 488
---------
MACHINERY(1)
230 Atlas Copco AB, 5.60%, 5/22/17 (Acquired 5/15/07, Cost
$230)(5)(7) 230
---------
MEDIA -- 0.4%
489 Comcast Corp., 5.90%, 3/15/16(5) 492
271 News America Holdings, 7.75%, 1/20/24(5) 303
680 Rogers Cable Inc., 6.25%, 6/15/13(5) 694
650 Time Warner Cable Inc., 5.40%, 7/2/12(5) 649
195 Time Warner Inc., 5.50%, 11/15/11(5) 196
70 Time Warner Inc., 7.625%, 4/15/31(5) 78
---------
2,412
---------
METALS & MINING -- 0.1%
470 Xstrata Finance Canada Ltd., 5.50%, 11/16/11 (Acquired
11/8/06 - 11/17/06, Cost $470)(5)(7) 472
197 Xstrata Finance Canada Ltd., 5.80%, 11/15/16 (Acquired
11/8/06, Cost $197)(5)(7) 196
---------
668
---------
MULTI-UTILITIES -- 0.4%
529 CenterPoint Energy Resources Corp., 6.50%, 2/1/08(5) 529
230 CenterPoint Energy Resources Corp., 6.125%, 11/1/17(5) 231
330 CenterPoint Energy Resources Corp., 6.25%, 2/1/37(5) 318
454 Consolidated Edison Co. of New York, Inc., Series 2006
C, 5.50%, 9/15/16(5) 453
645 Dominion Resources Inc., 4.125%, 2/15/08(5) 643
258 Dominion Resources Inc., 4.75%, 12/15/10(5) 256
270 Pacific Gas & Electric Co., 6.05%, 3/1/34(5) 270
163 Pacific Gas & Electric Co., 5.80%, 3/1/37(5) 157
---------
2,857
---------
Shares/Principal Amount ($ IN THOUSANDS) Value
MULTILINE RETAIL -- 0.2%
$ 175 Federated Retail Holdings, Inc., 5.35%, 3/15/12(5) $ 171
240 Kohl's Corp., 6.875%, 12/15/37(5) 244
600 Macy's Retail Holdings, Inc., 5.875%, 1/15/13(5) 594
---------
1,009
---------
OIL, GAS & CONSUMABLE FUELS -- 0.5%
260 Canadian Natural Resources Ltd., 5.70%, 5/15/17(5) 258
259 Devon Financing Corp., ULC, 7.875%, 9/30/31(5) 315
785 Enterprise Products Operating L.P., 4.95%, 6/1/10(5) 783
260 Enterprise Products Operating L.P., 6.30%, 9/15/17(5) 265
340 Nexen Inc., 6.40%, 5/15/37(5) 339
613 Premcor Refining Group Inc. (The), 6.125%, 5/1/11(5) 630
270 Tesoro Corp., 6.25%, 11/1/12(5) 269
200 Tesoro Corp., 6.50%, 6/1/17 (Acquired 5/23/07, Cost
$200)(5)(7) 199
120 TransCanada PipeLines Ltd., 6.20%, 10/15/37(5) 121
200 Williams Companies, Inc. (The), 8.75%, 3/15/32(5) 234
342 XTO Energy Inc., 5.30%, 6/30/15(5) 337
272 XTO Energy Inc., 6.10%, 4/1/36(5) 270
---------
4,020
---------
PHARMACEUTICALS -- 0.4%
450 Abbott Laboratories, 5.875%, 5/15/16(5) 462
1,020 AstraZeneca plc, 5.40%, 9/15/12(5) 1,031
360 AstraZeneca plc, 5.90%, 9/15/17(5) 369
532 Wyeth, 5.95%, 4/1/37(5) 528
---------
2,390
---------
REAL ESTATE INVESTMENT TRUSTS -- 0.1%
490 ProLogis, 5.625%, 11/15/16(5) 471
---------
ROAD & RAIL -- 0.1%
340 Union Pacific Corp., 5.75%, 11/15/17(5) 338
---------
SOFTWARE -- 0.1%
254 Intuit Inc., 5.75%, 3/15/17(5) 247
545 Oracle Corp., 5.00%, 1/15/11(5) 546
---------
793
---------
SPECIALTY RETAIL(1)
230 Lowe's Companies, Inc., 5.60%, 9/15/12(5) 234
---------
- ------
15
BALANCED
Shares/Principal Amount ($ IN THOUSANDS) Value
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
$ 367 Nextel Communications Inc., 5.95%, 3/15/14(5) $ 350
313 Vodafone Group plc, 5.625%, 2/27/17(5) 311
---------
661
---------
TOTAL CORPORATE BONDS
(Cost $43,215) 43,290
---------
U.S. Government Agency Securities -- 2.7%
6,625 FHLMC, 4.625%, 10/25/12(3)(5) 6,625
2,300 FNMA, 4.375%, 7/17/13(5) 2,256
3,800 FNMA, 6.625%, 9/15/09(3)(5) 3,956
4,815 FNMA, 5.375%, 6/12/17(3)(5) 4,980
---------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $17,521) 17,817
---------
Asset-Backed Securities(4) -- 1.1%
265 Accredited Mortgage Loan Trust, Series 2006-1, Class A1,
VRN, 4.93%, 11/25/07, resets monthly off the
1-month LIBOR plus 0.06% with no caps(5) 264
627 Accredited Mortgage Loan Trust, Series 2006-2, Class A1,
VRN, 4.91%, 11/25/07, resets monthly off the
1-month LIBOR plus 0.04% with no caps(5) 622
852 Capital One Prime Auto Receivables Trust, Series
2004-2, Class A4, VRN, 5.15%, 11/15/07, resets monthly
off the 1-month LIBOR plus 0.06% with no caps(5) 852
2,500 Citibank Credit Card Issuance Trust, Series 2007 A2,
VRN, 5.49%, 11/21/07, resets quarterly off the 3-month
LIBOR minus 0.01% with no caps(5) 2,488
214 Countrywide Asset-Backed Certificates, Series 2006 BC2,
Class 2A1, VRN, 4.91%, 11/26/07, resets monthly off the
1-month LIBOR plus 0.04% with no caps(5) 213
40 Countrywide Asset-Backed Certificates, Series 2006-6,
Class 2A1, VRN, 4.94%, 11/26/07, resets monthly off the
1-month LIBOR plus 0.07% with no caps(5) 40
Shares/Principal Amount ($ IN THOUSANDS) Value
$ 38 Long Beach Mortgage Loan Trust, Series 2006-2, Class
2A1, VRN, 4.94%, 11/26/07, resets monthly off the
1-month LIBOR plus 0.07% with no caps(5) $ 38
754 Long Beach Mortgage Loan Trust, Series 2006-6, Class
2A1, VRN, 4.91%, 11/26/07, resets monthly off the
1-month LIBOR plus 0.04% with no caps(5) 749
495 SLM Student Loan Trust, Series 2006-5, Class A2, VRN,
5.07%, 1/25/08, resets quarterly off the 3-month LIBOR
minus 0.01% with no caps(5) 495
609 SLM Student Loan Trust, Series 2006-10, Class A2, VRN,
5.09%, 1/1/08, resets quarterly off the 3-month LIBOR
plus 0.01% with no caps(5) 609
736 Soundview Home Equity Loan Trust, Series 2006-3, Class
A1, VRN, 4.91%, 11/26/07, resets monthly off the
1-month LIBOR plus 0.04% with no caps(5) 733
---------
TOTAL ASSET-BACKED SECURITIES
(Cost $7,130) 7,103
---------
Sovereign Governments & Agencies -- 0.1%
575 Province of Quebec, 5.00%, 7/17/09(5) 580
145 Hydro Quebec, 8.40%, 1/15/22(5) 190
---------
TOTAL SOVEREIGN GOVERNMENTS & AGENCIES
(Cost $752) 770
---------
Municipal Securities -- 0.1%
800 Illinois GO, (Taxable Pension), 5.10%, 6/1/33(5)
(Cost $804) 760
---------
Temporary Cash Investments -- 1.9%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized by
various U.S. Treasury obligations, 7.125%-7.625%, 2/15/23-2/15/25,
valued at $12,524), in a joint trading account at 4.50%, dated
10/31/07, due 11/1/07 (Delivery value $12,302)(5)
(Cost $12,300) 12,300
---------
- ------
16
BALANCED
Shares/Principal Amount ($ IN THOUSANDS) Value
Temporary Cash Investments - Securities Lending Collateral(8) -- 11.3%
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Government Agency obligations in a
pooled account at the lending agent), 4.83%, dated 10/31/07, due
11/1/07 (Delivery value $50,007) $ 50,000
Repurchase Agreement, Deutsche Bank AG, (collateralized by various
U.S. Government Agency obligations in a pooled account at the lending
agent), 4.82%, dated 10/31/07, due 11/1/07 (Delivery value $3,478) 3,478
Shares/Principal Amount ($ IN THOUSANDS) Value
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account at the
lending agent), 4.89%, dated 10/31/07, due 11/1/07 (Delivery value
$20,153) $ 20,150
---------
TOTAL TEMPORARY CASH INVESTMENTS - SECURITIES LENDING COLLATERAL
(Cost $73,628) 73,628
---------
TOTAL INVESTMENT SECURITIES -- 114.1%
(Cost $676,511) 742,866
---------
OTHER ASSETS AND LIABILITIES -- (14.1)% (92,107)
TOTAL NET ASSETS -- 100.0% $650,759
=========
Futures Contracts
($ IN THOUSANDS)
Underlying Face Unrealized
Contracts Purchased Expiration Date Amount at Value Gain (Loss)
353 U.S. Treasury
2-Year Notes December 2007 $ 73,110 $ 424
740 U.S. Treasury
5-Year Notes December 2007 79,434 1,004
---------- ----------
$152,544 $1,428
========== ==========
($ IN THOUSANDS)
Underlying Face Unrealized Gain
Contracts Sold Expiration Date Amount at Value (Loss)
100 U.S. Long Bond December 2007 $11,259 $ (328)
556 U.S. Treasury
10-Year Notes December 2007 61,169 (1,337)
---------- ----------
$72,428 $(1,665)
========== ==========
- ------
17
BALANCED
Swap Agreements ($ IN THOUSANDS)
Notional Expiration Unrealized
Amount Description of Agreement Date Gain (Loss)
CREDIT DEFAULT
$ 575 Pay quarterly a fixed rate equal to March 2012 $ 54
0.46% multiplied by the notional amount
and receive from Barclays Bank plc upon
each default event of Centex Corp., par
value of the proportional notional
amount.
785 Pay quarterly a fixed rate equal to March 2012 79
0.55% multiplied by the notional amount
and receive from Deutsche Bank
Securities Inc. upon each default event
of Lennar Corp., par value of the
proportional notional amount.
2,650 Pay quarterly a fixed rate equal to March 2017 12
0.12% multiplied by the notional amount
and receive from Barclays Bank plc upon
each default event of Pfizer Inc., par
value of the proportional notional
amount.
12,200 Pay quarterly a fixed rate equal to June 2012 149
0.35% multiplied by the notional amount
and receive from Barclays Bank plc upon
each default event of one of the issues
of Dow Jones CDX N.A. Investment Grade
8, par value of the proportional
notional amount.
3,600 Pay quarterly a fixed rate equal to June 2012 (20)
0.57% multiplied by the notional amount
and receive from Deutsche Bank AG upon
each default event of Darden
Restaurants, Inc., par value of the
proportional notional amount.
630 Pay quarterly a fixed rate equal to September --
0.35% multiplied by the notional amount 2012
and receive from Merrill Lynch
International upon each default event
of Computer Sciences Corp., par value
of the proportional notional amount.
480 Pay quarterly a fixed rate equal to September 2
0.36% multiplied by the notional amount 2012
and receive from Barclays Bank plc upon
each default event of Whirlpool Corp.,
par value of the proportional notional
amount.
1,940 Pay quarterly a fixed rate equal to September (10)
0.47% multiplied by the notional amount 2012
and receive from Deutsche Bank AG upon
each default event of JPMorgan Chase &
Co., par value of the proportional
notional amount.
2,590 Pay quarterly a fixed rate equal to September 6
0.63% multiplied by the notional amount 2012
and receive from Deutsche Bank AG upon
each default event of Morgan Stanley,
par value of the proportional notional
amount.
2,590 Pay quarterly a fixed rate equal to September (36)
1.32% multiplied by the notional amount 2012
and receive from Deutsche Bank AG upon
each default event of Bear Stearns
Companies Inc. (The), par value of the
proportional notional amount.
1,290 Pay quarterly a fixed rate equal to September (5)
0.64% multiplied by the notional amount 2017
and receive from Deutsche Bank AG upon
each default event of JPMorgan Chase &
Co., par value of the proportional
notional amount.
----------
$231
==========
- ------
18
Balanced
Notes to Schedule of Investments
CDX = Credit Derivative Indexes
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GMAC = General Motors Acceptance Corporation
GNMA = Government National Mortgage Association
GO = General Obligation
LB-UBS = Lehman Brothers Inc. -- UBS AG
LIBOR = London Interbank Offered Rate
MASTR = Mortgage Asset Securitization Transactions, Inc.
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
STRIPS = Separate Trading of Registered Interest and Principal of Securities
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective October 31, 2007.
(1) Industry is less than 0.05% of total net assets.
(2) Non-income producing.
(3) Security, or a portion thereof, was on loan as of October 31, 2007.
(4) Final maturity indicated, unless otherwise noted.
(5) Security, or a portion thereof, has been segregated for forward
commitments, futures contracts and/or swap agreements.
(6) Forward commitment.
(7) Security was purchased under Rule 144A or Section 4(2) of the Securities
Act of 1933 or is a private placement and, unless registered under the Act or
exempted from registration, may only be sold to qualified institutional
investors. The aggregate value of restricted securities at October 31, 2007
was $7,273 (in thousands), which represented 1.1% of total net assets.
(8) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
19
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS EXCEPT AS NOTED)
ASSETS
Investment securities, at value (cost of $602,883) -- including
$87,293 of securities on loan $669,238
Investments made with cash collateral received for securities on
loan, at value (cost of $73,628) 73,628
------------
Total investment securities, at value (cost of $676,511) 742,866
Cash collateral received for securities on loan 4
Receivable for investments sold 2,234
Unrealized appreciation on swap agreements 302
Dividends and interest receivable 2,596
------------
748,002
------------
LIABILITIES
Disbursements in excess of demand deposit cash 387
Payable for collateral received for securities on loan 73,632
Payable for investments purchased 22,588
Payable for variation margin on futures contracts 62
Unrealized depreciation on swap agreements 71
Accrued management fees 500
Distribution and service fees payable 3
------------
97,243
------------
NET ASSETS $650,759
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $543,127
Undistributed net investment income 1,445
Undistributed net realized gain on investment transactions 39,850
Net unrealized appreciation on investments 66,337
------------
$650,759
============
INVESTOR CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
Net assets $636,276,326
Shares outstanding 36,421,004
Net asset value per share $17.47
INSTITUTIONAL CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
Net assets $1,338,059
Shares outstanding 76,582
Net asset value per share $17.47
ADVISOR CLASS, $0.01 PAR VALUE ($ AND SHARES IN FULL)
Net assets $13,144,499
Shares outstanding 752,945
Net asset value per share $17.46
See Notes to Financial Statements.
- ------
20
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
INVESTMENT INCOME (LOSS)
INCOME:
Interest $13,484
Dividends (net of foreign taxes withheld of $148) 5,897
Securities lending 159
------------
19,540
------------
EXPENSES:
Management fees 5,870
Distribution fees -- Advisor Class 32
Service fees -- Advisor Class 32
Distribution and service fees -- Advisor Class 6
Directors' fees and expenses 13
Other expenses 1
------------
5,954
------------
NET INVESTMENT INCOME (LOSS) 13,586
------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions 40,386
Futures and swaps transactions 641
------------
41,027
------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments 830
Futures and swaps 456
------------
1,286
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) 42,313
------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $55,899
============
See Notes to Financial Statements.
- ------
21
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006 (AMOUNTS IN THOUSANDS)
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ 13,586 $ 13,764
Net realized gain (loss) 41,027 26,408
Change in net unrealized appreciation
(depreciation) 1,286 27,132
------------ ------------
Net increase (decrease) in net assets
resulting from operations 55,899 67,304
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class (13,376) (13,417)
Institutional Class (32) (28)
Advisor Class (279) (296)
From net realized gains:
Investor Class (24,594) (32,826)
Institutional Class (49) (66)
Advisor Class (617) (860)
------------ ------------
Decrease in net assets from distributions (38,947) (47,493)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets
from capital share transactions (20,109) 2,121
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (3,157) 21,932
NET ASSETS
Beginning of period 653,916 631,984
------------ ------------
End of period $650,759 $653,916
============ ============
Undistributed net investment income $1,445 $1,625
============ ============
See Notes to Financial Statements.
- ------
22
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007 (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 distribution and shareholder servicing
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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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 paydown gain (loss) and 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 futures and swaps transactions and unrealized
appreciation (depreciation) on futures and swaps, respectively.
- ------
23
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
WHEN-ISSUED AND FORWARD COMMITMENTS -- The fund may engage in securities
transactions on a when-issued or forward commitment basis. In these
transactions, the securities' prices and yields are fixed on the date of the
commitment. In a when-issued transaction, the payment and delivery are
scheduled for a future date and during this period, securities are subject to
market fluctuations. In a forward commitment transaction, the fund may sell a
security and at the same time make a commitment to purchase the same security
at a future date at a specified price. Conversely, the fund may purchase a
security and at the same time make a commitment to sell the same security at a
future date at a specified price. These types of transactions are executed
simultaneously in what are known as "roll" transactions. The fund will
segregate cash, cash equivalents or other appropriate liquid securities on its
records in amounts sufficient to meet the purchase price. The fund accounts
for "roll" transactions as purchases and sales; as such these transactions may
increase portfolio turnover.
SWAP AGREEMENTS -- The fund may enter into swap agreements in order to attempt
to obtain or preserve a particular return or spread at a lower cost than
obtaining a return or spread through purchases and/or sales of instruments in
other markets; 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 basic swap agreement is a contract in
which two parties agree to exchange the returns earned or realized on
predetermined investments or instruments. Credit default swaps enable an
investor to buy/sell protection against a credit event of a specific issuer.
The seller of credit protection against a security or basket of securities
receives an up-front or periodic payment to compensate against potential
default events. The fund may enhance returns by selling protection or attempt
to mitigate credit risk by buying protection. 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 futures and swaps.
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 meet its obligations, and that there may be unfavorable changes in the
underlying investments and instruments.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of 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 or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions that would materially impact the financial statements.
Accordingly, no provision has been made for federal or state income taxes.
Interest and penalties associated with any federal or state income tax
obligations, if any, are recorded as interest expense.
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.
- ------
24
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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
On July 27, 2007, the Advisor Class shareholders of the fund approved a change
to the class's fee structure. The change was approved by the Board of
Directors on November 29, 2006 and March 7, 2007. Effective September 4, 2007,
the fee structure change resulted in an increase of 0.25% in the unified
management fee and a simultaneous decrease of 0.25% in the total distribution
and service fee, resulting in no change to the total operating expense ratio
of the class.
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 advisor'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 advisor 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 the fund ranges from 0.80% to 0.90% for the
Investor Class and Advisor Class. The Institutional Class is 0.20% less each
point within the range. Prior to September 4, 2007, the Advisor Class was
0.25% less at each point within the range. The effective annual management fee
for each class of the fund for the year ended October 31, 2007 was 0.90%,
0.70% and 0.69%, for the Investor Class, Institutional Class and Advisor
Class, respectively.
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a Master
Distribution and Individual 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 and service fee of 0.25%. Prior to September 4, 2007,
the Board of Directors had adopted a Master Distribution and Shareholder
Services Plan for the Advisor Class, pursuant to Rule 12b-1 of the 1940 Act,
which provided that the Advisor Class would pay ACIS an annual distribution
fee of 0.25% and service fee of 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, 2007, 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 advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
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25
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
Beginning in December 2006, the fund is eligible to invest in a money market
fund for temporary purposes, which is managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan 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, 2007, totaled $1,048,485, of which $575,622 represented
U.S. Treasury and Agency obligations. Sales of investment securities,
excluding short-term investments, for the year ended October 31, 2007, totaled
$1,091,508, of which $580,108 represented U.S. Treasury and Agency obligations.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Year ended Year ended
October 31, 2007 October 31, 2006
Shares Amount Shares Amount
INVESTOR CLASS/
SHARES AUTHORIZED 200,000 200,000
========== ==========
Sold 3,006 $ 51,143 3,907 $ 64,285
Issued in reinvestment
of distributions 2,198 36,859 2,763 44,897
Redeemed (6,167) (105,041) (6,476) (106,216)
---------- ---------- ---------- ----------
(963) (17,039) 194 2,966
---------- ---------- ---------- ----------
INSTITUTIONAL CLASS/
SHARES AUTHORIZED 15,000 15,000
========== ==========
Sold 26 443 14 238
Issued in reinvestment
of distributions 5 81 6 94
Redeemed (26) (454) (23) (381)
---------- ---------- ---------- ----------
5 70 (3) (49)
---------- ---------- ---------- ----------
ADVISOR CLASS/
SHARES AUTHORIZED 50,000 50,000
========== ==========
Sold 204 3,469 303 4,964
Issued in reinvestment
of distributions 47 777 62 1,004
Redeemed (431) (7,386) (412) (6,764)
---------- ---------- ---------- ----------
(180) (3,140) (47) (796)
---------- ---------- ---------- ----------
Net increase (decrease) (1,138) $ (20,109) 144 $ 2,121
========== ========== ========== ==========
5. SECURITIES LENDING
As of October 31, 2007, securities in the fund valued at $87,293, 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 $89,349. 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.
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26
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
6. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a $500
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 0.40%. The fund did not borrow from the line during the year ended
October 31, 2007.
7. RISK FACTORS
There are certain risks involved in investing in foreign securities. These
risks include those resulting from future adverse political, social, and
economic developments, fluctuations in currency exchange rates, the possible
imposition of exchange controls, and other foreign laws or restrictions.
8. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years ended October 31,
2007 and October 31, 2006 were as follows:
2007 2006
DISTRIBUTIONS PAID FROM
Ordinary income $14,402 $16,917
Long-term capital gains $24,545 $30,576
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of paydown losses, interest on swap agreements,
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, 2007, the components of distributable earnings on a
tax-basis and the federal tax cost of investments were as follows:
Federal tax cost of investments $677,475
==========
Gross tax appreciation of investments $72,889
Gross tax depreciation of investments (7,498)
----------
Net tax appreciation (depreciation) of investments $65,391
==========
Net tax appreciation (depreciation) on derivatives $219
----------
Net tax appreciation (depreciation) $65,610
==========
Undistributed ordinary income $9,051
Accumulated long-term gains $32,971
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales and the realization for tax purposes of unrealized gains
on certain futures contracts.
9. CORPORATE EVENT
On July 27, 2007, the Advisor Class shareholders of Balanced approved a
reclassification of Advisor Class shares into Investor Class shares. The
reclassification was effective December 3, 2007. The change was approved by
the Board of Directors on November 29, 2006 and March 7, 2007.
- ------
27
OCTOBER 31, 2007 (AMOUNTS IN THOUSANDS)
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
11. OTHER TAX INFORMATION (UNAUDITED) ($ IN FULL)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
The fund hereby designates up to the maximum amount allowable as qualified
dividend income for the fiscal year ended October 31, 2007.
The fund hereby designates $24,544,748 of capital gain distributions for the
fiscal year ended October 31, 2007.
For corporate taxpayers, ordinary income distributions paid during the fiscal
year ended October 31, 2007, of $5,296,548 qualify for the corporate dividends
received deduction.
The fund designates $715,188 of distributions as qualified short-term capital
gains for purposes of Internal Revenue Code Section 871.
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28
FINANCIAL HIGHLIGHTS
Balanced
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $17.03 $16.52 $15.73 $14.77 $12.98
------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment
Income (Loss)(1) 0.35 0.35 0.31 0.26 0.27
Net Realized and
Unrealized Gain (Loss) 1.11 1.40 0.77 0.98 1.77
------- ------- ------- ------- -------
Total From Investment
Operations 1.46 1.75 1.08 1.24 2.04
------- ------- ------- ------- -------
Distributions
From Net Investment Income (0.36) (0.35) (0.29) (0.28) (0.25)
From Net Realized Gains (0.66) (0.89) -- -- --
------- ------- ------- ------- -------
Total Distributions (1.02) (1.24) (0.29) (0.28) (0.25)
------- ------- ------- ------- -------
Net Asset Value,
End of Period $17.47 $17.03 $16.52 $15.73 $14.77
======= ======= ======= ======= =======
TOTAL RETURN(2) 8.92% 11.04% 6.89% 8.46% 15.92%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 0.90% 0.90% 0.90% 0.90% 0.90%
Ratio of Net Investment
Income (Loss) to Average
Net Assets 2.08% 2.13% 1.89% 1.65% 1.96%
Portfolio Turnover Rate 161% 197% 206% 204% 133%
Net Assets, End of Period
(in millions) $636 $637 $615 $595 $583
(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.
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29
Balanced
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $17.04 $16.53 $15.73 $14.78 $12.99
------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment
Income (Loss)(1) 0.39 0.38 0.33 0.28 0.41
Net Realized and
Unrealized Gain (Loss) 1.09 1.40 0.80 0.98 1.66
------- ------- ------- ------- -------
Total From Investment
Operations 1.48 1.78 1.13 1.26 2.07
------- ------- ------- ------- -------
Distributions
From Net Investment Income (0.39) (0.38) (0.33) (0.31) (0.28)
From Net Realized Gains (0.66) (0.89) -- -- --
------- ------- ------- ------- -------
Total Distributions (1.05) (1.27) (0.33) (0.31) (0.28)
------- ------- ------- ------- -------
Net Asset Value,
End of Period $17.47 $17.04 $16.53 $15.73 $14.78
======= ======= ======= ======= =======
TOTAL RETURN(2) 9.07% 11.26% 7.17% 8.61% 16.13%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment
Income (Loss) to Average
Net Assets 2.28% 2.33% 2.09% 1.85% 2.16%
Portfolio Turnover Rate 161% 197% 206% 204% 133%
Net Assets, End of Period
(in thousands) $1,338 $1,228 $1,237 $225 $155
(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.
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30
Balanced
Advisor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $17.02 $16.52 $15.72 $14.77 $12.97
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment
Income (Loss)(1) 0.31 0.31 0.27 0.22 0.22
Net Realized and
Unrealized Gain (Loss) 1.10 1.39 0.78 0.97 1.80
------- ------- ------- ------- -------
Total From Investment
Operations 1.41 1.70 1.05 1.19 2.02
------- ------- ------- ------- -------
Distributions
From Net Investment Income (0.31) (0.31) (0.25) (0.24) (0.22)
From Net Realized Gains (0.66) (0.89) -- -- --
------- ------- ------- ------- -------
Total Distributions (0.97) (1.20) (0.25) (0.24) (0.22)
------- ------- ------- ------- -------
Net Asset Value,
End of Period $17.46 $17.02 $16.52 $15.72 $14.77
======= ======= ======= ======= =======
TOTAL RETURN(2) 8.65% 10.71% 6.70% 8.11% 15.74%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.15% 1.15% 1.15% 1.15% 1.15%
Ratio of Net Investment Income
(Loss) to Average
Net Assets 1.83% 1.88% 1.64% 1.40% 1.71%
Portfolio Turnover Rate 161% 197% 206% 204% 133%
Net Assets, End of Period
(in thousands) $13,144 $15,889 $16,189 $16,439 $17,482
(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.
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31
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 Balanced Fund (the "Fund"), one of
the mutual funds comprising American Century Mutual Funds, Inc., as of October
31, 2007, and the related statement 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 each of the five years in the
period then ended. 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. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of October 31, 2007,
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. 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, 2007, 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 each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 12, 2007
- ------
32
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007, to vote on the
following proposals. The proposals received the required number of votes of
the American Century Mutual Funds, Inc. or the applicable fund, depending on
the proposal, and were adopted. A summary of voting results is listed below
each proposal.
PROPOSAL 1:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
- ------
33
PROPOSAL 2:
To approve a change in the fee structure of the Advisor Class. This proposal
was voted on by the Advisor Class shareholders of the fund.
For: 7,679,632
Against: 693,246
Abstain: 199,256
Broker Non-Vote: 905,766
PROPOSAL 3:
To approve the reclassification of the Advisor Class shares of the fund,
whereby all of the Advisor Class shares will be reclassified as Investor Class
shares of the fund. This proposal was voted on by the Advisor Class
shareholders of the fund.
For: 8,255,803
Against: 117,075
Abstain: 199,256
Broker Non-Vote: 905,766
- ------
34
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 directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, 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, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the fund also serve in similar capacities for
the other 14 investment companies in the American Century family of funds
advised by ACIM, or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the fund. The listed officers are
interested persons of the fund and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- ------
35
INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
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 (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUND: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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36
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUND: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the fund's directors and is available
without charge, upon request, by calling 1-800-345-2021.
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37
APPROVAL OF MANAGEMENT AGREEMENT
Balanced
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning Balanced (the "fund") and the services
provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund under the management
agreement;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the fund and its shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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38
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
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39
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance was below the median of its peer group for
the one-year period, and above the median for the three-year period during
part of the past year. The board discussed the fund's performance with the
advisor and was satisfied with the efforts being undertaken by the advisor.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the fund, its profitability in managing the fund, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
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40
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was below the median of the total expense ratios
of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor concluded that the
investment management agreement between the fund and the advisor is fair and
reasonable in light of the services provided and should be renewed.
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41
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; and/or 2) through
certain financial intermediaries (such as banks, broker-dealers, insurance
companies and investment advisors), which may require payment of a transaction
fee to the financial intermediary. The fund's prospectus contains additional
information regarding eligibility for Investor Class shares.
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 unified
management fee of Institutional Class shares is 0.20% less than the unified
management fee of Investor Class shares.
ADVISOR CLASS shares are sold primarily through institutions such as
investment advisors, banks, broker-dealers, insurance companies, and financial
advisors. The unified management fee for Advisor Class shares is the same as
for Investor Class shares. Advisor Class shares are subject to a 0.25% annual
Rule 12b-1 distribution and service fee.
All classes of shares represent a pro rata interest in the fund and generally
have the same rights and preferences.
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42
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 advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at americancentury.com and, upon request, by calling
1-800-345-2021.
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43
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 blended index's
remaining 40% is represented by the Citigroup US Broad Investment-Grade Bond
Index, which reflects the roughly 40% of the fund's assets invested in
fixed-income securities.
The CITIGROUP AGENCY INDEX is a market-capitalization-weighted index that
includes U.S. government sponsored agencies with a remaining maturity of at
least one year.
The CITIGROUP CREDIT INDEX includes US and non-US corporate securities and
non-US sovereign and provincial securities.
The CITIGROUP MORTGAGE INDEX measures the mortgage component of the US BIG
Index, comprising 30- and 15-year GNMA, FNMA, and FHLMC pass-throughs and FNMA
and FHLMC balloon mortgages.
The CITIGROUP TREASURY INDEX is comprised of US Treasury securities with an
amount outstanding of at least $5 billion and a remaining maturity of at least
one year.
The CITIGROUP US BROAD INVESTMENT-GRADE (BIG) BOND INDEX is a market-
capitalization-weighted index that includes fixed-rate Treasury, government-
sponsored, mortgage, asset-backed, and investment-grade issues with a maturity
of one year or longer.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
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 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.
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44
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
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 PROFESSIONALS, 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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investments
P.O. Box 419200
Kansas City, MO 64141-6200
PRSRT STD
U.S. POSTAGE PAID
AMERICAN CENTURY
COMPANIES
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0712
SH-ANN-57605S
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter trees]
Veedot® Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century® Veedot Fund for
the 12 months ended October 31, 2007. I am honored to be addressing you in the
"Our Message" space long devoted to company founder Jim Stowers, Jr. and his
son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VEEDOT
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 5
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 5
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 6
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 . . . . . . . 19
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 20
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Approval of Management Agreement for Veedot . . . . . . . . . . . . . 24
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 28
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 29
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Steve Lurito, Chief Investment Officer, U.S. Growth Equity
STOCK RETURNS, VOLATILITY UP
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007. Stocks rallied for much of the first half of the fiscal year, touching
record highs in July, as the worldwide economic expansion drove strong
corporate earnings. But the sub-prime mortgage crisis blossomed in late July
and early August in the form of massive losses for banks, residential lenders,
and firms that securitized these subprime loans. This crisis caused a sharp
tightening of lending standards, removing the easy credit that propelled
strong consumer spending and funded a record amount of leveraged buyouts. As a
result, the U.S. stock market came under pressure late in the fiscal year.
By October, stock market volatility surged and credit markets seized up. To
relieve the pressure, the Federal Reserve (the Fed) lowered its benchmark
federal funds rate target in September and again in October -- the Fed's first
rate cuts since June 2003. Markets rallied briefly at fiscal year-end, though
there were concerns heading into November about the future course of corporate
earnings.
GROWTH SHARES LED
Growth stocks led the market during the 12 months, outpacing value-oriented
shares across all market capitalizations. That's because the deceleration in
corporate earnings cast a brighter spotlight on the relative earnings power of
growth companies, providing a favorable context for our growth portfolios and
growth stocks in general. We took advantage of this favorable backdrop,
enjoying a solid year of outperformance.
Looking at returns by sector, energy and materials performed best, supported
by booming global demand for commodities. In contrast, the aforementioned
credit crisis weakened consumer discretionary and financial shares -- the only
two segments of the S&P 500 Index to decline during the period.
We expect a continued favorable environment for growth-stock investing:
interest rates are low, global growth continues to provide new markets for
goods and services, and inflation remains contained.
U.S. Stock Index Returns
For the 12 months ended October 31, 2007
RUSSELL 1000 INDEX (LARGE-CAP) 15.03%
Russell 1000 Growth Index 19.23%
Russell 1000 Value Index 10.83%
RUSSELL MIDCAP INDEX 15.24%
Russell Midcap Growth Index 19.72%
Russell Midcap Value Index 9.73%
RUSSELL 2000 INDEX (SMALL-CAP) 9.27%
Russell 2000 Growth Index 16.73%
Russell 2000 Value Index 2.05%
- ------
2
PERFORMANCE
Veedot
Total Returns as of October 31, 2007
Average Annual Returns
1 year 5 years Since Inception Inception Date
INVESTOR CLASS 49.92% 19.65% 8.07% 11/30/99
RUSSELL 3000 INDEX(1) 14.53% 14.83% 4.01% --
Institutional Class 50.08% 19.86% 6.07% 8/1/00
(1) Data provided by Lipper Inc. -- A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
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 2005 2006 2007
Investor
Class 18.40% -27.03% -12.73% 32.36% 1.40% 10.08% 10.77% 49.92%
Russell 3000
Index 6.65% -25.17% -14.35% 23.69% 9.51% 10.60% 16.37% 14.53%
*From 11/30/99, 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. The 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. International investing
involves special risks, such as political instability and currency
fluctuations.
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
PORTFOLIO COMMENTARY
Veedot
Portfolio Manager: John Small, Jr.
PERFORMANCE SUMMARY
Veedot gained 49.92%* for the fiscal year ended October 31, 2007, more than
tripling the return of its benchmark, the Russell 3000 Index, which advanced
14.53% for the period.
As discussed in the Market Perspective on page 2, better-than-expected
corporate earnings growth, robust merger activity, and a change in Federal
Reserve (Fed) rate policy contributed to sound stock index gains for the
period. Markets faced extreme volatility in the final months of the period as
mounting troubles among subprime mortgage lenders led to a credit crisis, and
rising energy costs sparked fears of inflation. In this environment, large-
and mid-cap stocks generally outpaced their small-cap counterparts, and
growth-oriented shares outperformed value stocks.
An overweight position in the materials sector and an underweight in the
utilities sector contributed to Veedot's strong performance relative to the
benchmark. Effective stock selection, though, accounted for the bulk of
Veedot's relative outperformance. In fact, stock selection produced excess
returns compared with the benchmark in all ten market sectors during the
period. Foreign holdings also contributed significantly to fund performance.
STOCK PICKS DROVE PERFORMANCE
Veedot's systematic investment process guided us to successful stock
selections across a number of sectors. Within the industrials sector, we held
an overweight stake in the marine industry, which was home to several
explosive performers during the period, including our largest individual
holding. DryShips, which ships commodities worldwide, gained 772% during the
period amid expanding demand and was the largest individual contributor to
performance. Overweight stakes in TBS International and Diana Shipping also
aided performance as both shipping companies saw triple-digit gains in share
price.
An additional large contributor to Veedot's absolute and relative gains was an
information technology holding. China Finance Online, which operates online,
subscription-based information services on Chinese investment markets, jumped
638%. The company is not represented in the benchmark.
Another technology holding not represented in the benchmark -- Vocus Inc. --
benefited portfolio returns. A provider of web-based on-demand software,
Vocus' share price gained 122%.
Top Ten Holdings as of October 31, 2007
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
DryShips Inc. 4.2% 1.6%
China Finance Online Co. Ltd. ADR 3.3% --
TBS International Ltd. Cl A 2.4% --
Diana Shipping Inc. 2.0% 1.2%
Southern Copper Corp. 2.0% 1.5%
EMCORE Corp. 1.6% --
Cia Vale do Rio Doce ADR 1.6% 1.1%
Research In Motion Ltd. 1.6% --
Mosaic Co. (The) 1.5% --
Graham Corp. 1.5% --
*All fund returns referenced in this commentary are for Investor Class shares.
- ------
4
Veedot
MATERIALS HELPED BUILD OUTPERFORMANCE
Veedot's substantial overweight in materials focused on the metals and mining
industry, which continued to aid performance. A stake in Cia Vale do Rio Doce
helped the portfolio's absolute and relative gains as strong iron ore and
nickel prices helped push the Brazilian mining company's share prices up 200%.
An overweight position in copper mining company Southern Copper also boosted
fund performance. The company's share price rose as increased demand from
China and fears of a strike-related shortage drove copper prices higher during
the period.
Chemicals company Terra Nitrogen, which produces nitrogen fertilizer products,
also contributed meaningfully to Veedot's performance. Rising ethanol prices
during the reporting period encouraged increased corn farming, which in turn
drove up demand for fertilizer products. The company, which is not represented
in the benchmark, saw its share price climb 403%.
FINANCIALS CONTRIBUTED
An underweight stake in the financials sector benefited performance results,
as the sector as a whole continued to be dragged down by woes surrounding the
subprime mortgage lending market. But individual stock selection within the
sector supported Veedot's gains, as we focused on some strong performers in
addition to avoiding some laggards.
In particular, we held a large overweight in IntercontinentalExchange, the
operator of an internet-based marketplace for commodities trading that
benefited from high crude oil trading levels and made a substantial
contribution to portfolio performance.
STARTING POINT FOR NEXT REPORTING PERIOD
Using a systematic and technically-driven process, Veedot focuses on finding
companies whose fundamental characteristics meet strict requirements for
accelerating earnings and revenue growth. Such companies must also have
historical stock price performance that suggests impending share price
appreciation.
We are encouraged by the market's behavior in spite of recent volatility. An
environment of steady rates and strong corporate earnings growth complements
our investment process and has successfully guided us to attractive positions
across sectors, notably in information technology, industrials, and materials.
We believe Veedot is well-positioned for continued solid returns if market
strength persists and expectations for continued Fed rate cuts prove correct.
Top Five Industries as of October 31, 2007
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
Marine 8.6% 2.9%
Machinery 7.3% 3.2%
Metals & Mining 7.2% 9.0%
Semiconductors & Semiconductor Equipment 6.9% 1.8%
Internet Software & Services 6.2% 3.4%
Types of Investments in Portfolio
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
Domestic Common Stocks 68.3% 78.3%
Foreign Common Stocks* 29.8% 18.8%
TOTAL COMMON STOCKS 98.1% 97.1%
Temporary Cash Investments 3.1% 1.6%
Other Assets and Liabilities (1.2)% 1.3%
*Includes depositary shares, dual listed securities and foreign ordinary
shares.
- ------
5
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, 2007 to October 31, 2007.
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.
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.
- ------
6
Expenses Paid
Beginning Ending During Period* Annualized
Account Account Value 5/1/07 - Expense
Value 5/1/07 10/31/07 10/31/07 Ratio*
ACTUAL
Investor Class $1,000 $1,310.20 $7.28 1.25%
Institutional
Class $1,000 $1,311.90 $6.12 1.05%
HYPOTHETICAL
Investor Class $1,000 $1,018.90 $6.36 1.25%
Institutional
Class $1,000 $1,019.91 $5.35 1.05%
*Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
- ------
7
SCHEDULE OF INVESTMENTS
Veedot
OCTOBER 31, 2007
Shares Value
Common Stocks -- 98.1%
AEROSPACE & DEFENSE -- 2.6%
15,000 Alliant Techsystems Inc.(1) $ 1,655,850
79,500 Stanley, Inc.(1) 2,105,160
20,500 Triumph Group, Inc. 1,632,210
------------
5,393,220
------------
AUTO COMPONENTS -- 0.9%
46,500 Drew Industries Inc.(1) 1,840,470
------------
BEVERAGES -- 2.1%
35,000 Coca-Cola Company (The) 2,161,600
51,000 Pepsi Bottling Group Inc. 2,197,080
------------
4,358,680
------------
BIOTECHNOLOGY -- 2.3%
31,000 Alexion Pharmaceuticals Inc.(1) 2,371,500
87,500 Cepheid(1) 2,264,500
------------
4,636,000
------------
CAPITAL MARKETS -- 2.1%
11,000 BlackRock, Inc. 2,276,450
68,000 optionsXpress Holdings, Inc. 2,023,680
------------
4,300,130
------------
CHEMICALS -- 2.5%
43,500 Arch Chemicals, Inc. 1,984,470
44,500 Mosaic Co. (The)(1) 3,106,100
------------
5,090,570
------------
COMMERCIAL SERVICES & SUPPLIES -- 5.6%
145,500 Casella Waste Systems, Inc. Cl A(1) 2,143,215
55,500 Copart, Inc.(1) 2,130,090
34,000 FTI Consulting, Inc.(1) 1,846,200
173,500 Metalico, Inc.(1) 1,969,225
31,500 Mine Safety Appliances Company 1,442,385
60,000 Team, Inc.(1) 1,931,400
------------
11,462,515
------------
COMMUNICATIONS EQUIPMENT -- 5.8%
142,500 Alvarion Ltd.(1) 1,792,650
74,000 Blue Coat Systems, Inc.(1) 3,003,660
61,500 Juniper Networks, Inc.(1) 2,214,000
63,500 Plantronics, Inc. 1,736,725
25,500 Research In Motion Ltd.(1) 3,175,005
------------
11,922,040
------------
COMPUTERS & PERIPHERALS -- 1.1%
42,500 Synaptics Inc.(1) 2,309,875
------------
DIVERSIFIED CONSUMER SERVICES -- 1.0%
10,500 Strayer Education, Inc. 1,957,830
------------
Shares Value
DIVERSIFIED FINANCIAL SERVICES -- 0.9%
37,000 Leucadia National Corp. $ 1,874,420
------------
ELECTRIC UTILITIES -- 0.9%
64,000 Reliant Energy, Inc.(1) 1,761,280
------------
ELECTRICAL EQUIPMENT -- 2.0%
73,500 American Superconductor Corp.(1) 1,995,525
31,000 Woodward Governor Co. 2,077,000
------------
4,072,525
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.1%
29,000 FLIR Systems, Inc.(1) 2,012,310
84,500 LG.Philips LCD Co., Ltd. ADR(1) 2,285,725
------------
4,298,035
------------
ENERGY EQUIPMENT & SERVICES -- 3.0%
27,000 Dawson Geophysical Co.(1) 2,154,870
25,500 Oceaneering International, Inc.(1) 1,970,385
16,000 Transocean Inc.(1) 1,909,920
------------
6,035,175
------------
FOOD PRODUCTS -- 3.8%
92,500 Cal-Maine Foods, Inc. 2,214,450
67,000 Fresh Del Monte Produce Inc.(1) 2,430,760
48,500 Green Mountain Coffee Roasters, Inc.(1) 1,809,050
37,500 Sanderson Farms Inc. 1,305,000
------------
7,759,260
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 4.6%
33,000 Arthrocare Corp.(1) 2,139,720
65,000 Cynosure Inc. Cl A(1) 2,470,650
9,000 Intuitive Surgical Inc.(1) 2,941,830
29,500 Kinetic Concepts Inc.(1) 1,772,950
------------
9,325,150
------------
HOTELS, RESTAURANTS & LEISURE -- 1.7%
15,500 Chipotle Mexican Grill Inc. Cl A(1) 2,154,500
49,500 Riviera Holdings Corp.(1) 1,381,050
------------
3,535,550
------------
HOUSEHOLD DURABLES -- 2.7%
145,000 Champion Enterprises, Inc.(1) 1,719,700
17,500 Garmin Ltd. 1,879,500
53,000 Tupperware Brands Corp. 1,913,300
------------
5,512,500
------------
INTERNET & CATALOG RETAIL -- 2.1%
23,000 Amazon.com, Inc.(1) 2,050,450
56,000 Overstock.com, Inc.(1) 2,191,280
------------
4,241,730
------------
- ------
8
Veedot
Shares Value
INTERNET SOFTWARE & SERVICES -- 6.2%
193,000 China Finance Online Co. Ltd. ADR(1) $ 6,716,400
50,500 Sohu.com Inc.(1) 3,025,455
83,500 Vocus Inc.(1) 3,004,330
------------
12,746,185
------------
IT SERVICES -- 2.8%
15,500 International Business Machines Corp. 1,799,860
69,000 Telvent GIT, SA 1,703,610
43,500 VeriFone Holdings Inc.(1) 2,150,205
------------
5,653,675
------------
LIFE SCIENCES TOOLS & SERVICES -- 1.0%
34,000 ICON plc ADR(1) 1,972,000
------------
MACHINERY -- 7.3%
61,500 Axsys Technologies, Inc.(1) 2,421,870
54,500 Badger Meter Inc. 2,095,525
15,000 Cummins Inc. 1,799,400
46,000 Graham Corp. 3,037,840
50,500 Greenbrier Companies Inc. 1,348,855
41,000 Lindsay Manufacturing Co. 2,017,200
23,000 Valmont Industries, Inc. 2,201,560
------------
14,922,250
------------
MARINE -- 8.6%
95,000 Diana Shipping Inc. 4,066,000
73,500 DryShips Inc. 8,662,710
78,500 TBS International Ltd. Cl A(1) 4,932,940
------------
17,661,650
------------
MEDIA -- 1.8%
31,500 Focus Media Holding Ltd. ADR(1) 1,953,000
37,500 John Wiley & Sons Inc. Cl A 1,649,250
------------
3,602,250
------------
METALS & MINING -- 7.2%
50,500 AK Steel Holding Corp.(1) 2,531,565
27,500 ArcelorMittal New York Shares 2,198,625
86,000 Cia Vale do Rio Doce ADR 3,240,480
32,500 Mechel OAO ADR(1) 2,734,875
29,000 Southern Copper Corp. 4,051,300
------------
14,756,845
------------
OIL, GAS & CONSUMABLE FUELS -- 0.9%
39,000 Frontline Ltd. 1,770,600
------------
PERSONAL PRODUCTS -- 1.9%
26,500 Chattem, Inc.(1) 1,968,950
216,000 China Precision Steel Inc.(1) 1,810,080
------------
3,779,030
------------
Shares Value
PHARMACEUTICALS -- 0.9%
39,500 XenoPort, Inc.(1) $ 1,938,660
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 6.9%
156,500 Amtech Systems, Inc.(1) 2,729,360
64,000 Cree, Inc.(1) 1,792,000
57,500 Cypress Semiconductor Corp.(1) 2,101,625
302,500 EMCORE Corp.(1) 3,263,975
75,500 Intel Corp. 2,030,950
127,000 O2Micro International Ltd. ADR(1) 2,204,720
------------
14,122,630
------------
SOFTWARE -- 1.0%
47,000 Citrix Systems, Inc.(1) 2,020,530
------------
TEXTILES, APPAREL & LUXURY GOODS -- 1.0%
14,000 Deckers Outdoor Corp.(1) 1,957,060
------------
TOBACCO -- 0.8%
77,700 Vector Group Ltd. 1,700,076
------------
TOTAL COMMON STOCKS
(Cost $149,895,343) 200,290,396
------------
Principal Amount
Temporary Cash Investments -- 3.1%
$6,400,000 FHLB Discount Notes, 4.40%, 11/1/07(2) 6,400,000
(Cost $6,400,000)
------------
TOTAL INVESTMENT SECURITIES -- 101.2%
(Cost $156,295,343) 206,690,396
------------
OTHER ASSETS AND LIABILITIES -- (1.2)% (2,397,271)
------------
TOTAL NET ASSETS -- 100.0% $204,293,125
============
Notes to Schedule of Investments
ADR = American Depositary Receipt
FHLB = Federal Home Loan Bank
(1) Non-income producing.
(2) The rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements.
- ------
9
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007
ASSETS
Investment securities, at value (cost of $156,295,343) $206,690,396
Cash 4,172,865
Receivable for investments sold 5,792,197
Dividends and interest receivable 15,899
------------
216,671,357
------------
LIABILITIES
Payable for investments purchased 12,170,483
Accrued management fees 207,749
------------
12,378,232
------------
NET ASSETS $204,293,125
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $190,400,087
Accumulated net realized loss on investment and foreign currency
transactions (36,502,015)
Net unrealized appreciation on investments and translation of
assets and liabilites in foreign currencies 50,395,053
------------
$204,293,125
============
INVESTOR CLASS, $0.01 PAR VALUE
Net assets $195,105,395
Shares outstanding 21,086,469
Net asset value per share $9.25
INSTITUTIONAL CLASS, $0.01 PAR VALUE
Net assets $9,187,730
Shares outstanding 979,120
Net asset value per share $9.38
See Notes to Financial Statements.
- ------
10
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $20,719) $ 1,628,437
Interest 172,454
-----------
1,800,891
-----------
EXPENSES:
Management fees 2,078,775
Directors' fees and expenses 3,138
Other expenses 677
-----------
2,082,590
-----------
NET INVESTMENT INCOME (LOSS) (281,699)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment and foreign currency
transactions 33,343,183
Change in net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign currencies 35,640,640
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 68,983,823
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $68,702,124
===========
See Notes to Financial Statements.
- ------
11
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ (281,699) $ (691,907)
Net realized gain (loss) 33,343,183 23,038,039
Change in net unrealized appreciation (depreciation) 35,640,640 (3,027,960)
------------ ------------
Net increase (decrease) in net assets resulting
from operations 68,702,124 19,318,172
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions (30,019,917) (43,224,906)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 38,682,207 (23,906,734)
NET ASSETS
Beginning of period 165,610,918 189,517,652
------------ ------------
End of period $204,293,125 $165,610,918
============ ============
See Notes to Financial Statements.
- ------
12
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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 nondiversified 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 an 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 and the
Institutional Class. The share classes differ principally in their respective
distribution and shareholder servicing 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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. Distributions received on securities that
represent a return of capital or capital gain are recorded as a reduction of
cost of investments and/or as a realized gain. The fund estimates the
components of distributions received that may be considered nontaxable
distributions or capital gain distributions for income tax purposes. Interest
income is recorded on the accrual basis and includes accretion of discounts
and amortization of premiums.
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.
- ------
13
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 American Century Investment Management, Inc. (ACIM) (the
investment advisor) 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 or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions that would materially impact the financial statements.
Accordingly, no provision has been made for federal or state income taxes.
Interest and penalties associated with any federal or state income tax
obligations, if any, are recorded as interest expense.
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 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. Prior to March 1, 2007, the fund
imposed a 2.00% redemption fee on shares held less than 5 years.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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.
- ------
14
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 advisor'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 advisor 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 the fund ranges from 1.00% to 1.25% for the
Investor Class. The Institutional Class is 0.20% less at each point within the
range. The effective annual management fee for each class of the fund for the
year ended October 31, 2007 was 1.25% and 1.05% for the Investor Class and
Institutional Class, respectively.
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 advisor, ACIM, the distributor of the corporation, American Century
Investment Services, Inc., and the corporation's transfer agent, American
Century Services, LLC.
Beginning in December 2006, the fund is eligible to invest in a money market
fund for temporary purposes, which is managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan 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, 2007, were $341,384,241 and
$371,415,846, respectively.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Year ended October 31, 2007 Year ended October 31, 2006
Shares Amount Shares Amount
INVESTOR
CLASS/SHARES
AUTHORIZED 200,000,000 200,000,000
=========== ===========
Sold 2,809,737 $23,058,182 1,125,207 $6,920,171
Redeemed (6,725,943) (47,100,091)(1) (8,068,501) (48,716,333)(2)
----------- --------------- ----------- ---------------
(3,916,206) (24,041,909) (6,943,294) (41,796,162)
----------- --------------- ----------- ---------------
INSTITUTIONAL
CLASS/SHARES
AUTHORIZED 100,000,000 50,000,000
=========== ===========
Sold 146,901 1,160,072 176,461 1,106,406
Redeemed (965,925) (7,138,080)(3) (410,030) (2,535,150)(4)
----------- --------------- ----------- ---------------
(819,024) (5,978,008) (233,569) (1,428,744)
----------- --------------- ----------- ---------------
Net increase
(decrease) (4,735,230) $(30,019,917) (7,176,863) $(43,224,906)
=========== =============== =========== ===============
(1) Net of redemption fees of $62,403.
(2) Net of redemption fees of $98,958.
(3) Net of redemption fees of $9,817.
(4) Net of redemption fees of $1,699.
- ------
15
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 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 0.40%. The fund did not borrow from the line during the year ended
October 31, 2007.
6. RISK FACTORS
The 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. There are certain risks involved in investing in
foreign securities. These risks include those resulting from future adverse
political, social, and economic developments, fluctuations in currency
exchange rates, the possible imposition of exchange controls, and other
foreign laws or restrictions.
7. FEDERAL TAX INFORMATION
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
There were no distributions paid by the fund during the years ended October
31, 2007 and October 31, 2006.
As of October 31, 2007, the components of distributable earnings on a
tax-basis and the federal tax cost of investments were as follows:
Federal tax cost of investments $156,295,343
=============
Gross tax appreciation of investments $52,689,847
Gross tax depreciation of investments (2,294,794)
-------------
Net tax appreciation (depreciation) of investments $50,395,053
=============
Undistributed ordinary income --
Accumulated capital losses $(36,502,015)
The cost of investments for federal income tax purposes was the same as the
cost for financial reporting 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 $(4,184,563) and
$(32,317,452) expire in 2009 and 2010, respectively.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
- ------
16
FINANCIAL HIGHLIGHTS
Veedot
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning
of Period $6.17 $5.57 $5.06 $4.99 $3.77
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income
(Loss)(1) (0.01) (0.02) (0.03) (0.03) (0.03)
Net Realized and
Unrealized Gain (Loss) 3.09 0.62 0.53 0.09 1.24
-------- -------- -------- -------- --------
Total From Investment
Operations 3.08 0.60 0.50 0.06 1.21
-------- -------- -------- -------- --------
Redemption Fees(1) --(2) --(2) 0.01 0.01 0.01
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $9.25 $6.17 $5.57 $5.06 $4.99
======== ======== ======== ======== ========
TOTAL RETURN(3) 49.92% 10.77% 10.08% 1.40% 32.36%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets 1.25% 1.45% 1.50% 1.50% 1.50%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.18)% (0.39)% (0.51)% (0.57)% (0.68)%
Portfolio Turnover Rate 207% 330% 399% 344% 415%
Net Assets, End of Period
(in thousands) $195,105 $154,374 $178,078 $219,618 $228,724
(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, and does not reflect applicable redemption fees.
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
Veedot
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $6.25 $5.63 $5.10 $5.02 $3.79
------ ------- ------- ------- -------
Income From Investment Operations
Net Investment Income
(Loss)(1) --(2) (0.01) (0.02) (0.02) (0.02)
Net Realized and Unrealized
Gain (Loss) 3.13 0.63 0.54 0.09 1.24
------ ------- ------- ------- -------
Total From Investment
Operations 3.13 0.62 0.52 0.07 1.22
------ ------- ------- ------- -------
Redemption Fees(1) --(2) --(2) 0.01 0.01 0.01
------ ------- ------- ------- -------
Net Asset Value,
End of Period $9.38 $6.25 $5.63 $5.10 $5.02
====== ======= ======= ======= =======
TOTAL RETURN(3) 50.08% 11.01% 10.39% 1.59% 32.45%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.05% 1.25% 1.30% 1.30% 1.30%
Ratio of Net Investment
Income (Loss) to Average
Net Assets 0.02% (0.19)% (0.31)% (0.37)% (0.48)%
Portfolio Turnover Rate 207% 330% 399% 344% 415%
Net Assets, End of Period (in
thousands) $9,188 $11,237 $11,440 $12,400 $12,458
(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, and does not reflect applicable redemption fees.
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.
- ------
18
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
mutual funds comprising American Century Mutual Funds, Inc., as of October 31,
2007, and the related statement 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 each of the five years in the
period then ended. 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. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of October 31, 2007,
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. 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, 2007, 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 each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 12, 2007
- ------
19
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007, to vote on the
following proposal. The proposal received the required number of votes of the
American Century Mutual Funds, Inc. and was adopted. A summary of voting
results is listed below the proposal.
PROPOSAL:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
- ------
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 directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, 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, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the fund also serve in similar capacities for
the other 14 investment companies in the American Century family of funds
advised by ACIM, or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the fund. The listed officers are
interested persons of the fund and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- ------
21
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUND: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- ------
22
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUND: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the fund's directors and is available
without charge, upon request, by calling 1-800-345-2021.
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23
APPROVAL OF MANAGEMENT AGREEMENT
Veedot
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning Veedot (the "fund") and the services
provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund under the management
agreement;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the fund and its shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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24
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information
- ------
25
for the fund, together with comparative information for appropriate benchmarks
and peer groups of funds managed similarly to the fund. The Directors also
review detailed performance information during the 15(c) Process comparing the
fund's performance with that of similar funds not managed by the advisor. If
performance concerns are identified, the Directors discuss with the advisor
the reasons for such results (e.g., market conditions, security selection) and
any efforts being undertaken to improve performance. The fund's performance
fell below the median for both the one- and three-year periods during part of
the past year. The board discussed the fund's performance with the advisor and
was satisfied with the efforts being undertaken by the advisor.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the fund, its profitability in managing the fund, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
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26
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was above the median of the total expense ratios
of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor concluded that the
investment management agreement between the fund and the advisor is fair and
reasonable in light of the services provided and should be renewed.
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27
SHARE CLASS INFORMATION
Two classes of shares are authorized for sale by the fund: Investor Class and
Institutional Class. 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; and/or 2) through
certain financial intermediaries (such as banks, broker-dealers, insurance
companies and investment advisors), which may require payment of a transaction
fee to the financial intermediary. The fund's prospectus contains additional
information regarding eligibility for Investor Class shares.
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 unified
management fee of Institutional Class shares is 0.20% less than the unified
management fee of Investor Class shares.
All classes of shares represent a pro rata interest in the fund and generally
have the same rights and preferences.
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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 advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at americancentury.com and, upon request, by calling
1-800-345-2021.
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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 RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index com-panies (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 values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
The RUSSELL 3000® INDEX measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
The RUSSELL 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 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 MIDCAP® VALUE 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 lower price-to-book
ratios and lower forecasted growth values.
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.
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30
NOTES
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31
NOTES
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32
[INSIDE BACK PAGE BLANK]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
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 PROFESSIONALS, 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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
COMPANIES
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0712
SH-ANN-57611S
[front cover]
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter]
Capital Value Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century® Capital Value
Fund for the 12 months ended October 31, 2007. I am honored to be addressing
you in the "Our Message" space long devoted to company founder Jim Stowers,
Jr. and his son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
CAPITAL VALUE
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 9
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 12
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 13
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 14
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 15
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 20
Report of Independent Registered Public Accounting Firm . . . . . . . 23
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 24
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Approval of Management Agreement for Capital Value. . . . . . . . . . 29
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 33
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 34
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 35
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of chief investment officer]
By Enrique Chang, Chief Investment Officer,
American Century Investments
STOCKS ADVANCED DESPITE INCREASE IN VOLATILITY
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007, despite facing a confluence of challenges that led to extraordinary
market volatility.
The stock market generally rallied from late 2006 through mid-2007, with the
exception of a brief drop in late February caused primarily by growing
financial troubles among subprime lenders. Stocks benefited from corporate
earnings growth, which gradually decelerated but continued to surpass
expectations, and robust merger activity, which continued at a brisk pace
thanks to leveraged buy-outs from private equity firms.
After reaching all-time highs in mid-July, however, the major stock indexes
declined sharply as the subprime lending problems worsened, leading to a
credit crisis that threatened to derail the economic expansion. Tighter
lending standards crimped funding for leveraged buy-outs, removing an
important leg of support for the stock market, and rising energy and commodity
prices sparked inflation worries despite slowing economic activity.
As investors grew increasingly risk-averse, the Federal Reserve (the Fed)
stepped in to provide a measure of relief. The Fed lowered its discount rate
in mid-August and federal funds rate target in both September and October --
the Fed's first rate cuts since June 2003. The Fed's actions helped alleviate
some of the credit and economic concerns, allowing the major stock indexes to
stage an uneven but solid recovery during the last two months of the period.
MID-CAP AND GROWTH OUTPERFORMED
Mid-cap stocks delivered the best returns (see the accompanying table),
followed closely by large-cap issues, while small-cap stocks lagged. Growth
stocks, which have trailed value issues for much of the decade, enjoyed a
resurgence over the past 12 months, outpacing value shares by a wide margin
across all market capitalizations.
Energy was the best-performing sector in the stock market during the one-year
period, benefiting from a 60% increase in the price of oil. Materials and
information technology stocks also fared well. The only two sectors of the
market to decline during the period were financials and consumer discretionary.
U.S. Stock Index Returns
For the 12 months ended October 31, 2007
RUSSELL 1000 INDEX (LARGE-CAP) 15.03%
Russell 1000 Growth Index 19.23%
Russell 1000 Value Index 10.83%
RUSSELL MIDCAP INDEX 15.24%
Russell Midcap Growth Index 19.72%
Russell Midcap Value Index 9.73%
RUSSELL 2000 INDEX (SMALL-CAP) 9.27%
Russell 2000 Growth Index 16.73%
Russell 2000 Value Index 2.05%
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2
PERFORMANCE
Capital Value
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years Inception Date
INVESTOR CLASS 9.66% 14.41% 8.30% 3/31/99
Return After-Tax on
Distributions(1) 9.21% 14.05% 7.92%
Return After-Tax on
Distributions and Sale
of Shares(1) 6.83% 12.55% 7.12%
RUSSELL 1000 VALUE INDEX(2) 10.83% 16.39% 7.75% --
Institutional Class 9.88% 14.66% 9.21% 3/1/02
Return After-Tax on
Distributions(1) 9.39% 14.25% 8.87%
Return After-Tax on
Distributions and Sale
of Shares(1) 7.01% 12.75% 7.92%
Advisor Class 9.40% -- 14.05% 5/14/03
Return After-Tax on
Distributions(1) 8.99% -- 13.81%
Return After-Tax on
Distributions and Sale
of Shares(1) 6.61% -- 12.27%
(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.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
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.
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
Capital Value
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 2005 2006 2007
Investor
Class
(before
tax) 3.60% 7.23% -0.47% -8.49% 21.67% 13.94% 9.29% 18.03% 9.66%
Russell
1000 Value
Index 6.15% 5.52% -11.86% -10.02% 22.87% 15.45% 11.86% 21.46% 10.83%
* 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.
- ------
4
PORTFOLIO COMMENTARY
Capital Value
Portfolio Managers: Chuck Ritter and Brendan Healy
PERFORMANCE SUMMARY
Capital Value gained 9.66%* for the 12 months ended October 31, 2007. Its
benchmark, the Russell 1000 Value Index, advanced 10.83% while the broader
market, as measured by the S&P 500 Index, returned 14.56%.**
Capital Value provided solid returns despite a challenging market environment
(described in the Market Perspective on page 2). Over the period, growth
stocks significantly outperformed value across the capitalization spectrum.
Investors generally favored companies that were already strong performers;
this momentum bias did not fit well with the portfolio's investment approach,
which seeks stocks that are undervalued by the market.
The portfolio's relative performance for the reporting period deviated from
its longer-term results. Since Capital Value's inception on March 31, 1999,
the portfolio has produced an average annualized return of 8.30%,
outperforming the Russell 1000 Value Index, and the S&P 500, which returned
7.75% and 3.84%, respectively, on an average annualized basis.
INFORMATION TECHNOLOGY OUTPERFORMED
The portfolio's stake in the information technology sector was a top
contributor to performance versus the benchmark. A significant holding was
software giant Microsoft, which benefited from strong sales of its new Vista
operating system and Office 2007. Microsoft's announcement last summer of a
$20-billion stock buyback also boosted its shares.
Hewlett-Packard was another strong IT contributor. The company raised its
financial forecast as it continued to gain ground in the PC market and moved
into high-end enterprise printing equipment.
CONSUMER STAPLES BOOSTED RESULTS
In consumer staples, a preference for large industry leaders proved to be
advantageous as many of these names outperformed the benchmark. One top
performer was Unilever, a foreign-based, global supplier of foods, home goods,
and personal products, with a strong presence in the U.S. market. Unilever was
part of the portfolio's small portion of international holdings that had a
positive impact on results. Its stock benefited from the company's
stronger-than-expected revenue growth and its progress in cost-cutting efforts.
The portfolio also held a large position in Kroger, the second-largest food
retailer in the U.S. Kroger's stock rose 32% as the company regained market
share by tailoring its products and service offerings to its customers' buying
behaviors.
Top Ten Holdings as of October 31, 2007
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
Exxon Mobil Corp. 5.3% 4.9%
Citigroup Inc. 4.1% 4.7%
Chevron Corp. 3.3% 3.1%
Bank of America Corp. 3.2% 3.3%
Royal Dutch Shell plc ADR 3.2% 2.6%
AT&T Inc. 3.2% 3.0%
JPMorgan Chase & Co. 2.5% 2.5%
General Electric Co. 2.5% 1.7%
ConocoPhillips 2.2% 1.9%
Wells Fargo & Co. 2.1% 2.1%
*All fund returns referenced in this commentary are for Investor Class shares.
**The S&P 500 Index returned 13.88% on an average annualized basis for the
five-year period ended October 31, 2007.
- ------
5
Capital Value
STRONG STOCK SELECTION IN UTILITIES
The utilities sector provided PPL Corp. and Exelon, two of the portfolio's
strongest relative performers. PPL, a low-cost producer of nuclear- and
coal-generated energy, provides electricity to customers in the U.S., the
U.K., and Latin America. The company reported solid 2006 earnings and
reaffirmed its positive outlook for 2007.
Exelon, which distributes electricity in Illinois and Pennsylvania, and gas in
the Philadelphia area, is the nation's largest nuclear generator. Its nuclear
plants benefited as the cost of power from competitors' gas-fired plants
increased.
UNDERWEIGHT IN MATERIALS DETRACTED
An underweight in materials hampered results as the sector generated strong
returns for the Russell 1000 Value Index. While a position in steel producer
Nucor Corp. was a bright spot (as the company reported growing sales and
pricing power), the portfolio generally held smaller-than-the-benchmark
positions in metals, mining, and chemical stocks. Many of these companies have
reported exceptionally strong earnings, which has attracted a large number of
investors. (The metals and mining segment was up nearly 50% over the period;
chemicals rose 25%.) Because the management team believes these current
earnings are unsustainable, it has limited the portfolio's exposure.
FINANCIALS DETRACTED
The financials sector was the portfolio's weakest performer. Many financial
firms came under pressure amid the fallout in the subprime lending category.
Although the management team's valuation work led the portfolio away from real
estate investment trusts, its holdings among thrifts and mortgage finance
companies were a drag on relative results. Freddie Mac, a top-detracting
stock, made slow progress in implementing new accounting systems, which
dampened its near-term prospects for reduced regulatory oversight.
A modest position in MGIC Investment Corporation, the nation's largest private
mortgage insurer, hurt performance as the company was hampered by the housing
slowdown and significant financial losses from a joint venture involved in
restructuring subprime mortgages.
STARTING POINT FOR NEXT REPORTING PERIOD
As bottom-up managers, we evaluate each company individually and build the
portfolio one stock at a time. As of October 31, 2007, the portfolio was
broadly diversified, with an overweight position in the information technology
sector and an underweight position in utilities stocks, which we believe are
richly valued. In addition, we continued to find value opportunities among
mega-cap stocks and have maintained our bias toward them.
Top Five Industries as of October 31, 2007
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
Oil, Gas & Consumable Fuels 14.4% 13.4%
Diversified Financial Services 9.8% 10.5%
Pharmaceuticals 7.9% 7.8%
Insurance 6.3% 6.5%
Commercial Banks 5.7% 6.2%
Types of Investments in Portfolio
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
Common Stocks 99.4% 97.8%
Temporary Cash Investments 0.5% 2.3%
Other Assets and Liabilities(1) 0.1% (0.1)%
(1) Includes securities lending collateral and other assets and liabilities.
- ------
6
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, 2007 to October 31, 2007.
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.
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.
- ------
7
Expenses Paid
Beginning Ending During Period* Annualized
Account Account Value 5/1/07 - Expense
Value 5/1/07 10/31/07 10/31/07 Ratio*
ACTUAL
Investor Class $1,000 $1,008.00 $5.57 1.10%
Institutional
Class $1,000 $1,009.20 $4.56 0.90%
Advisor Class $1,000 $1,006.90 $6.83 1.35%
HYPOTHETICAL
Investor Class $1,000 $1,019.66 $5.60 1.10%
Institutional
Class $1,000 $1,020.67 $4.58 0.90%
Advisor Class $1,000 $1,018.40 $6.87 1.35%
*Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
- ------
8
SCHEDULE OF INVESTMENTS
Capital Value
OCTOBER 31, 2007
Shares Value
Common Stocks -- 99.4%
AEROSPACE & DEFENSE -- 1.0%
64,200 Northrop Grumman Corp. $ 5,368,404
------------
BEVERAGES -- 2.4%
110,400 Coca-Cola Company (The) 6,818,304
123,700 Pepsi Bottling Group Inc. 5,328,996
------------
12,147,300
------------
BIOTECHNOLOGY -- 0.6%
55,400 Amgen Inc.(1) 3,219,294
------------
CAPITAL MARKETS -- 3.8%
78,853 Bank of New York Mellon Corp. (The) 3,851,969
10,580 Bear Stearns Companies Inc. (The) 1,201,888
104,200 Merrill Lynch & Co., Inc. 6,879,284
105,800 Morgan Stanley 7,116,108
------------
19,049,249
------------
CHEMICALS -- 2.3%
102,900 du Pont (E.I.) de Nemours & Co. 5,094,579
84,900 PPG Industries, Inc. 6,345,426
------------
11,440,005
------------
COMMERCIAL BANKS -- 5.7%
41,000 National City Corp. 994,250
48,700 PNC Financial Services Group 3,514,192
202,500 U.S. Bancorp 6,714,900
157,100 Wachovia Corp. 7,184,183
310,600 Wells Fargo & Co. 10,563,506
------------
28,971,031
------------
COMMERCIAL SERVICES & SUPPLIES -- 1.6%
21,100 Avery Dennison Corp. 1,221,690
88,000 R.R. Donnelley & Sons Company 3,545,520
86,400 Waste Management, Inc. 3,144,096
------------
7,911,306
------------
COMMUNICATIONS EQUIPMENT -- 0.3%
70,500 Motorola, Inc. 1,324,695
------------
COMPUTERS & PERIPHERALS -- 1.5%
146,300 Hewlett-Packard Co. 7,560,784
------------
CONSUMER FINANCE -- 0.2%
62,300 Discover Financial Services 1,202,390
------------
DIVERSIFIED -- 1.5%
50,000 Standard and Poor's 500 Depositary Receipt
Series 1(2) 7,732,500
------------
Shares Value
DIVERSIFIED CONSUMER SERVICES -- 0.5%
125,324 H&R Block, Inc.(2) $ 2,732,063
------------
DIVERSIFIED FINANCIAL SERVICES -- 9.8%
337,900 Bank of America Corp. 16,313,812
498,200 Citigroup Inc. 20,874,579
267,200 JPMorgan Chase & Co. 12,558,400
------------
49,746,791
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 4.7%
383,588 AT&T Inc. 16,030,143
172,900 Verizon Communications Inc. 7,965,503
------------
23,995,646
------------
ELECTRIC UTILITIES -- 3.1%
104,200 Exelon Corporation 8,625,676
139,100 PPL Corporation 7,191,470
------------
15,817,146
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.4%
53,175 Tyco Electronics Ltd. 1,896,752
------------
ENERGY EQUIPMENT & SERVICES -- 0.6%
38,200 National Oilwell Varco, Inc.(1) 2,797,768
------------
FOOD & STAPLES RETAILING -- 2.0%
121,700 Kroger Co. (The) 3,576,763
25,295 Walgreen Co. 1,002,947
121,300 Wal-Mart Stores, Inc. 5,483,973
------------
10,063,683
------------
FOOD PRODUCTS -- 1.2%
182,700 Unilever N.V. New York Shares 5,930,442
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.4%
47,300 Medtronic, Inc. 2,243,912
------------
HEALTH CARE PROVIDERS & SERVICES -- 0.3%
28,800 Quest Diagnostics Inc. 1,531,584
------------
HOTELS, RESTAURANTS & LEISURE -- 0.7%
55,914 McDonald's Corporation 3,338,066
------------
HOUSEHOLD DURABLES -- 0.7%
122,100 Newell Rubbermaid Inc. 3,560,436
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.3%
30,500 NRG Energy Inc.(1) 1,392,630
------------
INDUSTRIAL CONGLOMERATES -- 2.9%
302,300 General Electric Co. 12,442,668
55,475 Tyco International Ltd. 2,283,906
------------
14,726,574
------------
- ------
9
Capital Value
Shares Value
INSURANCE -- 6.3%
105,700 Allstate Corp. $ 5,538,680
160,600 American International Group, Inc. 10,137,072
65,600 Hartford Financial Services Group Inc. (The) 6,365,168
73,900 Loews Corp. 3,627,751
104,300 Marsh & McLennan Companies, Inc. 2,700,327
50,500 Torchmark Corp. 3,290,580
------------
31,659,578
------------
IT SERVICES -- 1.7%
43,100 Fiserv, Inc.(1) 2,387,740
53,700 International Business Machines Corp. 6,235,644
------------
8,623,384
------------
MACHINERY -- 3.4%
42,600 Caterpillar Inc. 3,178,386
14,000 Deere & Co. 2,168,600
71,300 Dover Corp. 3,279,800
84,800 Ingersoll-Rand Company Ltd. Cl A 4,269,680
50,550 Parker-Hannifin Corp. 4,062,704
------------
16,959,170
------------
MEDIA -- 2.9%
79,500 Gannett Co., Inc. 3,371,595
396,500 Time Warner Inc. 7,240,090
103,300 Viacom Inc. Cl B(1) 4,265,257
------------
14,876,942
------------
METALS & MINING -- 0.6%
49,000 Nucor Corp. 3,038,980
------------
MULTILINE RETAIL -- 0.2%
23,400 Kohl's Corp.(1) 1,286,298
------------
OFFICE ELECTRONICS -- 0.6%
179,200 Xerox Corp.(1) 3,125,248
------------
OIL, GAS & CONSUMABLE FUELS -- 14.4%
181,000 Chevron Corp. 16,563,310
131,700 ConocoPhillips 11,189,232
20,445 Devon Energy Corporation 1,909,563
293,600 Exxon Mobil Corp. 27,008,263
184,500 Royal Dutch Shell plc ADR 16,145,595
------------
72,815,963
------------
PAPER & FOREST PRODUCTS -- 1.2%
78,402 Weyerhaeuser Co. 5,951,496
------------
Shares Value
PHARMACEUTICALS -- 7.9%
134,900 Abbott Laboratories $ 7,368,238
62,200 Eli Lilly and Company 3,368,130
149,200 Johnson & Johnson 9,723,364
72,600 Merck & Co., Inc. 4,229,676
368,500 Pfizer Inc. 9,068,785
129,300 Wyeth 6,287,859
------------
40,046,052
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.9%
95,500 Applied Materials, Inc. 1,854,610
94,200 Intel Corp. 2,533,980
------------
4,388,590
------------
SOFTWARE -- 2.8%
275,839 Microsoft Corporation 10,153,634
176,600 Oracle Corp.(1) 3,915,222
------------
14,068,856
------------
SPECIALTY RETAIL -- 2.3%
69,800 Best Buy Co., Inc. 3,386,696
164,300 Gap, Inc. (The) 3,105,270
62,200 Home Depot, Inc. (The) 1,959,922
125,700 Staples, Inc. 2,933,838
------------
11,385,726
------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.6%
35,300 VF Corp. 3,075,689
------------
THRIFTS & MORTGAGE FINANCE -- 3.0%
45,903 Countrywide Financial Corp.(2) 712,415
190,900 Freddie Mac 9,970,707
39,100 MGIC Investment Corp. 756,976
136,100 Washington Mutual, Inc. 3,794,468
------------
15,234,566
------------
TOBACCO -- 1.3%
86,700 Altria Group Inc. 6,323,031
------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.8%
229,000 Sprint Nextel Corp. 3,915,900
------------
TOTAL COMMON STOCKS
(Cost $366,517,961) 502,475,920
------------
Temporary Cash Investments -- 0.5%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized
by various U.S. Treasury obligations, 7.125%-7.625%,
2/15/23-2/15/25, valued at $2,443,778), in a joint trading account
at 4.50%, dated 10/31/07, due 11/1/07 (Delivery value $2,400,300)
(Cost $2,400,000) 2,400,000
------------
- ------
10
Capital Value
Shares Value
Temporary Cash Investments -- Securities Lending Collateral(3) -- 1.8%
Repurchase Agreement, Deutsche Bank Securities, Inc.,
(collateralized by various U.S. Government Agency obligations in a
pooled account at the lending agent), 4.82%, dated 10/31/07, due
11/1/07 (Delivery value $9,165,149) $ 9,163,922
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 4.89%, dated 10/31/07, due 11/1/07 (Delivery
value $100,014) 100,000
------------
TOTAL TEMPORARY CASH INVESTMENTS -- SECURITIES LENDING COLLATERAL
(Cost $9,263,922) 9,263,922
------------
Shares Value
TOTAL INVESTMENT SECURITIES -- 101.7%
(Cost $378,181,883) $514,139,842
------------
OTHER ASSETS AND LIABILITIES -- (1.7)% (8,590,696)
------------
TOTAL NET ASSETS -- 100.0% $505,549,146
============
Notes to Schedule of Investments
ADR = American Depositary Receipt
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of October 31, 2007.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
11
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007
ASSETS
Investment securities, at value (cost of $368,917,961) --
including $9,124,900 of securities on loan $504,875,920
Investments made with cash collateral received for securities on
loan, at value (cost of $9,263,922) 9,263,922
------------
Total investment securities, at value (cost of $378,181,883) 514,139,842
Receivable for investments sold 1,498,252
Dividends and interest receivable 699,899
------------
516,337,993
------------
LIABILITIES
Disbursements in excess of demand deposit cash 536,046
Payable for collateral received on securities on loan 9,263,922
Payable for investments purchased 511,752
Accrued management fees 470,143
Distribution fees payable 3,492
Service fees payable 3,492
------------
10,788,847
------------
NET ASSETS $505,549,146
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $345,382,076
Undistributed net investment income 5,754,249
Undistributed net realized gain on investment transactions 18,454,862
Net unrealized appreciation on investments 135,957,959
------------
$505,549,146
============
INVESTOR CLASS, $0.01 PAR VALUE
Net assets $461,413,464
Shares outstanding 52,577,602
Net asset value per share $8.78
INSTITUTIONAL CLASS, $0.01 PAR VALUE
Net assets $28,077,101
Shares outstanding 3,194,640
Net asset value per share $8.79
ADVISOR CLASS, $0.01 PAR VALUE
Net assets $16,058,581
Shares outstanding 1,833,932
Net asset value per share $8.76
See Notes to Financial Statements.
- ------
12
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld $142,415) $13,312,097
Interest 691,216
Securities lending 30,617
-----------
14,033,930
-----------
EXPENSES:
Management fees 5,747,106
Distribution fees -- Advisor Class 43,177
Service fees -- Advisor Class 43,177
Directors' fees and expenses 10,702
Other expenses 1,093
-----------
5,845,255
-----------
NET INVESTMENT INCOME (LOSS) 8,188,675
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment transactions 18,769,164
Change in unrealized appreciation (depreciation) on investments 22,105,599
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 40,874,763
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $49,063,438
===========
See Notes to Financial Statements.
- ------
13
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $8,188,675 $7,648,801
Net realized gain (loss) 18,769,164 6,923,827
Change in net unrealized appreciation (depreciation) 22,105,599 67,362,731
------------ ------------
Net increase (decrease) in net assets resulting
from operations 49,063,438 81,935,359
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class (7,057,821) (6,466,570)
Institutional Class (534,336) (610,968)
Advisor Class (212,420) (174,997)
From net realized gains:
Investor Class (6,173,467) (5,171,999)
Institutional Class (410,071) (428,777)
Advisor Class (225,243) (170,420)
------------ ------------
Decrease in net assets from distributions (14,613,358) (13,023,731)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions (43,818,329) (64,615,188)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (9,368,249) 4,296,440
NET ASSETS
Beginning of period 514,917,395 510,620,955
------------ ------------
End of period $505,549,146 $514,917,395
============ ============
Undistributed net investment income $5,754,249 $5,367,334
============ ============
See Notes to Financial Statements.
- ------
14
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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 its objective by investing primarily in common stocks that
management believes to be undervalued at the time of purchase. The fund also
seeks to minimize the impact of federal income 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 distribution and shareholder servicing
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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of 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.
- ------
15
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 or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions that would materially impact the financial statements.
Accordingly, no provision has been made for federal or state income taxes.
Interest and penalties associated with any federal or state income tax
obligations, if any, are recorded as interest expense.
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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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)
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 advisor'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 advisor 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 the fund ranges from 0.90% to 1.10% for the
Investor Class. The Institutional Class is 0.20% less and the Advisor Class is
0.25% less at each point within the range. The effective annual management fee
for each class of the fund for the year ended October 31, 2007, 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, 2007, are detailed in the Statement
of Operations.
- ------
16
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 advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
Beginning in December 2006, the fund is eligible to invest in a money market
fund for temporary purposes, which is managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan 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 and sales of investment securities, excluding short-term
investments, for the year ended October 31, 2007, were $76,802,265 and
$105,636,580, respectively.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Year ended October 31, 2007 Year ended October 31, 2006
Shares Amount Shares Amount
INVESTOR
CLASS/SHARES
AUTHORIZED 200,000,000 200,000,000
============ ============
Sold 8,504,945 $72,228,943 9,373,982 $71,303,459
Issued in
reinvestment of
distributions 1,397,652 11,684,374 1,417,919 10,279,913
Redeemed (14,030,687) (120,606,257) (18,164,887) (135,283,954)
------------ ------------- ------------ -------------
(4,128,090) (36,692,940) (7,372,986) (53,700,582)
------------ ------------- ------------ -------------
INSTITUTIONAL
CLASS/SHARES
AUTHORIZED 15,000,000 15,000,000
============ ============
Sold 252,381 2,101,512 394,236 2,919,221
Issued in
reinvestment of
distributions 112,065 936,867 126,734 918,822
Redeemed (947,069) (8,137,849) (1,981,998) (14,766,520)
------------ ------------- ------------ -------------
(582,623) (5,099,470) (1,461,028) (10,928,477)
------------ ------------- ------------ -------------
ADVISOR
CLASS/SHARES
AUTHORIZED 50,000,000 50,000,000
============ ============
Sold 297,016 2,529,461 387,581 2,931,598
Issued in
reinvestment of
distributions 52,056 435,187 47,294 342,881
Redeemed (581,695) (4,990,567) (434,195) (3,260,608)
------------ ------------- ------------ -------------
(232,623) (2,025,919) 680 13,871
------------ ------------- ------------ -------------
Net increase
(decrease) (4,943,336) $(43,818,329) (8,833,334) $(64,615,188)
============ ============= ============ =============
5. SECURITIES LENDING
As of October 31, 2007, securities in the fund valued at $9,124,900 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 $9,263,922. 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.
- ------
17
6. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 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 0.40%. The fund did not borrow from the line during the year ended
October 31, 2007.
7. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years ended October 31,
2007 and October 31, 2006 were as follows:
2007 2006
DISTRIBUTIONS PAID FROM
Ordinary income $7,804,577 $7,252,535
Long-term capital gains $6,808,781 $5,771,196
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
As of October 31, 2007, the components of distributable earnings on a
tax-basis and the federal tax cost of investments were as follows:
Federal tax cost of investments $378,495,657
============
Gross tax appreciation of investments $141,479,977
Gross tax depreciation of investments (5,835,792)
------------
Net tax appreciation (depreciation) of investments $135,644,185
============
Undistributed ordinary income $5,754,249
Accumulated long-term gains $18,768,636
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.
8. CORPORATE EVENT
On September 25, 2007, the Advisor Class shareholders of the fund approved a
change to the class's fee structure. The change was approved by the Board of
Directors on November 29, 2006 and March 7, 2007. The change was effective
December 3, 2007.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
- ------
18
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
10. OTHER TAX INFORMATION (UNAUDITED)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
The fund hereby designates up to the maximum amount allowable as qualified
dividend income for the fiscal year ended October 31, 2007.
The fund hereby designates $6,808,781 of capital gain distributions for the
fiscal year ended October 31, 2007.
For corporate taxpayers, ordinary income distributions paid during the fiscal
year ended October 31, 2007, of $6,984,971 qualify for the corporate dividends
received deduction.
The fund designates $2,817 of distributions as qualified short-term capital
gains for purposes of Internal Revenue Code Section 871.
- ------
19
FINANCIAL HIGHLIGHTS
Capital Value
Investor Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning
of Period $8.23 $7.15 $6.61 $5.86 $4.88
-------- -------- -------- -------- -------
Income From Investment
Operations
Net Investment Income
(Loss)(1) 0.13 0.12 0.10 0.09 0.08
Net Realized and
Unrealized Gain (Loss) 0.65 1.14 0.51 0.72 0.97
-------- -------- -------- -------- -------
Total From Investment
Operations 0.78 1.26 0.61 0.81 1.05
-------- -------- -------- -------- -------
Distributions
From Net Investment
Income (0.12) (0.10) (0.07) (0.06) (0.07)
From Net Realized Gains (0.11) (0.08) - - -
-------- -------- -------- -------- -------
Total Distributions (0.23) (0.18) (0.07) (0.06) (0.07)
-------- -------- -------- -------- -------
Net Asset Value, End of
Period $8.78 $8.23 $7.15 $6.61 $5.86
======== ======== ======== ======== =======
TOTAL RETURN(2) 9.66% 18.03% 9.29% 13.94% 21.67%
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 (Loss) to Average Net
Assets 1.52% 1.55% 1.42% 1.44% 1.54%
Portfolio Turnover Rate 15% 16% 28% 15% 22%
Net Assets, End of Period
(in thousands) $461,413 $466,803 $458,354 $255,504 $91,960
(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.
- ------
20
Capital Value
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31
2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value, Beginning of
Period $8.24 $7.16 $6.62 $5.87 $4.88
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income
(Loss)(1) 0.15 0.13 0.12 0.10 0.09
Net Realized and Unrealized
Gain (Loss) 0.65 1.15 0.51 0.72 0.97
------- ------- ------- ------- -------
Total From Investment
Operations 0.80 1.28 0.63 0.82 1.06
------- ------- ------- ------- -------
Distributions
From Net Investment Income (0.14) (0.12) (0.09) (0.07) (0.07)
From Net Realized Gains (0.11) (0.08) -- -- --
------- ------- ------- ------- -------
Total Distributions (0.25) (0.20) (0.09) (0.07) (0.07)
------- ------- ------- ------- -------
Net Asset Value, End of Period $8.79 $8.24 $7.16 $6.62 $5.87
======= ======= ======= ======= =======
TOTAL RETURN(2) 9.88% 18.24% 9.50% 14.15% 22.07%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90% 0.90%
Ratio of Net Investment Income
(Loss) to Average Net Assets 1.72% 1.75% 1.62% 1.64% 1.74%
Portfolio Turnover Rate 15% 16% 28% 15% 22%
Net Assets, End of Period (in
thousands) $28,077 $31,141 $37,523 $23,449 $11,244
(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.
- ------
21
Capital Value
Advisor Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006 2005 2004 2003(1)
PER-SHARE DATA
Net Asset Value, Beginning of
Period $8.21 $7.14 $6.60 $5.86 $5.19
------- ------- ------- ------ --------
Income From Investment Operations
Net Investment Income
(Loss)(2) 0.11 0.10 0.08 0.08 0.03
Net Realized and Unrealized
Gain (Loss) 0.65 1.13 0.52 0.71 0.64
------- ------- ------- ------ --------
Total From Investment
Operations 0.76 1.23 0.60 0.79 0.67
------- ------- ------- ------ --------
Distributions
From Net Investment Income (0.10) (0.08) (0.06) (0.05) --
From Net Realized Gains (0.11) (0.08) -- -- --
------- ------- ------- ------ --------
Total Distributions (0.21) (0.16) (0.06) (0.05) -
------- ------- ------- ------ --------
Net Asset Value, End of Period $8.76 $8.21 $7.14 $6.60 $5.86
======= ======= ======= ====== ========
TOTAL RETURN(3) 9.40% 17.62% 9.04% 13.60% 12.91%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.35% 1.35% 1.35% 1.35% 1.35%(4)
Ratio of Net Investment Income
(Loss) to Average Net Assets 1.27% 1.30% 1.17% 1.19% 1.03%(4)
Portfolio Turnover Rate 15% 16% 28% 15% 22%(5)
Net Assets, End of Period (in
thousands) $16,059 $16,973 $14,744 $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.
- ------
22
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 mutual funds comprising American Century Mutual Funds, Inc., as of
October 31, 2007, and the related statement 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 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. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of October 31, 2007,
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. 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
Capital Value Fund as of October 31, 2007, 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 12, 2007
- ------
23
PROXY VOTING RESULTS
Special meetings of shareholders were held on July 27, 2007 and September 25,
2007, to vote on the following proposals. The proposals received the required
number of votes of the American Century Mutual Funds, Inc. or the applicable
fund, depending on the proposal, and were adopted. A summary of voting results
is listed below each proposal.
PROPOSAL 1:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
- ------
24
PROPOSAL 2:
To approve a change in the fee structure of the Advisor Class. This proposal
was voted on by the Advisor Class shareholders of the fund.
For: 5,849,294
Against: 445,548
Abstain: 729,611
Broker Non-Vote: 1,506,958
- ------
25
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 directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, 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, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the fund also serve in similar capacities for
the other 14 investment companies in the American Century family of funds
advised by ACIM, or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the fund. The listed officers are
interested persons of the fund and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUND: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- ------
26
INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUND: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
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 (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUND: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUND: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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27
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUND: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the fund's directors and is available
without charge, upon request, by calling 1-800-345-2021.
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28
APPROVAL OF MANAGEMENT AGREEMENT
Capital Value
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning Capital Value (the "fund") and the services
provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund under the management
agreement;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the fund and its shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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29
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information
- ------
30
for the fund, together with comparative information for appropriate benchmarks
and peer groups of funds managed similarly to the fund. The Directors also
review detailed performance information during the 15(c) Process comparing the
fund's performance with that of similar funds not managed by the advisor. If
performance concerns are identified, the Directors discuss with the advisor
the reasons for such results (e.g., market conditions, security selection) and
any efforts being undertaken to improve performance. The fund's performance
was above the median of its peer group for the one-year period, and below the
median for the three-year period.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the fund, its profitability in managing the fund, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
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31
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was above the median of the total expense ratios
of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor concluded that the
investment management agreement between the fund and the advisor is fair and
reasonable in light of the services provided and should be renewed.
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32
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; and/or 2) through
certain financial intermediaries (such as banks, broker-dealers, insurance
companies and investment advisors), which may require payment of a transaction
fee to the financial intermediary. The fund's prospectus contains additional
information regarding eligibility for Investor Class shares.
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 unified
management fee of Institutional Class shares is 0.20% less than the unified
management fee 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
distribution and service 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.
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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 advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
34
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® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
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 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 MIDCAP® VALUE 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 lower price-to-book
ratios and lower forecasted growth values.
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.
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35
NOTES
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36
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
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 PROFESSIONALS, 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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0712
SH-ANN-57607N
[front cover]
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter trees]
NT Growth Fund
NT Vista(SM) Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century® NT Growth and
NT Vista funds for the 12 months ended October 31, 2007. I am honored to be
addressing you in the "Our Message" space long devoted to company founder Jim
Stowers, Jr. and his son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
NT GROWTH
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 5
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 5
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 6
NT VISTA
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 10
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 11
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 11
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 12
Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . . . 15
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. . . . . . . . . . . . . . . . . . . . . . . . . 24
Report of Independent Registered Public Accounting Firm . . . . . . . 26
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 27
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Approval of Management Agreements for NT Growth and NT Vista. . . . . 31
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 36
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 37
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Steve Lurito, Chief Investment Officer,
U.S. Growth Equity
STOCK RETURNS, VOLATILITY UP
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007. Stocks rallied for much of the first half of the fiscal year, touching
record highs in July, as the worldwide economic expansion drove strong
corporate earnings. But the sub-prime mortgage crisis blossomed in late July
and early August in the form of massive losses for banks, residential lenders,
and firms that securitized these subprime loans. This crisis caused a sharp
tightening of lending standards, removing the easy credit that propelled
strong consumer spending and funded a record amount of leveraged buyouts. As a
result, the U.S. stock market came under pressure late in the fiscal year.
By October, stock market volatility surged and credit markets seized up. To
relieve the pressure, the Federal Reserve (the Fed) lowered its benchmark
federal funds rate target in September and again in October -- the Fed's first
rate cuts since June 2003. Markets rallied briefly at fiscal year-end, though
there were concerns heading into November about the future course of corporate
earnings.
GROWTH SHARES LED
Growth stocks led the market during the 12 months, outpacing value-oriented
shares across all market capitalizations. That's because the deceleration in
corporate earnings cast a brighter spotlight on the relative earnings power of
growth companies, providing a favorable context for our growth portfolios and
growth stocks in general. We took advantage of this favorable backdrop,
enjoying a solid year of outperformance.
Looking at returns by sector, energy and materials performed best, supported
by booming global demand for commodities. In contrast, the aforementioned
credit crisis weakened consumer discretionary and financial shares -- the only
two segments of the S&P 500 Index to decline during the period.
We expect a continued favorable environment for growth-stock investing:
interest rates are low, global growth continues to provide new markets for
goods and services, and inflation remains contained.
U.S. Stock Index Returns
For the 12 months ended October 31, 2007
RUSSELL 1000 INDEX (LARGE-CAP) 15.03%
Russell 1000 Growth Index 19.23%
Russell 1000 Value Index 10.83%
RUSSELL MIDCAP INDEX 15.24%
Russell Midcap Growth Index 19.72%
Russell Midcap Value Index 9.73%
RUSSELL 2000 INDEX (SMALL-CAP) 9.27%
Russell 2000 Growth Index 16.73%
Russell 2000 Value Index 2.05%
- ------
2
PERFORMANCE
NT Growth
Total Returns as of October 31, 2007
Average Annual Returns
1 year Since Inception Inception Date
INSTITUTIONAL CLASS 22.12% 18.95% 5/12/06
RUSSELL 1000 GROWTH INDEX(1) 19.23% 16.75% --
(1) Data provided by Lipper Inc. -- A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
Growth of $10,000 Over Life of Class
$10,000 investment made May 12, 2006
One-Year Returns Over Life of Class
Periods ended October 31
2006* 2007
Institutional Class 5.70% 22.12%
Russell 1000 Growth Index 5.28% 19.23%
*From 5/12/06, the Institutional 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.
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
PORTFOLIO COMMENTARY
NT Growth
Portfolio Managers: Greg Woodhams and Prescott LeGard
PERFORMANCE SUMMARY
NT Growth returned 22.12% during the 12 months ended October 31, 2007. That
compares with the 19.23% return of its benchmark, the Russell 1000 Growth
Index.
Looking at the portfolio's absolute return, performance was driven by holdings
in information technology, health care, and industrials; utilities and
telecommunication services contributed the least. In terms of NT Growth's
performance relative to the Russell 1000 Growth Index, outperformance was
driven by stock selection among health care stocks; consumer staples shares
were the leading detractors.
HEALTH CARE LED RELATIVE CONTRIBUTORS
In health care, stock selection among pharmaceutical names was the leading
source of outperformance. Schering-Plough, one of the portfolio's largest
overweight positions during the period, was helped by market share gains and
category growth for its cholesterol franchise. In addition, it significantly
helped relative results to avoid Johnson & Johnson, which suffered from
challenges in some of its leading drug and medical device businesses.
Positioning in health care equipment & supplies firms was another source of
relative strength. The leading contributor to return in this space was medical
device maker Intuitive Surgical, benefiting from heavy demand for its new,
less-invasive robotic surgery system. Overweight positions in Baxter
International, Dentsply International, Cytyc, and Idexx Laboratories also
helped relative results.
IT A SOURCE OF STRENGTH
In the information technology sector, stock picks contributed most in the
communication equipment industry behind an overweight position in Research in
Motion, maker of the Blackberry handheld device. Juniper Networks -- a maker
of computer networking equipment benefiting from the surging demand for
bandwidth required to move video and data over the Internet -- was another key
contributor. That said, no stock helped relative results more than Apple,
which continued to enjoy margin expansion and revenue growth thanks to new
product launches and a redesign of existing products.
OTHER KEY CONTRIBUTORS
Stock selection drove outperformance among consumer discretionary names,
though it also helped to have an underweight position in this lagging sector.
The leading contributor in this space was specialty retailer GameStop, which
sells video game products and entertainment software for computers. The
company is seeing revenues, same-store sales, and other metrics improve as a
result of several new hardware
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Apple Inc. 4.0% 2.7%
Cisco Systems Inc. 3.9% 3.2%
Microsoft Corporation 3.7% 0.7%
PepsiCo, Inc. 3.6% 2.0%
Procter & Gamble Co. (The) 3.1% 1.7%
Google Inc. Cl A 3.0% 1.8%
Coca-Cola Company (The) 2.6% --
Becton, Dickinson & Co. 2.3% 1.4%
Janus Capital Group Inc. 2.2% --
XTO Energy Inc. 2.1% 1.4%
- ------
4
NT Growth
and software gaming product cycles. Positioning in the multiline retail,
media, auto components, and specialty retail industry segments also helped
relative performance.
Industrial shares were another key source of strength, as stock selection
contributed to relative results across a number of industries, including
electrical equipment and machinery. An overweight position in agricultural
equipment maker AGCO was a notable contributor for the year. The company
continues to benefit from exposure to growing agriculture markets globally. In
energy, Cameron International was a key contributor, benefiting from spending
on exploration with oil supplies tight and prices at record highs.
STAPLES LED DETRACTORS
At the other end of the spectrum, consumer staples shares limited the
portfolio's performance compared with the benchmark. Food products names
detracted most from performance behind overweight positions in Campbell Soup
and ConAgra Foods. These shares under-performed because of higher costs
associated with growth initiatives and rising input costs. Stock selection
also detracted in food and staples retailing, where Wal-Mart was the leading
detractor. Though the company continued to turn around its business, the
difficult environment for consumers in the U.S. slowed progress.
STARTING POINT FOR NEXT REPORTING PERIOD
We work to keep the portfolio fully invested in large companies exhibiting
sustainable improvement in their businesses. It is our belief that owning such
companies will generate outperformance over time versus the Russell 1000
Growth Index and the other funds in our large-growth peer group. As a result,
our sector and industry selection as well as capitalization range decisions
are primarily a result of identifying what we believe to be superior
individual securities. As of October 31, 2007, the top sector overweights were
in consumer staples, telecommunication services, and information technology.
The most notable sector underweights were in consumer discretionary,
industrials, and utilities shares.
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Health Care Equipment & Supplies 8.8% 5.5%
Software 8.0% 3.0%
Communications Equipment 7.2% 5.6%
Oil, Gas & Consumable Fuels 7.1% 3.2%
Beverages 6.1% 2.9%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 94.9% 93.1%
Foreign Common Stocks(1) 4.3% 6.0%
TOTAL COMMON STOCKS 99.2% 99.1%
Temporary Cash Investments -- 0.7%
Other Assets and Liabilities(2) 0.8% 0.2%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes securities lending collateral and other assets and liabilities.
- ------
5
SCHEDULE OF INVESTMENTS
NT Growth
OCTOBER 31, 2007
Shares Value
Common Stocks -- 99.2%
AEROSPACE & DEFENSE -- 3.1%
17,200 Honeywell International Inc. $ 1,039,053
22,400 United Technologies Corp. 1,715,616
-----------
2,754,669
-----------
AUTO COMPONENTS -- 2.0%
16,800 BorgWarner, Inc. 1,775,928
-----------
BEVERAGES -- 6.1%
37,000 Coca-Cola Company (The) 2,285,120
42,600 PepsiCo, Inc. 3,140,472
-----------
5,425,592
-----------
CAPITAL MARKETS -- 5.6%
55,400 Janus Capital Group Inc. 1,911,854
23,100 Northern Trust Corp. 1,737,351
57,500 Schwab (Charles) Corp. 1,336,300
-----------
4,985,505
-----------
CHEMICALS -- 1.5%
13,700 Monsanto Co. 1,337,531
-----------
COMMERCIAL SERVICES & SUPPLIES -- 0.5%
10,900 Waste Management, Inc. 396,651
-----------
COMMUNICATIONS EQUIPMENT -- 7.2%
30,500 ADC Telecommunications, Inc.(1) 570,350
105,500 Cisco Systems Inc.(1) 3,487,830
18,000 Juniper Networks, Inc.(1) 648,000
18,100 QUALCOMM Inc. 773,413
6,900 Research In Motion Ltd.(1) 859,119
-----------
6,338,712
-----------
COMPUTERS & PERIPHERALS -- 5.6%
18,800 Apple Inc.(1) 3,571,060
46,100 Dell Inc.(1) 1,410,660
-----------
4,981,720
-----------
DIVERSIFIED -- 0.1%
1,500 iShares Russell 1000 Growth Index Fund 95,550
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.3%
28,400 AT&T Inc. 1,186,836
-----------
ELECTRICAL EQUIPMENT -- 3.9%
17,900 Cooper Industries, Ltd. Cl A 937,781
31,900 Emerson Electric Co. 1,667,413
11,600 Roper Industries Inc. 821,396
-----------
3,426,590
-----------
Shares Value
ENERGY EQUIPMENT & SERVICES -- 1.7%
5,200 Cameron International Corp.(1) $ 506,272
65,100 Grey Wolf Inc.(1) 366,513
6,500 Schlumberger Ltd. 627,705
-----------
1,500,490
-----------
FOOD & STAPLES RETAILING -- 1.2%
23,900 Wal-Mart Stores, Inc. 1,080,519
-----------
FOOD PRODUCTS -- 2.0%
29,300 Wm. Wrigley Jr. Co. 1,806,931
-----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 8.8%
9,700 Alcon, Inc. 1,476,437
28,000 Baxter International Inc. 1,680,280
24,300 Becton, Dickinson & Co. 2,028,078
18,400 DENTSPLY International Inc. 763,232
2,200 Idexx Laboratories, Inc.(1) 267,916
3,500 Intuitive Surgical Inc.(1) 1,144,045
10,200 Mentor Corp.(2) 434,214
-----------
7,794,202
-----------
HEALTH CARE PROVIDERS & SERVICES -- 1.2%
18,600 Patterson Companies, Inc.(1) 727,446
6,400 VCA Antech Inc.(1) 294,720
-----------
1,022,166
-----------
HOUSEHOLD PRODUCTS -- 3.1%
39,600 Procter & Gamble Co. (The) 2,752,992
-----------
INDUSTRIAL CONGLOMERATES -- 1.6%
34,000 General Electric Co. 1,399,440
-----------
INSURANCE -- 1.0%
16,200 Chubb Corp. 864,270
-----------
INTERNET & CATALOG RETAIL -- 2.0%
12,300 Amazon.com, Inc.(1) 1,096,545
7,000 Priceline.com Inc.(1)(2) 651,700
-----------
1,748,245
-----------
INTERNET SOFTWARE & SERVICES -- 4.0%
24,300 eBay Inc.(1) 877,230
3,800 Google Inc. Cl A(1) 2,686,600
-----------
3,563,830
-----------
IT SERVICES -- 1.2%
12,500 DST Systems, Inc.(1) 1,058,875
-----------
LIFE SCIENCES TOOLS & SERVICES -- 2.4%
7,600 Illumina, Inc.(1) 426,740
28,000 Thermo Fisher Scientific Inc.(1) 1,646,680
-----------
2,073,420
-----------
- ------
6
NT Growth
Shares Value
MACHINERY -- 2.2%
16,600 Eaton Corp. $ 1,536,828
4,357 Valmont Industries, Inc. 417,052
-----------
1,953,880
-----------
MEDIA -- 1.4%
29,700 Viacom Inc. Cl B(1) 1,226,313
-----------
METALS & MINING -- 0.8%
5,800 Freeport-McMoRan Copper & Gold, Inc. 682,544
-----------
OIL, GAS & CONSUMABLE FUELS -- 7.1%
16,600 Apache Corp. 1,723,246
16,600 Devon Energy Corporation 1,550,440
11,800 Exxon Mobil Corp. 1,085,482
28,400 XTO Energy Inc. 1,885,192
-----------
6,244,360
-----------
PHARMACEUTICALS -- 3.5%
17,700 Allergan, Inc. 1,196,165
6,600 Novo Nordisk AS Cl B ORD 823,004
35,953 Schering-Plough Corp. 1,097,286
-----------
3,116,455
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.4%
28,400 Broadcom Corp. Cl A(1) 924,420
33,100 Intersil Corp. Cl A 1,004,254
8,100 MEMC Electronic Materials Inc.(1) 593,082
53,100 PMC-Sierra, Inc.(1) 478,431
-----------
3,000,187
-----------
SOFTWARE -- 8.0%
15,300 Electronic Arts Inc.(1) 935,136
88,700 Microsoft Corporation 3,265,047
83,000 Oracle Corp.(1) 1,840,110
8,208 VMware, Inc. Cl A(1)(2) 1,024,605
-----------
7,064,898
-----------
Shares Value
SPECIALTY RETAIL -- 4.6%
27,065 GameStop Corp. Cl A(1) $ 1,602,789
31,800 Home Depot, Inc. (The) 1,002,018
50,100 TJX Companies, Inc. (The) 1,449,393
-----------
4,054,200
-----------
WIRELESS TELECOMMUNICATION SERVICES -- 1.1%
22,900 American Tower Corp. Cl A(1) 1,011,722
-----------
TOTAL COMMON STOCKS
(Cost $73,121,308) 87,725,223
-----------
Temporary Cash Investments -- Securities Lending Collateral(3) -- 2.8%
Repurchase Agreement, Deutsche Bank AG, (collateralized by various
U.S. Government Agency obligations in a pooled account at the
lending agent), 4.82%, dated 10/31/07, due 11/1/07 (Delivery value
$966,712) 966,583
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 4.89%, dated 10/31/07, due 11/1/07 (Delivery
value $1,500,204) 1,500,000
TOTAL TEMPORARY CASH INVESTMENTS -- SECURITIES LENDING COLLATERAL
(Cost $2,466,583) 2,466,583
-----------
TOTAL INVESTMENT SECURITIES -- 102.0%
(Cost $75,587,891) 90,191,806
-----------
OTHER ASSETS AND LIABILITIES -- (2.0)% (1,745,992)
-----------
TOTAL NET ASSETS -- 100.0% $88,445,814
===========
- ------
7
NT Growth
Forward Foreign Currency Exchange Contracts
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
2,187,720 DKK for USD 11/30/07 $425,887 $(3,090)
======== ======================
(Value on Settlement Date $422,797)
Notes to Schedule of Investments
DKK = Danish Krone
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, 2007.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
As of October 31, 2007, securities with an aggregate value of $823,004, which
represented 0.9% of total net assets, were valued in accordance with
alternative pricing procedures adopted by the Board of Directors.
See Notes to Financial Statements.
- ------
8
PERFORMANCE
NT Vista
Total Returns as of October 31, 2007
Average Annual Returns
1 year Since Inception Inception Date
INSTITUTIONAL CLASS 49.11% 22.13% 5/12/06
RUSSELL MIDCAP GROWTH INDEX(1) 19.72% 13.66% --
(1) Data provided by Lipper Inc. -- A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
Growth of $10,000 Over Life of Class
$10,000 investment made May 12, 2006
One-Year Returns Over Life of Class
Periods ended October 31
2006* 2007
Institutional Class -10.00% 49.11%
Russell MidCap Growth Index 0.79% 19.72%
*From 5/12/06, the Institutional 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. International investing involves special risks, such as
political instability and currency fluctuations.
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.
- ------
9
PORTFOLIO COMMENTARY
NT Vista
Portfolio Managers: Glenn Fogle, David Hollond, and Brad Eixmann
In February 2007, senior investment analyst Brad Eixmann was promoted to
co-portfolio manager for NT Vista. He joined American Century in 2002 and has
served exclusively on the Vista team since that time.
PERFORMANCE SUMMARY
NT Vista gained 49.11% for the year ended October 31, 2007, surpassing the
19.72% return of its benchmark, the Russell Midcap Growth Index.
As discussed in the Market Perspective on page 2, better-than-expected
corporate earnings growth, robust merger activity, and a change in Federal
Reserve (Fed) rate policy contributed to sound stock index gains for the
period. Markets faced extreme volatility in the final months of the period,
though, as mounting troubles among subprime mortgage lenders led to a credit
crisis, and rising energy costs sparked fears of inflation. In this
environment, large- and mid-cap stocks generally outpaced their small-cap
counterparts, and growth-oriented shares outperformed value stocks.
Effective stock selection accounted for the vast majority of NT Vista's strong
performance relative to the Russell Midcap Growth Index, particularly within
the industrials, information technology, and consumer discretionary sectors.
Foreign holdings also contributed significantly to fund performance.
INDUSTRIALS LED GAINS
The portfolio's biggest sector contribution came from the industrials sector,
where we continued to focus on the aerospace and defense industry group. The
share prices of portfolio overweights Precision Castparts and BE Aerospace,
the fund's two largest holdings, soared 120% and 97%, respectively, as both
companies benefited from a replacement cycle and expanding orders in global
aviation. Together, Precision Castparts and BE Aerospace represented 9% of the
portfolio's average weight. Both companies reflect NT Vista's focus on
companies with accelerating financial growth and share price momentum.
Within the industrials sector, we also benefited from an overweight stake and
stock selection within the construction and engineering industry. Notably,
Foster Wheeler, a builder of power plants and refineries, contributed
substantially to fund performance as its share price surged 230%.
TECHNOLOGY, CONSUMER DISCRETIONARY CONTRIBUTED
Within the technology sector, Nintendo was the largest single contributor to
portfolio performance. Strong demand for the company's Wii interactive game
system continued to outstrip supply, helping Nintendo's share price jump 212%
during the reporting period.
Top Ten Holdings as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Precision Castparts Corp. 4.7% 5.1%
BE Aerospace, Inc. 4.5% 4.0%
Nintendo Co., Ltd. ORD 3.8% 2.9%
Thermo Fisher Scientific Inc. 3.4% 3.9%
NII Holdings, Inc. 3.3% 5.7%
GameStop Corp. Cl A 2.9% 1.9%
Express Scripts, Inc. 2.9% 2.5%
Quanta Services, Inc. 2.8% 1.7%
AGCO Corp. 2.5% 2.0%
SBA Communications Corp. Cl A 2.4% 2.8%
- ------
10
NT Vista
Fund overweight Apple also contributed to absolute and relative gains. The
computer and peripherals maker, which introduced the iPhone during the
reporting period, experienced a 134% gain in its share price.
An underweight position and effective stock selection within the consumer
discretionary group boosted gains. An overweight stake in Gamestop benefited
fund performance, as the video game retailer gained 132% on the heels of a
robust video game cycle.
GOOD CALLS IN TELECOM
Although we held an overweight position in telecom relative to the fund's
benchmark, we recently trimmed our weighting to reflect increased competition
in international cellular markets. Nevertheless, the portfolio reaped rewards
from the wireless telecommunications industry for the one-year period.
Overweights Leap Wireless International and Millicom International both
contributed to relative and absolute performance.
UNDERWEIGHT IN FINANCIALS HELPED AVOID PAIN
An underweight position and successful stock selection in the financials
sector contributed to performance relative to the benchmark, helping the
portfolio to avoid the losses associated with the subprime lending industry.
Within the sector, the portfolio had no holdings in either the consumer
finance or thrifts and mortgage finance industries, which both slumped during
the period.
STARTING POINT FOR NEXT REPORTING PERIOD
Our investment process focuses on medium-sized and smaller companies with
accelerating earnings growth rates and share price momentum. We believe that
active investing in such companies will generate outperformance over time
compared with the Russell Midcap Growth Index.
Despite recent market volatility, we find the current environment
accommodating to our disciplined, consistent style. An environment of steady
rates and strong corporate earnings growth complements our process of
identifying companies with accelerating growth and price momentum. Our process
continues to successfully guide us to companies with strong fundamentals,
regardless of market "noise."
Top Five Industries as of October 31, 2007
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Aerospace & Defense 9.6% 9.0%
Wireless Telecommunication Services 6.6% 16.2%
Semiconductors & Semiconductor Equipment 6.2% 2.0%
Energy Equipment & Services 5.8% 3.9%
Machinery 5.4% 4.6%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
10/31/07 4/30/07
Domestic Common Stocks 88.1% 82.7%
Foreign Common Stocks(1) 10.2% 12.7%
TOTAL COMMON STOCKS 98.3% 95.4%
Temporary Cash Investments -- 3.2%
Other Assets and Liabilities 1.7% 1.4%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
- ------
11
SCHEDULE OF INVESTMENTS
NT Vista
OCTOBER 31, 2007
Shares Value
Common Stocks -- 98.3%
AEROSPACE & DEFENSE -- 9.6%
1,900 Alliant Techsystems Inc.(1) $ 209,741
40,221 BE Aerospace, Inc.(1) 1,999,386
13,991 Precision Castparts Corp. 2,095,992
-----------
4,305,119
-----------
BEVERAGES -- 0.7%
7,900 Pepsi Bottling Group Inc. 340,332
-----------
BIOTECHNOLOGY -- 2.9%
1,400 Alexion Pharmaceuticals Inc.(1) 107,100
8,400 BioMarin Pharmaceutical Inc.(1) 232,932
4,400 Celgene Corp.(1) 290,400
3,800 Myriad Genetics Inc.(1) 210,368
9,800 Onyx Pharmaceuticals, Inc.(1) 457,758
-----------
1,298,558
-----------
CAPITAL MARKETS -- 2.5%
1,100 BlackRock, Inc. 227,645
3,700 GFI Group Inc.(1) 319,384
9,800 Janus Capital Group Inc. 338,198
7,400 SEI Investments Co. 233,988
-----------
1,119,215
-----------
CHEMICALS -- 3.8%
5,400 Flotek Industries Inc.(1) 274,320
9,570 Monsanto Co. 934,319
3,800 Mosaic Co. (The)(1) 265,240
6,600 Terra Industries Inc.(1) 243,474
-----------
1,717,353
-----------
COMMUNICATIONS EQUIPMENT -- 4.1%
4,600 Blue Coat Systems, Inc.(1) 186,714
7,300 Ciena Corp.(1) 349,378
16,600 Foundry Networks, Inc.(1) 350,924
22,100 Juniper Networks, Inc.(1) 795,600
4,200 Riverbed Technology, Inc.(1) 141,918
-----------
1,824,534
-----------
COMPUTERS & PERIPHERALS -- 1.9%
4,500 Apple Inc.(1) 854,775
-----------
CONSTRUCTION & ENGINEERING -- 5.2%
7,220 Foster Wheeler Ltd.(1) 1,070,365
37,717 Quanta Services, Inc.(1) 1,244,661
-----------
2,315,026
-----------
CONTAINERS & PACKAGING -- 2.2%
22,000 Owens-Illinois Inc.(1) 977,240
-----------
Shares Value
DIVERSIFIED CONSUMER SERVICES -- 1.7%
5,200 Apollo Group, Inc. Cl A(1) $ 412,152
1,800 Strayer Education, Inc. 335,628
-----------
747,780
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.5%
8,000 Cogent Communications Group, Inc.(1) 221,440
-----------
ELECTRIC UTILITIES -- 1.5%
3,900 Allegheny Energy, Inc.(1) 236,574
16,200 Reliant Energy, Inc.(1) 445,824
-----------
682,398
-----------
ELECTRICAL EQUIPMENT -- 4.6%
4,000 First Solar Inc.(1) 635,240
4,700 General Cable Corp.(1) 338,353
4,000 JA Solar Holdings Co., Ltd. ADR(1) 230,400
4,700 SunPower Corp. Cl A(1) 594,362
2,800 Vestas Wind Systems AS ORD(1) 252,531
-----------
2,050,886
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.8%
3,200 Itron Inc.(1) 343,968
-----------
ENERGY EQUIPMENT & SERVICES -- 5.8%
7,800 Acergy SA ORD 225,926
2,700 Cameron International Corp.(1) 262,872
2,606 Core Laboratories N.V.(1) 380,320
2,800 Dawson Geophysical Co.(1) 223,468
26,400 Dresser-Rand Group Inc.(1) 1,021,680
6,200 National Oilwell Varco, Inc.(1) 454,088
-----------
2,568,354
-----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.6%
4,300 Inverness Medical Innovations, Inc.(1) 258,387
-----------
HEALTH CARE PROVIDERS & SERVICES -- 5.0%
20,600 Express Scripts, Inc.(1) 1,299,860
9,700 Medco Health Solutions Inc.(1) 915,486
-----------
2,215,346
-----------
HOTELS, RESTAURANTS & LEISURE -- 3.3%
11,000 Bally Technologies, Inc.(1) 443,630
6,212 Las Vegas Sands Corp.(1) 824,395
6,220 WMS Industries Inc.(1) 215,647
-----------
1,483,672
-----------
HOUSEHOLD DURABLES -- 0.5%
6,300 Tempur-Pedic International Inc. 226,800
-----------
- ------
12
NT Vista
Shares Value
INDUSTRIAL CONGLOMERATES -- 0.7%
5,392 McDermott International, Inc.(1) $ 329,236
-----------
INSURANCE -- 0.5%
4,800 AON Corp. 217,536
-----------
INTERNET & CATALOG RETAIL -- 0.5%
2,300 Amazon.com, Inc.(1) 205,045
-----------
INTERNET SOFTWARE & SERVICES -- 0.6%
2,300 Equinix Inc.(1) 268,318
-----------
IT SERVICES -- 0.9%
2,100 MasterCard Inc. Cl A 398,055
-----------
LIFE SCIENCES TOOLS & SERVICES -- 4.9%
5,200 Invitrogen Corp.(1) 472,524
7,500 PerkinElmer, Inc. 206,400
25,500 Thermo Fisher Scientific Inc.(1) 1,499,655
-----------
2,178,579
-----------
MACHINERY -- 5.4%
18,600 AGCO Corp.(1) 1,110,048
6,800 Flowserve Corp. 536,928
600 Hyundai Mipo Dockyard Co., Ltd. ORD 268,372
4,900 Manitowoc Co., Inc. (The) 241,374
4,000 Samsung Heavy Industries Co., Ltd. ORD 242,593
-----------
2,399,315
-----------
MARINE -- 0.5%
1,900 DryShips Inc. 223,934
-----------
MEDIA -- 1.8%
20,900 Liberty Global, Inc. Series A(1) 820,325
-----------
PHARMACEUTICALS -- 1.9%
33,300 Shire plc ORD 833,115
-----------
Shares Value
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 6.2%
8,100 Intersil Corp. Cl A $ 245,754
3,000 MEMC Electronic Materials Inc.(1) 219,660
11,300 Microsemi Corp.(1) 300,693
23,800 NVIDIA Corp.(1) 842,044
17,800 OmniVision Technologies, Inc.(1) 394,270
25,700 ON Semiconductor Corp.(1) 262,140
17,000 Semtech Corp.(1) 290,870
5,000 Silicon Laboratories Inc.(1) 218,500
-----------
2,773,931
-----------
SOFTWARE -- 4.6%
14,500 Activision, Inc.(1) 342,925
2,700 Nintendo Co., Ltd. ORD 1,702,105
-----------
2,045,030
-----------
SPECIALTY RETAIL -- 5.2%
22,100 GameStop Corp. Cl A(1) 1,308,762
16,200 Guess?, Inc. 832,518
3,700 Tiffany & Co. 200,466
-----------
2,341,746
-----------
TEXTILES, APPAREL & LUXURY GOODS -- 0.8%
4,700 Crocs, Inc.(1) 351,325
-----------
WIRELESS TELECOMMUNICATION SERVICES -- 6.6%
5,500 Crown Castle International Corp.(1) 225,885
1,500 Millicom International Cellular SA(1) 176,220
25,067 NII Holdings, Inc.(1) 1,453,886
30,602 SBA Communications Corp. Cl A(1) 1,089,431
-----------
2,945,422
-----------
TOTAL INVESTMENT SECURITIES -- 98.3%
(Cost $30,504,466) 43,882,095
-----------
OTHER ASSETS AND LIABILITIES -- 1.7% 770,128
-----------
TOTAL NET ASSETS -- 100.0% $44,652,223
===========
- ------
13
NT Vista
Forward Foreign Currency Exchange Contracts
Unrealized Gain
Contracts to Sell Settlement Date Value (Loss)
1,032,640 DKK for USD 11/30/07 $ 201,026 $(1,459)
323,517 GBP for USD 11/30/07 672,021 (5,864)
93,487,500 JPY for USD 11/30/07 813,362 3,998
982,800 NOK for USD 11/30/07 183,156 64
---------- ---------------
$1,869,565 $(3,261)
========== ===============
(Value on Settlement Date $1,866,304)
Notes to Schedule of Investments
ADR = American Depositary Receipt
DKK = Danish Krone
GBP = British Pound
JPY = Japanese Yen
NOK = Norwegian Krona
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
As of October 31, 2007, securities with an aggregate value of $3,524,642,
which represented 7.9% of total net assets, were valued in accordance with
alternative pricing procedures adopted by the Board of Directors.
See Notes to Financial Statements.
- ------
14
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, 2007 to October 31, 2007.
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.
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.
- ------
15
Ending Expenses Paid
Beginning Account During Period*
Account Value Value 5/1/07 -- Annualized
5/1/07 10/31/07 10/31/07 Expense Ratio*
NT Growth - Institutional Class
Actual $1,000 $1,144.00 $4.32 0.80%
Hypothetical $1,000 $1,021.17 $4.08 0.80%
NT Vista - Institutional Class
Actual $1,000 $1,267.20 $4.57 0.80%
Hypothetical $1,000 $1,021.17 $4.08 0.80%
* Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
- ------
16
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007
NT Growth NT Vista
ASSETS
Investment securities, at value (cost of $73,121,308
and $30,504,466, respectively) -- including
$2,469,737 and $- of securities on loan, respectively $87,725,223 $43,882,095
Investments made with cash collateral received for
securities on loan, at value (cost of $2,466,583 and
$-, respectively) 2,466,583 --
----------- -----------
Total investment securities, at value (cost of
$75,587,891 and $30,504,466, respectively) 90,191,806 43,882,095
----------- -----------
Receivable for investments sold 3,675,591 1,317,611
Receivable for forward foreign currency exchange
contracts -- 4,062
Dividends and interest receivable 42,304 4,962
----------- -----------
93,909,701 45,208,730
----------- -----------
LIABILITIES
Payable for collateral received for securities on loan 2,466,583 --
Disbursements in excess of demand deposit cash 689,852 43,938
Payable for investments purchased 2,245,375 475,655
Payable for forward foreign currency exchange
contracts 3,090 7,323
Accrued management fees 58,987 29,591
----------- -----------
5,463,887 556,507
----------- -----------
NET ASSETS $88,445,814 $44,652,223
=========== ===========
INSTITUTIONAL CLASS CAPITAL SHARES, $0.01 PAR VALUE
Authorized 100,000,000 100,000,000
=========== ===========
Outstanding 6,873,214 3,327,058
=========== ===========
NET ASSET VALUE PER SHARE $12.87 $13.42
=========== ===========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $70,144,992 $31,355,145
Undistributed net investment income 141,260 1,921
Accumulated undistributed net realized gain (loss) on
investment and foreign currency transactions 3,558,564 (79,240)
Net unrealized appreciation on investments and
translation of assets and liabilities in foreign
currencies 14,600,998 13,374,397
----------- -----------
$88,445,814 $44,652,223
=========== ===========
See Notes to Financial Statements.
- ------
17
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007
NT Growth NT Vista
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $4,529
and $7,098, respectively) $ 779,118 $ 106,439
Interest 40,585 46,896
Securities lending 4,278 --
----------- -----------
823,981 153,335
=========== ===========
EXPENSES:
Management fees 570,006 276,321
Directors' fees and expenses 1,594 619
Other expenses 373 53
----------- -----------
571,973 276,993
----------- -----------
NET INVESTMENT INCOME (LOSS) 252,008 (123,658)
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions 4,637,448 3,335,097
Foreign currency transactions (48,940) (94,535)
----------- -----------
4,588,508 3,240,562
----------- -----------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments 10,296,488 11,596,791
Translation of assets and liabilities in foreign
currencies 2,927 (514)
----------- -----------
10,299,415 11,596,277
----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 14,887,923 14,836,839
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $15,139,931 $14,713,181
=========== ===========
See Notes to Financial Statements.
- ------
18
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 2007 AND PERIOD ENDED OCTOBER 31, 2006(1)
NT Growth NT Vista
Increase (Decrease) in
Net Assets 2007 2006 2007 2006
OPERATIONS
Net investment income
(loss) $252,008 $82,306 $(123,658) $(27,971)
Net realized gain (loss) 4,588,508 (1,047,272) 3,240,562 (3,412,177)
Change in net
unrealized appreciation
(depreciation) 10,299,415 4,301,583 11,596,277 1,778,120
----------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations 15,139,931 3,336,617 14,713,181 (1,662,028)
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment
income (175,726) -- -- --
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares
sold 31,876,693 56,820,645 16,758,304 27,880,764
Payments for shares
redeemed (17,377,762) (1,174,584) (12,497,498) (540,500)
----------- ----------- ----------- -----------
Net increase (decrease)
in net assets from
capital share
transactions 14,498,931 55,646,061 4,260,806 27,340,264
----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS 29,463,136 58,982,678 18,973,987 25,678,236
NET ASSETS
Beginning of period 58,982,678 -- 25,678,236 --
----------- ----------- ----------- -----------
End of period $88,445,814 $58,982,678 $44,652,223 $25,678,236
=========== =========== =========== ===========
Undistributed net
investment income $141,260 $113,918 $1,921 $2,719
=========== =========== =========== ===========
TRANSACTIONS IN SHARES OF THE FUNDS
Sold 2,849,265 5,698,720 1,590,776 2,915,545
Redeemed (1,555,417) (119,354) (1,118,215) (61,048)
----------- ----------- ----------- -----------
Net increase (decrease)
in shares of the funds 1,293,848 5,579,366 472,561 2,854,497
=========== =========== =========== ===========
(1) May 12, 2006 (fund inception) through October 31, 2006.
See Notes to Financial Statements.
- ------
19
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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. NT Growth Fund (NT Growth) and NT
Vista Fund (NT 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. NT Growth
generally invests in larger-sized companies that management believes will
increase in value but may purchase companies of any size. NT Vista generally
invests in companies that are medium-sized and smaller at the time of purchase
that management believes will increase in value. The funds are not permitted
to invest in any securities issued by companies assigned the Global Industry
Classification Standard for the tobacco industry. The funds incepted on May
12, 2006. The following is a summary of the funds' 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New york Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the funds determine that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
funds to use alternative procedures to value a security such as: a security
has been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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.
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.
- ------
20
SECURITIES ON LOAN -- NT Growth may lend portfolio securities through their
lending agent to certain approved borrowers in order to earn additional
income. NT Growth continues to recognize any gain or loss in the market price
of the securities loaned and record any interest earned or dividends declared.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of 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 or American
Century Global Investment Management, Inc. (ACGIM), 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. At this time, management has not identified any uncertain tax
positions that would materially impact the financial statements. Accordingly,
no provision has been made for federal or state income taxes. Interest and
penalties associated with any federal or state income tax obligations, if any,
are recorded as interest expense.
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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the funds. In addition, in the normal
course of business, the funds enter into contracts that provide general
indemnifications. The funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the
funds. The risk of material loss from such claims is considered by management
to be remote.
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). 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 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 advisor'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 advisor 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 NT Growth ranges from 0.60%
to 0.80%. The effective annual management fee for NT Growth for the year ended
October 31, 2007 was 0.80%. The annual management fee for NT Vista for the
year ended October 31, 2007 was 0.80%.
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 advisor, ACIM, the distributor of the corporation, American Century
- ------
21
Investment Services, Inc., and the corporation's transfer agent, American
Century Services, LLC. The funds are wholly owned by American Century Asset
Allocation Portfolios, Inc. (ACAAP). ACAAP does not invest in the funds for
the purpose of exercising management or control.
Beginning in December 2006, the funds are eligible to invest in a money market
fund for temporary purposes, which is managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan Chase
& Co. (JPM). JPM is an equity investor in ACC. The funds have a bank line of
credit agreement and NT Growth 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, 2007, were as follows:
NT Growth NT Vista
Purchases $113,491,424 $54,119,646
Proceeds from sales $99,362,755 $49,725,966
4. SECURITIES LENDING
As of October 31, 2007, securities in NT Growth valued at $2,469,737 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 $2,466,583. NT Growth'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 NT
Growth may be delayed or limited.
5. BANK LINE OF CREDIT
Effective December 13, 2006, the funds, along with certain other funds managed
by ACIM or ACGIM, have a $500,000,000 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 0.40%. The funds did not borrow from the line
during the year ended October 31, 2007.
6. RISK FACTORS
There are certain risks involved in investing in foreign securities. These
risks include those resulting from future adverse political, social, and
economic developments, fluctuations in currency exchange rates, the possible
imposition of exchange controls, and other foreign laws or restrictions.
7. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years ended October 31,
2007 and the period ended October 31, 2006 were as follows:
NT Growth NT Vista
2007 2006 2007 2006
DISTRIBUTIONS PAID FROM
Ordinary income $175,726 -- -- --
Long-term capital gains -- -- -- --
- ------
22
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
As of October 31, 2007, the components of distributable earnings on a
tax-basis and the federal tax cost of investments were as follows:
NT Growth NT Vista
Federal tax cost of investments $75,812,343 $30,670,864
=========== ===========
Gross tax appreciation of investments $15,075,324 $13,382,494
Gross tax depreciation of investments (695,861) (171,263)
----------- -----------
Net tax appreciation (depreciation) of investments $14,379,463 $13,211,231
=========== ===========
Net tax appreciation (depreciation) on derivatives
and translation of assets and liabilities in foreign
currencies $(2,916) $(1,311)
----------- -----------
Net tax appreciation (depreciation) $14,376,547 $13,209,920
=========== ===========
Undistributed ordinary income $1,243,382 --
Accumulated long-term gains $2,680,893 $87,158
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.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
9. OTHER TAX INFORMATION (UNAUDITED)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
NT Growth hereby designates up to the maximum amount allowable as qualified
dividend income for the fiscal year ended October 31, 2007.
For corporate taxpayers of NT Growth, ordinary income distributions paid
during the fiscal year ended October 31, 2007, of $175,726 qualify for the
corporate dividends received deduction.
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23
FINANCIAL HIGHLIGHTS
NT Growth
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $10.57 $10.00
-------- --------
Income From Investment Operations
Net Investment Income (Loss) 0.04 0.01
Net Realized and Unrealized Gain (Loss) 2.29 0.56
-------- --------
Total From Investment Operations 2.33 0.57
-------- --------
Distributions
From Net Investment Income (0.03) --
-------- --------
Net Asset Value, End of Period $12.87 $10.57
======== ========
TOTAL RETURN(2) 22.12% 5.70%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 0.80% 0.80%(3)
Ratio of Net Investment Income (Loss) to Average Net
Assets 0.35% 0.36%(3)
Portfolio Turnover Rate 140% 57%
Net Assets, End of Period (in thousands) $88,446 $58,983
(1) May 12, 2006 (fund inception) through October 31, 2006.
(2) 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.
(3) Annualized.
See Notes to Financial Statements.
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24
NT Vista
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $9.00 $10.00
-------- --------
Income From Investment Operations
Net Investment Income (Loss) (0.04) (0.01)
Net Realized and Unrealized Gain (Loss) 4.46 (0.99)
-------- --------
Total From Investment Operations 4.42 (1.00)
-------- --------
Net Asset Value, End of Period $13.42 $9.00
======== ========
TOTAL RETURN(2) 49.11% (10.00)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 0.80% 0.80%(3)
Ratio of Net Investment Income (Loss) to Average Net
Assets (0.36)% (0.27)%(3)
Portfolio Turnover Rate 147% 109%
Net Assets, End of Period (in thousands) $44,652 $25,678
(1) May 12, 2006 (fund inception) through October 31, 2006.
(2) 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.
(3) Annualized.
See Notes to Financial Statements.
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25
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 NT Growth Fund and NT Vista Fund
(the "Funds"), two of the mutual funds comprising American Century Mutual
Funds, Inc., as of October 31, 2007, and the related statements of operations
for the year then ended, the statements of changes in net assets for the
periods presented, 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. The Funds are not required to have, nor were we engaged to
perform, an audit of their internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities owned as of
October 31, 2007, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing
procedures. 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 each
of the respective Funds as of October 31, 2007, the results of their
operations for the year then ended, the changes in their net assets for the
periods presented, 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 12, 2007
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26
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007, to vote on the
following proposal. The proposal received the required number of votes of the
American Century Mutual Funds, Inc. and was adopted. A summary of voting
results is listed below the proposal.
PROPOSAL:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
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27
MANAGEMENT
The individuals listed below serve as directors or officers of the funds. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue
of their engagement as directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, subsidiaries, including the funds' investment advisor, American
Century Investment Management, Inc. (ACIM); the funds' principal underwriter,
American Century Investment Services, Inc. (ACIS); and the funds' transfer
agent, American Century Services, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the funds also serve in similar capacities
for the other 14 investment companies in the American Century family of funds
advised by ACIM or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the funds. The listed officers are
interested persons of the funds and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUNDS: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUNDS: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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28
INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUNDS: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUNDS: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUNDS: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUNDS: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUNDS: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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29
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUNDS: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUNDS: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUNDS: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUNDS: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the funds' directors and is available
without charge, upon request, by calling 1-800-345-2021.
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30
APPROVAL OF MANAGEMENT AGREEMENTS
NT Growth and NT Vista
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning NT Growth and NT Vista (the "funds") and
the services provided to the funds under the management agreements. The
information considered and the discussions held at the meetings included, but
were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the funds under the management
agreements;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the funds and its shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the funds to the cost of owning similar
funds;
* data comparing the funds' performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the funds to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the funds' board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreements, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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31
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreements under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES - GENERALLY. Under the management
agreements, the advisor is responsible for providing or arranging for all
services necessary for the operation of the funds. The board noted that under
the management agreements, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the funds' portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the funds in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
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32
At each quarterly meeting the Directors review investment performance
information for the funds, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the
funds. The Directors also review detailed performance information during the
15(c) Process comparing the funds' performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. NT Growth's performance for both the one- and three-year periods
was above the median for its peer group. NT Vista's performance was above the
median of its peer group for the one-year period and below the median for the
three-year period.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the funds, its profitability in managing the funds, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreements, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethic- ally. They noted that the advisor's practices generally meet
or exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the funds specifically, the expenses incurred by the advisor
in providing various functions to the funds, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the funds increase in size, and through
reinvestment in its business to provide shareholders additional content and
services.
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33
COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the funds, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
funds' independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the funds and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the funds' unified fee to the total
expense ratio of other funds in the funds' peer group. The unified fee charged
to shareholders NT Growth was below the median of the total expense ratios of
its peer group. The unified fee charged to shareholders of NT Vista was in the
lowest quartile of the total expense ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the funds. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the funds. The
Directors analyzed this information and concluded that the fees charged and
services provided to the funds were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the funds. They concluded that the advisor's primary
business is managing mutual funds and it generally does not use the fund or
shareholder information to generate profits in other lines of business, and
therefore does not derive any significant collateral benefits from them. The
Directors noted that the advisor receives proprietary research from
broker-dealers that execute fund portfolio transactions and concluded that
this research is likely to benefit fund shareholders. The Directors also
determined that the advisor is able to provide investment management services
to certain clients other than the funds, at least in part, due to its existing
infrastructure built to serve the fund complex. The Directors concluded,
however, that the assets of those other clients are not material to the
analysis and, in any event, are included with the assets of the funds to
determine breakpoints in the funds' fee schedule, provided they are managed
using the same investment team and strategy.
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34
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, assisted by the advice
of legal counsel independent of the advisor, taking into account all of the
factors discussed above and the information provided by the advisor,
negotiated changes to the breakpoint schedule used to calculate the management
fee of NT Growth. These changes were proposed by the Directors based on their
review of the competitive changes in the mutual fund marketplace and their
review of financial information provided by the advisor. The new schedule,
effective August 1, 2007, contains lower management fees at certain asset
levels than under the existing structure. Following these negotiations with
the advisor, the independent directors concluded that the investment
management agreement between the fund and the advisor is fair and reasonable
in light of the services provided and should be renewed.
The independent directors concluded that the investment management agreement
between NT Vista and the advisor is fair and reasonable in light of the
services provided and should be renewed.
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35
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 advisor,
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 advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The 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
website at sec.gov, and may be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330. The funds also make
their complete schedule of portfolio holdings for the most recent quarter of
their fiscal year available on their website at americancentury.com and, upon
request, by calling 1-800-345-2021.
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36
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® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
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 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 MIDCAP® VALUE 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 lower price-to-book
ratios and lower forecasted growth values.
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.
- ------
37
NOTES
- ------
38
NOTES
- ------
39
NOTES
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40
[INSIDE BACK PAGE BLANK]
CONTACT US
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INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
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Investments are service marks of American Century Proprietary Holdings, Inc.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
0712
SH-ANN-57614N
[front cover]
AMERICAN CENTURY INVESTMENTS
Annual Report October 31, 2007
[photo of winter]
American Century-Mason Street
Mid Cap Growth Fund
American Century-Mason Street
Small Cap Growth Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
[photo of Jonathan Thomas]
JONATHAN THOMAS
President and CEO
American Century Companies, Inc.
To help you monitor your investment, my colleagues and I take pride in
providing you with the annual report for the American Century®-Mason Street
Mid Cap Growth and Small Cap Growth funds for the 12 months ended October 31,
2007. I am honored to be addressing you in the "Our Message" space long
devoted to company founder Jim Stowers, Jr. and his son Jim Stowers III.
Jim Stowers III stepped down from the ACC board in July 2007, his final step
in a well-planned career transition to pursue new ventures outside the
company. This reflected his family's support of our company's direction and
the leadership team of American Century Investments.
The Stowers family remains an integral part of our heritage, leadership, and
financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the
American Century Companies, Inc. (ACC) board of directors with Richard Brown,
who has been on the board since 1998.
American Century Investments, our clients, and our employees have been my top
priority since I became company president and CEO in March, 2007. We have also
added the executive talents of overall chief investment officer (CIO) Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the
products and services we take pride in delivering to you. We believe the
ultimate measure of our performance is our clients' success. Therefore, our
focus continues to be on building a long-term relationship with you and on
delivering superior investment performance across our product line.
/s/Jonathan Thomas
[photo of James E. Stowers, Jr.]
JAMES E. STOWERS, JR.
Founder and Co-Chairman of the Board
American Century Companies, Inc.
[photo of Richard Brown]
RICHARD BROWN
Co-Chairman of the Board
American Century Companies, Inc.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
MID CAP GROWTH
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 7
SMALL CAP GROWTH
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 . . . . . . . . . . . . . . . . . . . . 24
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 31
Report of Independent Registered Public Accounting Firm . . . . . . . 43
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 44
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Approval of Management Agreements for
Mid Cap Growth and Small Cap Growth. . . . . . . . . . . . . . . . . 48
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 53
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 55
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 56
The opinions expressed in the Market Perspective and 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Steve Lurito, Chief Investment Officer, U.S. Growth Equity
STOCK RETURNS, VOLATILITY UP
U.S. stocks produced double-digit gains for the 12 months ended October 31,
2007. Stocks rallied for much of the first half of the fiscal year, touching
record highs in July, as the worldwide economic expansion drove strong
corporate earnings. But the subprime mortgage crisis blossomed in late July
and early August in the form of massive losses for banks, residential lenders,
and firms that securitized these sub-prime loans. This crisis caused a sharp
tightening of lending standards, removing the easy credit that propelled
strong consumer spending and funded a record amount of leveraged buyouts. As a
result, the U.S. stock market came under pressure late in the fiscal year.
By October, stock market volatility surged and credit markets seized up. To
relieve the pressure, the Federal Reserve (the Fed) lowered its benchmark
federal funds rate target in September and again in October -- the Fed's first
rate cuts since June 2003. Markets rallied briefly at fiscal year-end, though
there were concerns heading into November about the future course of corporate
earnings.
GROWTH SHARES LED
Growth stocks led the market during the 12 months, outpacing value-oriented
shares across all market capitalizations. That's because the deceleration in
corporate earnings cast a brighter spotlight on the relative earnings power of
growth companies, providing a favorable context for our growth portfolios and
growth stocks in general. We took advantage of this favorable backdrop,
enjoying a solid year of outperformance.
Looking at returns by sector, energy and materials performed best, supported
by booming global demand for commodities. In contrast, the aforementioned
credit crisis weakened consumer discretionary and financial shares -- the only
two segments of the S&P 500 Index to decline during the period.
We expect a continued favorable environment for growth-stock investing:
interest rates are low, global growth continues to provide new markets for
goods and services, and inflation remains contained.
U.S. Stock Index Returns
For the 12 months ended October 31, 2007
RUSSELL 1000 INDEX (LARGE-CAP) 15.03%
Russell 1000 Growth Index 19.23%
Russell 1000 Value Index 10.83%
RUSSELL MIDCAP INDEX 15.24%
Russell Midcap Growth Index 19.72%
Russell Midcap Value Index 9.73%
RUSSELL 2000 INDEX (SMALL-CAP) 9.27%
Russell 2000 Growth Index 16.73%
Russell 2000 Value Index 2.05%
- ------
2
PERFORMANCE
Mid Cap Growth
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years 10 years Inception Date
A CLASS(1)
No sales charge* 26.85% 13.03% 8.31% 10.81%
With sales charge* 19.54% 11.70% 7.67% 10.19% 3/31/97
RUSSELL MIDCAP
GROWTH INDEX(2) 19.72% 19.21% 8.30% 10.06% --
S&P MIDCAP 400 INDEX(2) 17.02% 17.78% 12.39% 14.24% --
Investor Class 27.19% -- -- 11.30% 4/3/06
Institutional Class 27.38% -- -- 11.51% 4/3/06
B Class
No sales charge* 26.02%(1) 12.32%(1) 7.60% 10.09%
With sales charge* 22.02%(1) 12.19%(1) 7.60% 10.09% 3/31/97
C Class 25.90% -- -- 10.18% 4/3/06
R Class 26.51% -- -- 10.72% 4/3/06
*Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a 5.75% maximum 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.
Mid Cap Growth acquired all the net assets of the Mason Street Aggressive
Growth Stock Fund on March 31, 2006, pursuant to a plan of reorganization
approved by the acquired fund's shareholders on March 15, 2006. Performance
information prior to April 1, 2006, is that of the Mason Street Aggressive
Growth Stock Fund.
(1) Class returns would have been lower if fees had not been waived.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
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 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
Mid Cap Growth
Growth of $10,000 Over 10 Years
$10,000 investment made October 31, 1997*
One-Year Returns Over 10 Years
Periods ended October 31
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
A Class (no
sales charge)** -4.94% 46.73% 47.26% -35.19% -9.55% 19.92% 4.92% 7.99% 7.08% 26.85%
Russell Midcap
Growth Index 2.43% 37.66% 38.67% -42.78% -17.61% 39.30% 8.77% 15.91% 14.51% 19.72%
S&P MidCap 400 Index 6.71% 21.07% 31.65% -12.45% -4.78% 30.73% 11.04% 17.65% 13.43% 17.02%
*Mid Cap Growth A Class's initial investment is $9,425 to reflect the maximum
5.75% initial sales charge.
**Class returns would have been lower, along with ending value, if fees had
not been waived.
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 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.
- ------
4
PORTFOLIO COMMENTARY
Mid Cap Growth
Portfolio Managers: Jill Grueninger and Curt Ludwick
PERFORMANCE SUMMARY
Mid Cap Growth returned 26.85%* during the 12 months ended October 31, 2007.
That compares with the 19.72% return of its benchmark, the Russell Midcap
Growth Index.
Looking at the portfolio's absolute return, performance was driven by holdings
in the health care and information technology sectors; consumer staples was
the only detractor. In terms of Mid Cap Growth's performance relative to its
benchmark, outperformance was driven by stock selection among health care,
consumer discretionary, and information technology stocks. Relative results
would have been even better but for positioning among industrial and staples
shares.
HEALTH CARE LED CONTRIBUTORS
Stock selection among health care names was the leading source of
outperformance. The leading contributor to return for the year was medical
device maker Intuitive Surgical, benefiting from heavy demand for its new,
less-invasive robotic surgery system. In addition, stock picks among health
care providers was another source of strength, as overweight positions in
Express Scripts, Caremark Rx, VCA Antech, and Pediatrix Medical Group all
contributed to relative results. It also helped to avoid the lagging
pharmaceutical sector.
CONSUMER DISCRETIONARY, IT SOURCES OF STRENGTH
In the consumer discretionary sector, stock selection among specialty retail,
media, and multi-line retail companies drove the portfolio's outperformance.
The leading contributor in this sector was specialty retailer GameStop, which
sells video game products and entertainment software for computers. The
company is seeing revenues, same-store sales, and other metrics improve as a
result of several new hardware and software gaming product cycles. Chinese
advertising giant Focus Media Holding was another top-10 contributor in this
sector, benefiting from the rapid growth of the Chinese economy and boom
related to the upcoming Beijing Olympics.
Looking at the information technology sector, stock picks contributed most in
the semiconductor and software industries. The leading contributor in the
sector was MEMC Electronic Materials. The company supplies silicon used in the
manufacture of computer chips and solar panels. Heavy demand and limited
supply resulted in very attractive pricing for the company's products.
Top Ten Holdings as of October 31, 2007
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
DaVita Inc. 3.0% 2.8%
GameStop Corp. Cl A 2.6% 2.1%
Cameron International Corp. 2.4% 1.7%
ValueClick Inc. 2.2% 2.6%
Praxair, Inc. 2.2% 1.8%
Express Scripts, Inc. 2.2% 1.8%
Smith International, Inc. 2.1% 1.9%
Intuitive Surgical Inc. 2.0% 1.8%
Ritchie Bros. Auctioneers Inc. 1.9% 1.7%
Amphenol Corp. Cl A 1.9% 1.6%
*All fund returns referenced in this commentary are for A Class shares and are
not reduced by sales charges. A Class shares are subject to a maximum sales
charge of 5.75%. Had the sales charge been applied, returns would be lower
than those shown.
- ------
5
Mid Cap Growth
OTHER KEY CONTRIBUTORS
Energy-related stocks were another key source of strength. In the energy
sector, we were overweight in firms benefiting from exposure to international
energy exploration and development, including drillers and equipment
suppliers. Cameron International was the leading contributor to results in
this sector. Cameron benefited from spending on oil field development, and
with oil supplies tight, this led to accelerated spending for new production.
In addition, IntercontinentalExchange -- an energy trading firm -- benefited
from strong pricing and volatility in the energy market, seeing record trading
volume.
INDUSTRIALS, STAPLES DETRACTED
At the other end of the spectrum, industrial and consumer staples shares
limited the portfolio's performance compared with the benchmark. In
industrials, we held underweight positions in the construction & engineering
and aerospace & defense industry segments, both of which performed well. Our
stock picks also detracted in these areas.
Our stock picks also underperformed in the consumer staples sector. To begin
with, defensive-oriented consumer staples shares tend to lag in an up market.
In addition, some of our personal products and food & staples retailing names
underperformed. The leading detractor in this space was skin care and
cosmetics company Bare Escentuals, which experienced a slowdown in sales in
its infomercial business.
STARTING POINT FOR NEXT REPORTING PERIOD
"We are looking for medium- and smaller-sized companies that we believe are
well managed, have solid growth in revenue and earnings, and have strong
financial characteristics," said portfolio manager Jill Grueninger. "As a
result, our sector and industry allocations reflect where we're finding the
best growth opportunities at a given time. As of October 31, 2007, the top
sector overweights were in information technology, industrials, and health
care. The most notable sector underweights were in consumer discretionary and
staples stocks, as well as utilities."
Top Five Industries as of October 31, 2007
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
Health Care Providers & Services 10.3% 12.2%
Energy Equipment & Services 7.4% 5.1%
Commercial Services & Supplies 6.0% 6.9%
Semiconductors & Semiconductor Equipment 5.6% 5.5%
Software 5.6% 4.9%
Types of Investments in Portfolio
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
Domestic Common Stocks and Futures 91.2% 89.9%
Foreign Common Stocks* 5.6% 4.0%
TOTAL EQUITY EXPOSURE 96.8% 93.9%
Short-Term Investments 3.0% 7.5%
Other Assets and Liabilities 0.2% (1.4)%
*Includes depositary shares, dual listed securities and foreign ordinary
shares.
- ------
6
SCHEDULE OF INVESTMENTS
Mid Cap Growth
OCTOBER 31, 2007
Shares Value
Common Stocks -- 94.0%
AEROSPACE & DEFENSE -- 1.3%
81,600 Spirit Aerosystems Holdings Inc. Cl A(1) $ 2,833,152
------------
AIR FREIGHT & LOGISTICS -- 2.3%
55,900 C.H. Robinson Worldwide Inc. 2,790,528
41,720 Expeditors International of Washington, Inc. 2,113,118
------------
4,903,646
------------
BIOTECHNOLOGY -- 1.1%
34,600 Celgene Corp.(1) 2,283,600
------------
CAPITAL MARKETS -- 5.0%
74,220 Investment Technology Group Inc.(1) 3,109,818
19,400 Northern Trust Corp. 1,459,074
87,800 SEI Investments Co. 2,776,236
55,200 T. Rowe Price Group Inc. 3,546,048
------------
10,891,176
------------
CHEMICALS -- 2.2%
55,330 Praxair, Inc. 4,729,608
------------
COMMERCIAL SERVICES & SUPPLIES -- 6.0%
101,100 Corrections Corp. of America(1) 2,860,119
40,050 Monster Worldwide Inc.(1) 1,625,229
54,700 Ritchie Bros. Auctioneers Inc. 4,093,201
39,980 Robert Half International Inc. 1,202,998
53,580 Stericycle Inc.(1) 3,125,322
------------
12,906,869
------------
COMMUNICATIONS EQUIPMENT -- 1.8%
109,800 Foundry Networks, Inc.(1) 2,321,172
26,290 Harris Corp. 1,592,122
------------
3,913,294
------------
COMPUTERS & PERIPHERALS -- 0.9%
63,600 Network Appliance, Inc.(1) 2,002,764
------------
CONSTRUCTION & ENGINEERING -- 0.7%
10,800 Foster Wheeler Ltd.(1) 1,601,100
------------
CONTAINERS & PACKAGING -- 1.3%
61,700 Owens-Illinois Inc.(1) 2,740,714
------------
DIVERSIFIED FINANCIAL SERVICES -- 2.2%
4,360 CME Group Inc. 2,904,850
10,912 IntercontinentalExchange Inc.(1) 1,944,518
------------
4,849,368
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.1%
68,310 NeuStar, Inc. Cl A(1) 2,336,202
------------
Shares Value
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.9%
91,820 Amphenol Corp. Cl A $ 4,064,871
------------
ENERGY EQUIPMENT & SERVICES -- 7.4%
52,900 Cameron International Corp.(1) 5,150,344
33,800 Diamond Offshore Drilling, Inc. 3,827,174
35,000 National Oilwell Varco, Inc.(1) 2,563,400
69,300 Smith International, Inc. 4,577,265
------------
16,118,183
------------
FOOD & STAPLES RETAILING -- 0.9%
37,700 Longs Drug Stores Corp. 1,979,627
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 4.7%
61,670 Immucor, Inc.(1) 1,988,858
13,000 Intuitive Surgical Inc.(1) 4,249,310
31,600 Mentor Corp. 1,345,212
23,800 Mettler-Toledo International, Inc.(1) 2,531,130
------------
10,114,510
------------
HEALTH CARE PROVIDERS & SERVICES -- 10.3%
101,200 DaVita Inc.(1) 6,597,228
74,400 Express Scripts, Inc.(1) 4,694,640
31,200 Lincare Holdings Inc.(1) 1,084,824
44,615 Pediatrix Medical Group, Inc.(1) 2,922,283
86,295 Psychiatric Solutions, Inc.(1) 3,417,282
77,880 VCA Antech Inc.(1) 3,586,374
------------
22,302,631
------------
HOTELS, RESTAURANTS & LEISURE -- 3.1%
62,900 International Game Technology 2,743,069
54,000 Jack in the Box Inc.(1) 1,693,980
16,800 Orient-Express Hotels Ltd. Cl A 1,088,640
19,600 Starwood Hotels & Resorts Worldwide, Inc. 1,114,456
------------
6,640,145
------------
INDUSTRIAL CONGLOMERATES -- 0.5%
17,300 McDermott International, Inc.(1) 1,056,338
------------
INSURANCE -- 0.9%
40,600 Assured Guaranty Ltd. 936,642
21,700 MBIA Inc. 933,968
------------
1,870,610
------------
INTERNET SOFTWARE & SERVICES -- 3.3%
46,600 Digital River Inc.(1) 2,472,596
174,880 ValueClick Inc.(1) 4,754,987
------------
7,227,583
------------
IT SERVICES -- 4.1%
74,760 Cognizant Technology Solutions Corp. Cl A(1) 3,099,550
- ------
7
Mid Cap Growth
Shares Value
45,900 Global Payments Inc. $ 2,183,004
72,800 VeriFone Holdings Inc.(1) 3,598,504
------------
8,881,058
------------
LIFE SCIENCES TOOLS & SERVICES -- 0.7%
25,300 Charles River Laboratories(1) 1,467,400
------------
MACHINERY -- 2.6%
47,400 Harsco Corp. 2,873,388
57,000 Manitowoc Co., Inc. (The) 2,807,820
------------
5,681,208
------------
MEDIA -- 1.6%
56,400 Focus Media Holding Ltd. ADR(1) 3,496,800
------------
METALS & MINING -- 1.0%
30,400 SPDR S&P Metals & Mining ETF 2,080,880
------------
MULTILINE RETAIL -- 2.7%
68,200 Dollar Tree Stores Inc.(1) 2,612,060
32,900 Kohl's Corp.(1) 1,808,513
69,200 Saks Inc. 1,464,272
------------
5,884,845
------------
OIL, GAS & CONSUMABLE FUELS -- 2.0%
49,930 Range Resources Corporation 2,243,355
42,700 Southwestern Energy Company(1) 2,208,871
------------
4,452,226
------------
PERSONAL PRODUCTS -- 1.1%
94,300 Bare Escentuals Inc.(1) 2,329,210
------------
ROAD & RAIL -- 1.8%
60,910 J.B. Hunt Transport Services, Inc. 1,688,425
138,700 Knight Transportation Inc. 2,215,039
------------
3,903,464
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.6%
42,700 Broadcom Corp. Cl A(1) 1,389,885
27,550 KLA-Tencor Corp. 1,450,508
40,600 MEMC Electronic Materials Inc.(1) 2,972,732
105,397 Microchip Technology Inc. 3,496,018
82,800 NVIDIA Corp.(1) 2,929,464
------------
12,238,607
------------
SOFTWARE -- 5.6%
144,297 Activision, Inc.(1) 3,412,624
44,400 Autodesk, Inc.(1) 2,171,160
74,038 Citrix Systems, Inc.(1) 3,182,894
48,600 FactSet Research Systems Inc. 3,427,272
------------
12,193,950
------------
Shares Value
SPECIALTY RETAIL -- 4.5%
73,400 Collective Brands, Inc.(1) $ 1,357,166
95,700 GameStop Corp. Cl A(1) 5,667,354
41,270 O'Reilly Automotive Inc.(1) 1,362,735
55,700 Urban Outfitters Inc.(1) 1,407,539
------------
9,794,794
------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.9%
54,200 Coach Inc.(1) 1,981,552
------------
TRADING COMPANIES & DISTRIBUTORS -- 0.9%
38,400 MSC Industrial Direct Co. Cl A 1,870,464
------------
TOTAL COMMON STOCKS
(Cost $153,580,548) 203,622,449
------------
Principal Amount
Short-Term Investments -- 3.0%
$2,000,000 New Century Asset Trust, 4.90%, 12/4/07(3) 1,990,480
2,000,000 Sheffield Receivables, 4.90%, 11/26/07(3) 1,992,686
2,500,000 Thunder Bay Funding LLC, 4.95%, 11/15/07 (Acquired
10/19/07, Cost $2,490,719)(2)(3) 2,494,770
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $6,479,398) 6,477,936
------------
Short-Term Investments - Segregated for Futures Contracts -- 2.8%
2,000,000 Alpine Securitization, 5.09%, 11/5/07(3) 1,998,612
2,000,000 Barton Capital LLC, 5.17%, 11/2/07(3) 1,999,446
500,000 FHLMC Discount Notes, 4.70%, 12/10/07(3) 497,663
1,700,000 General Electric Capital Corp., 4.81%, 11/1/07(3) 1,700,000
------------
TOTAL SHORT-TERM INVESTMENTS -- SEGREGATED FOR FUTURES CONTRACTS
(Cost $6,195,809) 6,195,721
------------
TOTAL INVESTMENT SECURITIES -- 99.8%
(Cost $166,255,755) 216,296,106
------------
OTHER ASSETS AND LIABILITIES -- 0.2% 328,910
------------
TOTAL NET ASSETS -- 100.0% $216,625,016
============
- ------
8
Mid Cap Growth
Futures Contracts
Underlying Face Unrealized
Contracts Purchased Expiration Date Amount at Value Gain (Loss)
13 S&P MidCap 400
Index Futures December 2007 $5,921,500 $128,140
============ ============
Notes to Schedule of Investments
ADR = American Depositary Receipt
ETF = Exchange Traded Fund
FHLMC = Federal Home Loan Mortgage Corporation
SPDR = Standard and Poor's Depositary Receipt
(1) Non-income producing.
(2) Security was purchased under Rule 144A or Section 4(2) of the Securities
Act of 1933 or is a private placement and, unless registered under the Act or
exempted from registration, may only be sold to qualified institutional
investors. The aggregate value of restricted securities at October 31, 2007
was $2,494,770, which represented 1.2% of total net assets.
(3) The rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements.
- ------
9
PERFORMANCE
Small Cap Growth
Total Returns as of October 31, 2007
Average Annual Returns
Since Inception
1 year 5 years Inception Date
A CLASS(1)
No sales charge* 20.75% 16.21% 13.00%
With sales charge* 13.79% 14.85% 12.20% 7/12/99
RUSSELL 2000 GROWTH INDEX(2) 16.73% 18.57% 4.17%(3) --
S&P SMALLCAP 600 INDEX(2) 11.55% 18.42% 11.45%(3) --
Investor Class 20.93% -- 9.25% 4/3/06
Institutional Class 21.16% -- 9.47% 4/3/06
B Class(1)
No sales charge* 20.02% 15.48% 12.29%
With sales charge* 16.02% 15.37% 12.29% 7/12/99
C Class 19.67% -- 8.13% 4/3/06
R Class 20.34% -- 8.69% 4/3/06
*Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. A Class shares have a 5.75% maximum 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.
Small Cap Growth acquired all the net assets of the Mason Street Small Cap
Growth Stock Fund on March 31, 2006, pursuant to a plan of reorganization
approved by the acquired fund's shareholders on March 23, 2006. Performance
information prior to April 1, 2006, is that of the Mason Street Small Cap
Growth Stock Fund.
(1) Class returns would have been lower if fees had not been waived.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(3) Since 7/14/99, the date nearest the A 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. Historically, small company stocks have been more
volatile than the stocks of larger, more established companies. The fund's
performance may be affected by investments in initial public offerings.
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 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.
- ------
10
Small Cap Growth
Growth of $10,000 Over Life of Class
$10,000 investment made July 12, 1999
One-Year Returns Over Life of Class
Periods ended October 31
1999* 2000 2001 2002 2003 2004 2005 2006 2007
A Class (no sales
charge)** 13.00% 63.92% -24.37% -7.06% 28.49% 7.39% 19.34% 6.63% 20.75%
Russell 2000
Growth Index -4.03% 16.16% -31.50% -21.57% 46.56% 5.53% 10.91% 17.07% 16.73%
S&P SmallCap 600
Index -6.41% 25.27% -6.44% -3.78% 33.58% 16.78% 15.27% 16.10% 11.55%
*From 7/12/99, the A Class's inception date. Index data from 7/14/99, the date
nearest the A Class's inception for which data are available. Not annualized.
Small Cap Growth A Class's initial investment is $9,425 to reflect the maximum
5.75% initial sales charge.
**Class returns would have been lower, along with ending value, if fees had
not been waived.
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. Historically, small company stocks have been more
volatile than the stocks of larger, more established companies. The fund's
performance may be affected by investments in initial public offerings.
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 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.
- ------
11
PORTFOLIO COMMENTARY
Small Cap Growth
Portfolio Managers: Bill Walker and Andy Eng
PERFORMANCE SUMMARY
Small Cap Growth returned 20.75%* during the 12 months ended October 31, 2007.
That compares with the 16.73% return of its benchmark, the Russell 2000 Growth
Index.
Looking at the portfolio's absolute return, performance was driven by holdings
in the information technology (IT) sector. No sector detracted from absolute
results; telecommunication services contributed the least. Compared with its
benchmark, Small Cap Growth's outperformance was driven by stock selection
among information technology, consumer discretionary, and energy stocks.
Participation in a number of initial public offerings also helped relative
performance, as these are out-of-benchmark positions that generally performed
well. Nevertheless, relative results would have been even better but for
positioning among industrial and materials shares.
IT STOCKS LED OUTPERFORMANCE
Stock selection among information technology shares was key to the portfolio's
outperformance of its benchmark. Internet software & services holdings account
for the lion's share of return, behind overweight positions in Sohu.com,
DealerTrack Holdings, and aQuantive, among others. These were three of the
top-ten contributors to performance for the year. Sohu.com is a Chinese
internet firm that performed well on the strength of its online gaming
business and record ad revenue aided by its exclusive rights to Beijing 2008
Olympic content. aQuantive was an internet media company bought out in 2007.
And DealerTrack performed well while growing its software and services
business through acquisition.
The IT sector was also home to the leading contributor to return for the
period, education software provider Blackboard. The stock is one of the
largest positions in the portfolio and continued to provide earnings growth
ahead of analyst expectations as a result of growing its business in the U.S.
and overseas.
CONSUMER DISCRETIONARY, ENERGY SOURCES OF STRENGTH
Stock selection also added significant value in the consumer discretionary
sector. The leading contributor in this space again was luxury hotelier
Orient-Express Hotels, which benefited from organic growth and a number of
acquisitions, and was itself the subject of buyout rumors.
Top Ten Holdings as of October 31, 2007
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
ITC Holdings Corp. 1.9% 1.7%
Switch & Data Facilities Co. Inc. 1.9% 1.1%
Insight Enterprises Inc. 1.9% --
Tessera Technologies Inc. 1.8% 2.3%
DealerTrack Holdings Inc. 1.8% 1.9%
Blackboard Inc. 1.7% 3.0%
Meridian Bioscience Inc. 1.6% 0.5%
Sohu.com Inc. 1.5% 1.2%
Macrovision Corp. 1.5% 0.7%
IHS Inc. Cl A 1.5% --
*All fund returns referenced in this commentary are for A Class shares and are
not reduced by sales charges. A Class shares are subject to a maximum sales
charge of 5.75%. Had the sales charge been applied or if distribution and
service fees had not been waived, returns would be lower than those shown.
- ------
12
Small Cap Growth
Energy shares were another important source of relative strength, led by stock
picks among energy equipment and services firms. Oceaneering International, a
provider of remote-controlled equipment for deep-water drilling, was the top
contributor in this space. Demand for its products jumped as exploration
activity has picked up along with the price and scarcity of oil. Other notable
contributors in this space were T-3 Energy Services and Global Industries,
which also have benefited from the increased demand for expertise and
equipment related to offshore drilling.
INDUSTRIALS, MATERIALS DETRACTED
At the other end of the spectrum, industrial and materials shares limited the
portfolio's performance compared with the benchmark. It hurt to hold
underweight positions in these winning sectors, and our stock picks
underperformed. Industrials are a good example, where we held underweight
positions in the electrical equipment and aerospace & defense industry
segments, both of which performed well. That said, some of our biggest
detractors were in the commercial services space, which was home to two of the
portfolio's five largest detractors. These were ICT Group and PeopleSupport,
firms that outsource back-office functions, both of which endured some
difficult quarters. In addition, the leading detractor from results was Marlin
Business Services. The firm, which provides computers, copiers, and other
equipment to small businesses, failed to meet business targets and
expectations set by management.
STARTING POINT FOR NEXT REPORTING PERIOD
"Our disciplined investment process focuses on well-managed, growing,
attractively valued companies. We are looking for high-quality, fast-growing,
small-cap companies. We believe that relative to small-cap value, growth
currently offers greater opportunities through attractive relative value and
strong earnings per share growth," said portfolio manager Bill Walker. "As a
result, our sector and industry allocations reflect where we're finding the
best growth opportunities at a given time. As of October 31, 2007, the top
sector overweights were in financials and information technology. The most
notable sector underweights were in consumer discretionary and health care
stocks."
Top Five Industries as of October 31, 2007
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
Internet Software & Services 12.6% 8.1%
Software 7.9% 8.6%
Health Care Equipment & Supplies 7.6% 3.2%
Commercial Services & Supplies 6.4% 10.5%
Semiconductors & Semiconductor Equipment 5.5% 6.9%
Types of Investments in Portfolio
% of % of
net assets net assets
as of as of
10/31/07 4/30/07
Domestic Common Stocks and Futures 88.7% 91.1%
Foreign Common Stocks* 8.8% 7.2%
TOTAL EQUITY EXPOSURE 97.5% 98.3%
Short-Term Investments 3.7% 3.5%
Other Assets and Liabilities (1.2)% (1.8)%
*Includes depositary shares, dual listed securities and foreign ordinary
shares.
- ------
13
SCHEDULE OF INVESTMENTS
Small Cap Growth
OCTOBER 31, 2007
Shares Value
Common Stocks -- 93.6%
AEROSPACE & DEFENSE -- 0.3%
3,411 Astronics Corp.(1) $ 151,790
-----------
BEVERAGES -- 1.3%
11,249 Central European Distribution Corp.(1) 598,222
-----------
BIOTECHNOLOGY -- 1.3%
23,335 Cepheid(1) 603,910
-----------
CAPITAL MARKETS -- 4.5%
15,058 FCStone Group, Inc.(1) 530,795
6,148 Greenhill & Co. Inc. 454,829
14,274 KBW, Inc.(1) 432,359
22,434 optionsXpress Holdings, Inc. 667,636
-----------
2,085,619
-----------
CHEMICALS -- 1.0%
9,112 Airgas Inc. 459,883
-----------
COMMERCIAL BANKS -- 0.8%
11,614 CoBiz Financial Inc. 207,310
5,700 PrivateBancorp Inc. 160,512
-----------
367,822
-----------
COMMERCIAL SERVICES & SUPPLIES -- 6.4%
9,991 Advisory Board Co. (The)(1) 641,522
12,955 Corrections Corp. of America(1) 366,497
6,723 Huron Consulting Group Inc.(1) 469,803
10,947 IHS Inc. Cl A(1) 690,209
4,122 Kenexa Corp.(1) 120,857
20,195 Team, Inc.(1) 650,077
-----------
2,938,965
-----------
COMMUNICATIONS EQUIPMENT -- 3.3%
19,111 Aruba Networks, Inc.(1) 364,829
24,049 Comtech Group Inc.(1) 517,294
7,039 Polycom Inc.(1) 196,951
12,551 Riverbed Technology, Inc.(1) 424,098
-----------
1,503,172
-----------
COMPUTERS & PERIPHERALS -- 0.6%
4,800 Synaptics Inc.(1) 260,880
-----------
CONTAINERS & PACKAGING -- 1.0%
8,414 Silgan Holdings Inc. 459,152
-----------
DISTRIBUTORS -- 1.0%
11,980 LKQ Corporation(1) 461,949
-----------
DIVERSIFIED CONSUMER SERVICES -- 3.0%
10,965 Capella Education Co.(1) 679,830
Shares Value
4,600 New Oriental Education & Technology Group Inc. $ 411,792
5,018 Sotheby's 271,825
-----------
1,363,447
-----------
DIVERSIFIED FINANCIAL SERVICES -- 0.7%
24,930 Marlin Business Services Corp.(1) 316,112
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.1%
36,102 PAETEC Holding Corp.(1) 485,572
-----------
ELECTRIC UTILITIES -- 1.9%
15,523 ITC Holdings Corp. 888,537
-----------
ELECTRICAL EQUIPMENT -- 0.5%
3,700 JA Solar Holdings Co., Ltd. ADR(1) 213,120
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.7%
30,974 Insight Enterprises Inc.(1) 856,122
17,422 Mellanox Technologies, Ltd.(1) 411,333
-----------
1,267,455
-----------
ENERGY EQUIPMENT & SERVICES -- 5.0%
8,202 Dril-Quip Inc.(1) 437,413
8,222 Oceaneering International, Inc.(1) 635,314
13,469 T-3 Energy Services Inc.(1) 640,047
10,700 Tesco Corp.(1) 315,543
4,499 W-H Energy Services Inc.(1) 258,962
-----------
2,287,279
-----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 7.6%
4,530 Genoptix, Inc.(1) 111,891
5,721 Hologic, Inc.(1) 388,628
11,963 Masimo Corp.(1) 409,374
21,962 Meridian Bioscience Inc. 726,722
12,310 NuVasive, Inc.(1) 526,745
15,068 Spectranetics Corp. (The)(1) 241,088
29,944 Thoratec Corp.(1) 597,982
11,405 TomoTherapy Inc.(1) 249,427
9,648 TranS1 Inc.(1) 241,200
-----------
3,493,057
-----------
HEALTH CARE PROVIDERS & SERVICES -- 4.0%
9,857 Pediatrix Medical Group, Inc.(1) 645,633
18,550 Providence Service Corp. (The)(1) 589,705
15,382 Psychiatric Solutions, Inc.(1) 609,127
-----------
1,844,465
-----------
- ------
14
Small Cap Growth
Shares Value
HEALTH CARE TECHNOLOGY -- 0.8%
16,103 Phase Forward Inc.(1) $ 383,090
-----------
HOTELS, RESTAURANTS & LEISURE -- 3.8%
16,200 California Pizza Kitchen, Inc.(1) 262,116
11,230 Life Time Fitness Inc.(1) 680,988
3,554 Orient-Express Hotels Ltd. Cl A 230,299
19,622 Pinnacle Entertainment Inc.(1) 572,962
-----------
1,746,365
-----------
INTERNET & CATALOG RETAIL -- 0.7%
12,207 GSI Commerce, Inc.(1) 347,777
-----------
INTERNET SOFTWARE & SERVICES -- 12.6%
9,248 Bankrate, Inc.(1) 424,946
4,995 Bidz.com, Inc.(1) 70,929
12,732 comScore, Inc.(1) 466,755
16,743 DealerTrack Holdings Inc.(1) 821,914
4,917 Digital River Inc.(1) 260,896
35,263 Limelight Networks, Inc.(1) 450,309
6,134 Omniture, Inc.(1) 209,537
11,899 Sohu.com Inc.(1) 712,868
57,242 SonicWALL, Inc.(1) 591,882
44,997 Switch & Data Facilities Co. Inc.(1) 885,540
12,471 TechTarget, Inc.(1) 215,624
15,212 ValueClick Inc.(1) 413,614
5,989 VistaPrint Ltd.(1) 284,897
-----------
5,809,711
-----------
IT SERVICES -- 0.9%
42,400 Global Cash Access Inc.(1) 423,576
-----------
MACHINERY -- 3.1%
10,388 Axsys Technologies, Inc.(1) 409,079
6,230 Bucyrus International, Inc. Cl A 513,975
16,033 Force Protection, Inc.(1) 286,991
4,001 Kaydon Corp. 215,214
-----------
1,425,259
-----------
MEDIA -- 1.5%
4,864 Arbitron Inc. 246,215
7,059 Global Sources Ltd. 228,782
8,518 National CineMedia, Inc. 229,305
-----------
704,302
-----------
METALS & MINING -- 1.5%
3,800 Haynes International Inc.(1) 332,576
5,440 SPDR S&P Metals & Mining ETF 372,368
-----------
704,944
-----------
Shares Value
PHARMACEUTICALS -- 2.2%
9,921 Adams Respiratory Therapeutics, Inc.(1) $ 435,929
26,598 Obagi Medical Products Inc.(1) 580,900
-----------
1,016,829
-----------
ROAD & RAIL -- 1.1%
32,970 Knight Transportation Inc. 526,531
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.5%
4,289 Cymer, Inc.(1) 182,283
6,446 Diodes Inc.(1) 213,105
15,256 Netlogic Microsystems Inc.(1) 506,499
24,400 Silicon Image, Inc.(1) 155,428
21,091 SiRF Technology Holdings, Inc.(1) 628,723
22,174 Tessera Technologies Inc.(1) 846,824
-----------
2,532,862
-----------
SOFTWARE -- 7.9%
15,643 Blackboard Inc.(1) 780,585
674 BladeLogic, Inc.(1) 20,712
37,165 Glu Mobile Inc.(1) 363,102
9,923 Interactive Intelligence, Inc.(1) 258,494
29,600 Macrovision Corp.(1) 710,400
10,384 Synchronoss Technologies, Inc.(1) 415,360
12,034 Taleo Corp. Cl A(1) 336,350
10,769 The9 Ltd. ADR(1) 341,916
12,460 Ultimate Software Group Inc.(1) 429,995
-----------
3,656,914
-----------
SPECIALTY RETAIL -- 0.6%
2,900 Ulta Salon, Cosmetics & Fragrance, Inc.(1) 99,180
4,620 Zumiez Inc.(1) 193,393
-----------
292,573
-----------
TEXTILES, APPAREL & LUXURY GOODS -- 0.9%
6,822 lululemon athletica inc.(1) 363,067
2,581 Volcom, Inc.(1) 75,494
-----------
438,561
-----------
THRIFTS & MORTGAGE FINANCE -- 0.5%
11,352 Encore Bancshares, Inc.(1) 242,933
-----------
TRADING COMPANIES & DISTRIBUTORS -- 1.1%
15,885 UAP Holding Corp. 505,620
-----------
WIRELESS TELECOMMUNICATION SERVICES -- 0.9%
40,316 Centennial Communications Corp.(1) 412,836
-----------
TOTAL COMMON STOCKS
(Cost $33,293,201) 43,221,091
-----------
- ------
15
Small Cap Growth
Principal Amount Value
Short-Term Investments -- Segregated for Futures Contracts -- 3.9%
$ 300,000 FHLMC Discount Notes, 4.70%, 12/10/07(3) $ 298,598
1,500,000 General Electric Capital Corp., 4.81%, 11/1/07(3) 1,500,000
-----------
TOTAL SHORT-TERM INVSTMENTS -- SEGREGATED FOR FUTURES CONTRACTS
(Cost $1,798,273) 1,798,598
-----------
Short-Term Investments -- 3.7%
1,700,000 Old Line Funding Corp., 5.05%, 11/5/07 (Acquired
10/12/07, Cost $1,694,277)(2)(3)
(Cost $1,699,046) 1,698,822
-----------
TOTAL INVESTMENT SECURITIES -- 101.2%
(Cost $36,790,520) 46,718,511
-----------
OTHER ASSETS AND LIABILITIES -- (1.2)% (552,679)
-----------
TOTAL NET ASSETS -- 100.0% $46,165,832
===========
Futures Contracts
Underlying Face Unrealized
Contracts Purchased Expiration Date Amount at Value Gain (Loss)
4 Russell 2000
Index Futures December 2007 $1,659,000 $14,930
============ ===========
Notes to Schedule of Investments
ADR = American Depositary Receipt
ETF = Exchange Traded Fund
FHLMC = Federal Home Loan Mortgage Corporation
SPDR = Standard and Poor's Depositary Receipt
(1) Non-income producing.
(2) Security was purchased under Rule 144A or Section 4(2) of the Securities
Act of 1933 or is a private placement and, unless registered under the Act or
exempted from registration, may only be sold to qualified institutional
investors. The aggregate value of restricted securities at October 31, 2007
was $1,698,822, which represented 3.7% of total net assets.
(3) The rate indicated is the yield to maturity at purchase.
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, 2007 to October 31, 2007.
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.
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.
- ------
17
Beginning Ending
Account Account Expenses Paid Annualized
Value Value During Period(1) Expense
5/1/07 10/31/07 5/1/07 - 10/31/07 Ratio(1)
Mid Cap Growth
ACTUAL
Investor Class $1,000 $1,144.20 $5.67 1.05%
Institutional Class $1,000 $1,145.30 $4.60 0.85%
A Class $1,000 $1,142.60 $7.02 1.30%
B Class
(after waiver)(2) $1,000 $1,138.90 $10.51 1.95%
B Class
(before waiver) $1,000 $1,138.90(3) $11.05 2.05%
C Class $1,000 $1,138.20 $11.05 2.05%
R Class $1,000 $1,140.90 $8.36 1.55%
HYPOTHETICAL
Investor Class $1,000 $1,019.91 $5.35 1.05%
Institutional Class $1,000 $1,020.92 $4.33 0.85%
A Class $1,000 $1,018.65 $6.61 1.30%
B Class
(after waiver)(2) $1,000 $1,015.38 $9.91 1.95%
B Class
(before waiver) $1,000 $1,014.87 $10.41 2.05%
C Class $1,000 $1,014.87 $10.41 2.05%
R Class $1,000 $1,017.39 $7.88 1.55%
Small Cap Growth
ACTUAL
Investor Class $1,000 $1,141.90 $7.02 1.30%
Institutional Class $1,000 $1,142.80 $5.94 1.10%
A Class
(after waiver)(2) $1,000 $1,140.80 $7.55 1.40%
A Class
(before waiver) $1,000 $1,140.80(3) $8.36 1.55%
B Class (after
waiver)(2) $1,000 $1,137.60 $11.05 2.05%
B Class
(before waiver) $1,000 $1,137.60(3) $12.39 2.30%
C Class $1,000 $1,135.90 $12.38 2.30%
R Class $1,000 $1,138.90 $9.70 1.80%
HYPOTHETICAL
Investor Class $1,000 $1,018.65 $6.61 1.30%
Institutional Class $1,000 $1,019.66 $5.60 1.10%
A Class
(after waiver)(2) $1,000 $1,018.15 $7.12 1.40%
A Class (before waiver) $1,000 $1,017.39 $7.88 1.55%
B Class
(after waiver)(2) $1,000 $1,014.87 $10.41 2.05%
B Class
(before waiver) $1,000 $1,013.61 $11.67 2.30%
C Class $1,000 $1,013.61 $11.67 2.30%
R Class $1,000 $1,016.13 $9.15 1.80%
(1) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 184, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
(2) During the six months ended October 31, 2007, the distributor waived a
portion of its distribution and service fees.
(3) Ending account value assumes the return earned after waiver. The return
would have been lower had fees not been waived and may have resulted in a
lower ending account value.
- ------
18
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007
Mid Cap Growth Small Cap Growth
ASSETS
Investment securities, at value
(cost of $166,255,755 and
$36,790,520, respectively) $216,296,106 $46,718,511
Cash 113,102 --
Receivable for investments sold 535,905 155,690
Receivable for capital shares sold 3,681 --
Receivable for variation margin on futures
contracts 91,635 21,600
Dividends and interest receivable 63,597 9,079
------------ ------------
217,104,026 46,904,880
------------ ------------
LIABILITIES
Disbursements in excess
of demand deposit cash -- 232,992
Payable for investments purchased 294,656 302,304
Payable for capital shares redeemed 12,773 147,399
Accrued management fees 160,106 49,677
Distribution fees payable 3,866 3,997
Service fees (and distribution
fees -- A Class and R Class) payable 7,609 2,679
------------ ------------
479,010 739,048
------------ ------------
NET ASSETS $216,625,016 $46,165,832
============ ============
See Notes to Financial Statements.
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19
OCTOBER 31, 2007
Mid Cap Growth Small Cap Growth
NET ASSETS CONSIST OF:
Capital paid in $147,198,618 $30,662,062
Undistributed net realized gain on
investment transactions 19,257,907 5,560,849
Net unrealized appreciation on investments 50,168,491 9,942,921
------------ ------------
$216,625,016 $46,165,832
============ ============
INVESTOR CLASS, $0.01 PAR VALUE
Net assets $1,105,288 $1,007,398
Shares outstanding 66,659 55,155
Net asset value per share $16.58 $18.26
INSTITUTIONAL CLASS, $0.01 PAR VALUE
Net assets $177,127,979 $8,230,176
Shares outstanding 10,649,027 449,098
Net asset value per share $16.63 $18.33
A CLASS, $0.01 PAR VALUE
Net assets $32,133,833 $30,483,204
Shares outstanding 1,946,179 1,671,903
Net asset value per share $16.51 $18.23
Maximum offering price (net asset value
divided by 0.9425) $17.52 $19.34
B CLASS, $0.01 PAR VALUE
Net assets $5,975,390 $6,232,724
Shares outstanding 389,780 360,702
Net asset value per share $15.33 $17.28
C CLASS, $0.01 PAR VALUE
Net assets $170,203 $169,934
Shares outstanding 10,435 9,457
Net asset value per share $16.31 $17.97
R CLASS, $0.01 PAR VALUE
Net assets $112,323 $42,396
Shares outstanding 6,831 2,340
Net asset value per share $16.44 $18.12
See Notes to Financial Statements.
- ------
20
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007
Mid Cap Growth Small Cap Growth
INVESTMENT INCOME (LOSS)
INCOME:
Dividends $ 989,915 $ 122,546
Interest 689,821 189,556
------------ ------------
1,679,736 312,102
------------ ------------
EXPENSES:
Management fees 1,740,590 619,907
Distribution fees:
B Class 45,724 47,488
C Class 1,014 1,065
Service fees:
B Class 15,241 15,830
C Class 338 355
Distribution and service fees:
A Class 83,604 90,211
R Class 471 160
Directors' fees and expenses 4,484 1,867
Other expenses 304 78
------------ ------------
1,891,770 776,961
------------ ------------
Amount waived (6,097) (69,956)
------------ ------------
1,885,673 707,005
------------ ------------
NET INVESTMENT INCOME (LOSS) (205,937) (394,903)
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment
transactions 20,994,253 7,363,154
Change in net unrealized appreciation
(depreciation) on investments 26,844,008 1,941,390
------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) 47,838,261 9,304,544
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $47,632,324 $8,909,641
============ ============
See Notes to Financial Statements.
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21
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 2007, SEVEN MONTHS ENDED OCTOBER 31, 2006 AND YEAR ENDED
MARCH 31, 2006, RESPECTIVELY
Mid Cap Growth
Increase (Decrease) Oct. 31,
in Net Assets Oct. 31, 2007 2006(1) March 31, 2006
OPERATIONS
Net investment income (loss) $ (205,937) $ (151,370) $ (221,194)
Net realized gain (loss) 20,994,253 (1,066,890) 22,217,148
Change in net unrealized
appreciation (depreciation) 26,844,008 (13,246,729) 12,871,022
------------ ------------ ------------
Net increase (decrease)
in net assets resulting
from operations 47,632,324 (14,464,989) 34,866,976
------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains:
Investor Class (17,063) -- --
Institutional Class (7,634,579) -- --
A Class (1,979,362) -- (15,783,919)
B Class (373,134) -- (836,858)
C Class (7,699) -- (88,602)
R Class (1,280) -- --
------------ ------------ ------------
Decrease in net assets
from distributions (10,013,117) -- (16,709,379)
------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease)
in net assets from capital share
transactions (3,715,693) (5,875,318) 11,335,375
------------ ------------ ------------
NET INCREASE (DECREASE)
IN NET ASSETS 33,903,514 (20,340,307) 29,492,972
NET ASSETS
Beginning of period 182,721,502 203,061,809 173,568,837
------------ ------------ ------------
End of period $216,625,016 $182,721,502 $203,061,809
============ ============ ============
(1) The fund's fiscal year end was changed from March 31 to October 31,
resulting in a seven-month annual reporting period (see Note 8).
See Notes to Financial Statements.
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22
YEAR ENDED OCTOBER 31, 2007, SEVEN MONTHS ENDED OCTOBER 31, 2006 AND YEAR ENDED
MARCH 31, 2006, RESPECTIVELY
Small Cap Growth
Increase (Decrease)
in Net Assets Oct. 31, 2007 Oct. 31, 2006(1) March 31, 2006
OPERATIONS
Net investment income (loss) $ (394,903) $ (312,375) $ (501,929)
Net realized gain (loss) 7,363,154 (1,240,039) 6,012,587
Change in net unrealized
appreciation (depreciation) 1,941,390 (2,149,976) 5,599,924
------------ ------------ ------------
Net increase (decrease)
in net assets resulting
from operations 8,909,641 (3,702,390) 11,110,582
------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains:
Investor Class (34,247) -- --
Institutional Class (100,277) -- --
A Class (2,404,950) -- (4,765,611)
B Class (410,373) -- (758,743)
C Class (7,151) -- (150,496)
R Class (1,413) -- --
------------ ------------ ------------
Decrease in net assets
from distributions (2,958,411) -- (5,674,850)
------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease)
in net assets from capital share
transactions (10,361,918) (10,809,168) 17,960,189
------------ ------------ ------------
NET INCREASE (DECREASE)
IN NET ASSETS (4,410,688) (14,511,558) 23,395,921
NET ASSETS
Beginning of period 50,576,520 65,088,078 41,692,157
------------ ------------ ------------
End of period $46,165,832 $50,576,520 $65,088,078
============ ============ ============
(1) The fund's fiscal year end was changed from March 31 to October 31,
resulting in a seven-month annual reporting period (see Note 8).
See Notes to Financial Statements.
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23
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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. American Century-Mason Street Mid Cap
Growth Fund (Mid Cap Growth) and American Century-Mason Street Small Cap
Growth Fund (Small Cap Growth) (the funds) are two funds in a series issued by
the corporation (see Note 8). The funds are diversified under the 1940 Act.
The funds' investment objective is to seek long-term capital growth. Mid Cap
Growth invests primarily in stocks of mid-sized companies. Small Cap Growth
invests primarily in stocks of smaller market capitalization companies. The
following is a summary of the funds' significant accounting policies.
MULTIPLE CLASS -- The funds are authorized to issue the Investor Class, the
Institutional Class, the A Class, the B Class, the C Class and the R Class.
The A Class may incur an initial sales charge. The A Class, B Class and C
Class may be subject to a contingent deferred sales charge. The share classes
differ principally in their respective sales charges and distribution and
shareholder servicing expenses and arrangements. 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 funds' Investor Class, Institutional Class, C
Class and R Class commenced on April 3, 2006.
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. Debt securities maturing within
60 days may be valued at cost, plus or minus any amortization discount or
premium. Discount notes may be valued through a commercial pricing service or
at amortized cost, which approximates fair value. Securities traded on foreign
securities exchanges and over-the-counter markets are normally completed
before the close of business on days that the New York Stock Exchange (the
Exchange) is open and may also take place on days when the Exchange is not
open. If an event occurs after the value of a security was established but
before the net asset value per share was determined that was likely to
materially change the net asset value, that security would be valued as
determined in accordance with procedures adopted by the Board of Directors. If
the funds determine that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not
reflect the security's fair value, such security is valued as determined by,
or in accordance with procedures adopted by, the Board of Directors or its
designee if such determination would materially impact a fund's net asset
value. Certain other circumstances may cause the funds to use alternative
procedures to value a security such as: a security has been declared in
default; trading in a security has been halted during the trading day; or
there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, 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.
- ------
24
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of 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 or American
Century Global Investment Management, Inc. (ACGIM), 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. The funds are no longer subject to examination by tax
authorities for years prior to 2004. At this time, management has not
identified any uncertain tax positions that would materially impact the
financial statements. Accordingly, no provision has been made for federal or
state income taxes. Interest and penalties associated with any federal or
state income tax obligations, if any, are recorded as interest expense.
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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the funds. In addition, in the normal
course of business, the funds enter into contracts that provide general
indemnifications. The funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the
funds. The risk of material loss from such claims is considered by management
to be remote.
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 advisor'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 advisor 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 Mid Cap Growth ranges from 1.00% to 1.05%
for the Investor Class, A Class, B Class, C Class and R Class. The annual
management fee schedule for Small Cap Growth ranges from 1.10% to 1.30% for
the Investor Class, A Class, B Class, C Class and R Class. The Institutional
Class is 0.20% less at each point within the range.
- ------
25
The effective annual management fee for each class of each fund for the year
ended October 31, 2007, was as follows:
Investor, A, B, C & R Institutional
Mid Cap Growth 1.05% 0.85%
Small Cap Growth 1.30% 1.10%
ACIM has entered into a Subadvisory Agreement with Mason Street Advisors LLC
(the subadvisor) on behalf of the funds. The subadvisor makes investment
decisions for the funds in accordance with the funds' investment objectives,
policies, and restrictions under the supervision of ACIM and the Board of
Directors. ACIM pays all costs associated with retaining Mason Street as the
subadvisor of the funds.
DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a separate
Master Distribution and Individual Shareholder Services Plan for each of the A
Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule
12b-1 of the 1940 Act. The plans provide that the A Class and the R Class each
will pay American Century Investment Services, Inc. (ACIS) an annual
distribution and service fee of 0.25% for the A Class and 0.50% for the R
Class. The plans provide that the B Class and C Class each will pay ACIS an
annual distribution fee and service fee of 0.75% and 0.25%, respectively. 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 individual shareholder
services rendered by broker/dealers or other independent financial
intermediaries for A Class, B Class, C Class and R Class shares. ACIS has
agreed to voluntarily waive a portion of its distribution and service fees
through March 31, 2008, by 0.10% for the B Class of Mid Cap Growth and by
0.15% and 0.25% for the A Class and B Class of Small Cap Growth, respectively.
The total amount of the waivers for the year ended October 31, 2007, was as
follows:
A B
Mid Cap Growth -- $6,097
Small Cap Growth $54,127 $15,829
Fees incurred under the plans during the year ended October 31, 2007, 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 advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
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
JPMorgan Chase & Co. (JPM). JPM is an equity investor in ACC.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year ended
October 31, 2007, were as follows:
Mid Cap Growth Small Cap Growth
Purchases $140,018,818 $53,448,036
Proceeds from sales $145,410,619 $64,719,337
- ------
26
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows (see Note 8):
Period ended Oct. 31,
Year ended Oct. 31, 2007 2006(1) Year ended March 31, 2006
Shares Amount Shares Amount Shares Amount
Mid Cap Growth
INVESTOR CLASS/
SHARES AUTHORIZED 55,000,000 55,000,000 N/A
============ ============ ============
Sold 53,696 $ 861,276 22,633 $ 312,114
Issued in
reinvestment of
distributions 1,253 17,063 -- --
Redeemed (10,923) (161,735) -- --
------------ ------------ ------------ -------------
44,026 716,604 22,633 312,114
------------ ------------ ------------ -------------
INSTITUTIONAL CLASS/
SHARES AUTHORIZED 50,000,000 50,000,000 N/A
============ ============ ============
Sold -- -- 10,089,307 149,766,470
Issued in
reinvestment of
distributions 559,720 7,634,579 -- --
------------ ------------ ------------ -------------
559,720 7,634,579 10,089,307 149,766,470
------------ ------------ ------------ -------------
A CLASS/
SHARES AUTHORIZED 20,000,000 20,000,000 149,148,534
============ ============ ============
Sold 356,472 5,183,353 321,113 4,524,423 628,722 $ 8,754,617
Issued in
reinvestment of
distributions 141,971 1,929,392 -- -- 1,142,004 15,702,632
Redeemed (1,221,667) (17,603,091) (10,741,497) (158,865,810) (835,676) (11,797,915)
------------ ------------ ------------ ------------- ------------ ------------
(723,224) (10,490,346) (10,420,384) (154,341,387) 935,050 12,659,334
------------ ------------ ------------ ------------- ------------ ------------
B CLASS/
SHARES AUTHORIZED 10,000,000 10,000,000 75,851,466
============ ============ ============
Sold 36,843 481,205 20,103 266,124 82,194 1,102,818
Issued in
reinvestment of
distributions 29,049 368,634 -- -- 64,131 831,774
Redeemed (190,268) (2,543,506) (152,890) (2,005,925) (264,539) (3,535,355)
------------ ------------ ------------ ------------- ------------ ------------
(124,376) (1,693,667) (132,787) (1,739,801) (118,214) (1,600,763)
------------ ------------ ------------ ------------- ------------ ------------
C CLASS/
SHARES AUTHORIZED 10,000,000 10,000,000 N/A
============ ============ ============
Sold 6,298 91,015 7,323 102,286
Issued in
reinvestment of
distributions 365 4,935 -- --
Redeemed (3,551) (49,016) -- --
------------ ------------ ------------ -------------
3,112 46,934 7,323 102,286
------------ ------------ ------------ -------------
C CLASS -- ACQUIRED
FUND (SEE NOTE 8)/
SHARES AUTHORIZED N/A N/A 75,000,000
============ ============ ============
Sold 25,969 344,127
Issued in
reinvestment of
distributions 6,748 87,593
Redeemed (11,732) (154,916)
------------ ------------
20,985 276,804
------------ ------------
R CLASS/
SHARES AUTHORIZED 10,000,000 10,000,000 N/A
============ ============ ============
Sold 6,832 95,371 1,691 25,000
Issued in
reinvestment of
distributions 94 1,280 -- --
Redeemed (1,786) (26,448) -- --
------------ ------------ ------------ -------------
5,140 70,203 1,691 25,000
------------ ------------ ------------ ------------- ------------ ------------
Net increase
(decrease) (235,602) $(3,715,693) (432,217) $ (5,875,318) 837,821 $ 11,335,375
============ ============ ============ ============= ============ ============
(1) April 3, 2006 (commencement of sale) through October 31, 2006 for Investor
Class, Institutional Class, C Class and R Class. April 1, 2006 through October
31, 2006 for A Class and B Class. The fund's fiscal year end was changed from
March 31 to October 31, resulting in a seven-month annual reporting period
(see Note 8).
- ------
27
Period ended Oct. 31,
Year ended Oct. 31, 2007 2006(1) Year ended March 31, 2006
Shares Amount Shares Amount Shares Amount
Small Cap Growth
INVESTOR CLASS/
SHARES AUTHORIZED 55,000,000 55,000,000 N/A
============ ============ ============
Sold 24,900 $ 414,030 36,767 $ 575,594
Issued in
reinvestment of
distributions 2,202 34,247 -- --
Redeemed (8,573) (138,996) (141) (2,124)
------------ ------------- ------------ -------------
18,529 309,281 36,626 573,470
------------ ------------- ------------ -------------
INSTITUTIONAL CLASS/
SHARES AUTHORIZED 50,000,000 50,000,000 N/A
============ ============ ============
Sold 432,499 6,911,741 73,638 1,177,466
Issued in
reinvestment of
distributions 2,388 37,213 -- --
Redeemed (58,457) (946,327) (970) (15,697)
------------ ------------- ------------ -------------
376,430 6,002,627 72,668 1,161,769
------------ ------------- ------------ -------------
A CLASS/
SHARES AUTHORIZED 20,000,000 20,000,000 149,635,857
============ ============ ============
Sold 278,465 4,485,744 487,111 7,946,087 1,409,502 $ 23,405,269
Issued in
reinvestment of
distributions 145,027 2,253,726 -- -- 288,264 4,537,275
Redeemed (1,360,627) (22,092,686) (1,219,827) (19,780,091) (674,623) (11,197,022)
------------ ------------- ------------ ------------- ------------ ------------
(937,135) (15,353,216) (732,716) (11,834,004) 1,023,143 16,745,522
------------ ------------- ------------ ------------- ------------ ------------
B CLASS/
SHARES AUTHORIZED 10,000,000 10,000,000 75,364,143
============ ============ ============
Sold 19,279 290,474 13,209 204,876 64,896 1,034,592
Issued in
reinvestment of
distributions 26,709 395,563 -- -- 48,853 739,630
Redeemed (134,473) (2,051,933) (70,902) (1,058,789) (78,509) (1,249,817)
------------ ------------- ------------ ------------- ------------ ------------
(88,485) (1,365,896) (57,693) (853,913) 35,240 524,405
------------ ------------- ------------ ------------- ------------ ------------
C CLASS/
SHARES AUTHORIZED 10,000,000 10,000,000 N/A
============ ============ ============
Sold 3,989 62,568 7,382 118,510
Issued in
reinvestment of
distributions 447 6,897 -- --
Redeemed (2,361) (37,369) -- --
------------ ------------- ------------ -------------
2,075 32,096 7,382 118,510
------------ ------------- ------------ -------------
C CLASS -- ACQUIRED
FUND (SEE NOTE 8)/
SHARES AUTHORIZED N/A N/A 75,000,000
============ ============ ============
Sold 41,416 664,850
Issued in
reinvestment of
distributions 9,618 145,522
Redeemed (7,626) (120,110)
------------ ------------
43,408 690,262
------------ ------------
R CLASS/
SHARES AUTHORIZED 10,000,000 10,000,000 N/A
============ ============ ============
Sold 816 12,595 1,483 25,000
Issued in
reinvestment of
distributions 91 1,413 -- --
Redeemed (50) (818) -- --
------------ ------------- ------------ -------------
857 13,190 1,483 25,000
------------ ------------- ------------ ------------- ------------ ------------
Net increase
(decrease) (627,729) $(10,361,918) (672,250) $(10,809,168) 1,101,791 $ 17,960,189
============ ============= ============ ============= ============ ============
(1) April 3, 2006 (commencement of sale) through October 31, 2006 for Investor
Class, Institutional Class, C Class and R Class. April 1, 2006 through October
31, 2006 for A Class and B Class. The fund's fiscal year end was changed from
March 31 to October 31, resulting in a seven-month annual reporting period
(see Note 8).
- ------
28
5. BANK LINE OF CREDIT
Effective December 13, 2006, the funds, along with certain other funds managed
by ACIM or ACGIM, have a $500,000,000 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 0.40%. The funds did not borrow from the line
during the year ended October 31, 2007.
6. RISK FACTORS
Small Cap Growth concentrates its investments in common stocks of small
companies. Because of this, Small Cap Growth may be subject to greater risk
and market fluctuations than a fund investing in larger, more established
companies.
Small Cap Growth's performance may be affected by investments in initial
public offerings (IPOs). The impact of IPOs on a fund's performance depends on
the strength of the IPO market and the size of the fund. IPOs may have less
impact on a fund's performance as its assets grow.
7. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended October 31,
2007, the seven months ended October 31, 2006 and the year ended March 31,
2006, were as follows:
Mid Cap Growth Small Cap Growth
Oct. 31, Oct. 31, March 31, Oct. 31, Oct. 31, March 31,
2007 2006(1) 2006 2007 2006(1) 2006
DISTRIBUTIONS PAID FROM
Ordinary
income $2,254,837 -- -- -- -- $918,544
Long-term
capital
gains $7,758,280 -- $16,709,379 $2,958,411 -- $4,756,306
(1) April 1, 2006 through October 31, 2006. The funds' fiscal year end was
changed from March 31 to October 31 resulting in a seven-month annual
reporting period.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
As of October 31, 2007, the components of distributable earnings on a
tax-basis and the federal tax cost of investments were as follows:
Mid Cap Growth Small Cap Growth
Federal tax cost of investments $166,316,913 $36,952,048
============= ============
Gross tax appreciation of investments $55,124,085 $10,961,839
Gross tax depreciation of investments (5,144,892) (1,195,376)
------------- ------------
Net tax appreciation (depreciation) of
investments $49,979,193 $ 9,766,463
============= ============
Undistributed ordinary income $3,785,647 $121,177
Accumulated long-term gains $15,661,558 $5,616,130
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 futures contracts.
- ------
29
8. REORGANIZATION PLAN
As of the close of business on March 31, 2006, Mid Cap Growth and Small Cap
Growth acquired all of the net assets of two funds issued by Mason Street
Funds, Inc., Mason Street Aggressive Growth Stock Fund (Aggressive Growth
Stock) and Mason Street Small Cap Growth Stock Fund (Small Cap Growth Stock),
respectively, pursuant to a plan of reorganization approved by the acquired
funds' shareholders on March 15, 2006 for Aggressive Growth Stock and March
23, 2006 for Small Cap Growth Stock. The surviving funds for the purposes of
maintaining the financial statements and performance history in the
post-reorganization are Aggressive Growth Stock and Small Cap Growth Stock.
These funds were also reorganized as funds issued by American Century Mutual
Funds, Inc. The funds' fiscal year end was changed from March 31 to October
31.
Prior to the reorganization, Aggressive Growth Stock and Small Cap Growth
Stock had A Class, B Class and C Class shares. At the close of business and as
a result of the reorganization, A Class shares and B Class shares of the
acquired funds were converted to A Class shares and B Class shares,
respectively, of the surviving funds. C Class shares of the acquired funds
were converted to A Class shares of the surviving funds.
A Class, B Class and C Class net assets of Aggressive Growth Stock before the
reorganization were $193,018,755, $9,032,496 and $1,010,558, respectively.
Immediately after the reorganization, A Class, B Class and C Class net assets
of Mid Cap Growth were $194,029,313, $9,032,496 and $-, respectively.
A Class, B Class and C Class net assets of Small Cap Growth Stock before the
reorganization were $55,084,794, $8,283,664 and $1,719,620, respectively.
Immediately after the reorganization, A Class, B Class and C Class net assets
of Small Cap Growth were $56,804,414, $8,283,664 and $-, respectively.
9. OTHER TAX INFORMATION (UNAUDITED)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
Mid Cap Growth hereby designates up to the maximum amount allowable as
qualified dividend income for the fiscal year ended October 31, 2007.
Mid Cap Growth and Small Cap Growth hereby designate $7,758,280 and $2,958,411
of capital gain distributions, respectively, for the fiscal year ended October
31, 2007.
For corporate taxpayers, ordinary income distributions paid during the fiscal
year ended October 31, 2007, of $487,229 for Mid Cap Growth qualify for the
corporate dividends received deduction.
Mid Cap Growth designates $2,254,837 of distributions as qualified short-term
capital gains for purposes of Internal Revenue Code Section 871.
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
- ------
30
FINANCIAL HIGHLIGHTS
Mid Cap Growth
Investor Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $13.76 $14.78
-------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.03) (0.01)
Net Realized and Unrealized Gain (Loss) 3.61 (1.01)
-------- --------
Total From Investment Operations 3.58 (1.02)
-------- --------
Distributions
From Net Realized Gains (0.76) --
-------- --------
Net Asset Value, End of Period $16.58 $13.76
======== ========
TOTAL RETURN(3) 27.19% (6.90)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.05% 1.05%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.19)% (0.19)%(4)
Portfolio Turnover Rate 77% 52%
Net Assets, End of Period (in thousands) $1,105 $311
(1) April 3, 2006 (commencement of sale) through October 31, 2006.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
31
Mid Cap Growth
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $13.78 $14.78
-------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) --(3) --(3)
Net Realized and Unrealized Gain (Loss) 3.61 (1.00)
-------- --------
Total From Investment Operations 3.61 (1.00)
-------- --------
Distributions
From Net Realized Gains (0.76) --
-------- --------
Net Asset Value, End of Period $16.63 $13.78
======== ========
TOTAL RETURN(4) 27.38% (6.77)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 0.85% 0.85%(5)
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.01% 0.01%(5)
Portfolio Turnover Rate 77% 52%
Net Assets, End of Period (in thousands) $177,128 $138,986
(1) April 3, 2006 (commencement of sale) through October 31, 2006.
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
See Notes to Financial Statements.
- ------
32
Mid Cap Growth
A Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1) 2006 2005 2004 2003
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $13.74 $14.83 $13.50 $12.78 $9.83 $12.93
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) (0.06) (0.04) (0.01) (0.10) (0.09) (0.09)
Net Realized
and
Unrealized
Gain (Loss) 3.59 (1.05) 2.65 0.82 3.04 (3.01)
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 3.53 (1.09) 2.64 0.72 2.95 (3.10)
-------- -------- -------- -------- -------- --------
Distributions
From Net
Realized
Gains (0.76) -- (1.31) -- -- --
-------- -------- -------- -------- -------- --------
Net Asset
Value,
End of Period $16.51 $13.74 $14.83 $13.50 $12.78 $9.83
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 26.85% (7.35)% 20.28% 5.63% 30.01% (23.98)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.30% 1.30%(4) 1.29% 1.30%(5) 1.30%(5) 1.30%(5)
Ratio of
Operating
Expenses to
Average Net
Assets (Before
Expense Waiver) 1.30% 1.30%(4) 1.29% 1.36% 1.40% 1.55%
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets (0.44)% (0.44)%(4) (0.08)% (0.79)%(5) (0.74)%(5) (0.86)%(5)
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets
(Before Expense
Waiver) (0.44)% (0.44)%(4) (0.08)% (0.85)% (0.84)% (1.11)%
Portfolio
Turnover Rate 77% 52% 89% 70% 72% 35%
Net Assets, End
of Period
(in thousands) $32,134 $36,675 $193,019 $163,069 $148,862 $105,728
(1) April 1, 2006 through October 31, 2006. The fund's fiscal year end was
changed from March 31 to October 31, resulting in a seven-month annual
reporting period. For the years before October 31, 2006, the fund's fiscal
year end was March 31.
(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) The investment advisor voluntarily agreed to waive fees and absorb certain
operating expenses.
See Notes to Financial Statements.
- ------
33
Mid Cap Growth
B Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1) 2006 2005 2004 2003
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $12.89 $13.96 $12.86 $12.25 $9.49 $12.55
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) (0.15) (0.08) (0.10) (0.18) (0.16) (0.16)
Net Realized
and
Unrealized
Gain (Loss) 3.35 (0.99) 2.51 0.79 2.92 (2.90)
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 3.20 (1.07) 2.41 0.61 2.76 (3.06)
-------- -------- -------- -------- -------- --------
Distributions
From Net
Realized
Gains (0.76) -- (1.31) -- -- --
-------- -------- -------- -------- -------- --------
Net Asset
Value,
End of Period $15.33 $12.89 $13.96 $12.86 $12.25 $9.49
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 26.02% (7.66)% 19.48% 4.98% 29.08% (24.38)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.95%(4) 1.95%(4)(5) 1.95%(6) 1.95%(6) 1.95%(6) 1.95%(6)
Ratio of
Operating
Expenses to
Average Net
Assets
(Before Expense
Waiver) 2.05% 2.05%(5) 2.02% 2.04% 2.05% 2.20%
Ratio of Net
Investment
Income (Loss)
to
Average Net
Assets (1.09)%(4) (1.09)%(4)(5) (0.78)%(6) (1.44)%(6) (1.40)%(6) (1.52)%(6)
Ratio of Net
Investment
Income (Loss)
to
Average Net
Assets
(Before Expense
Waiver) (1.19)% (1.19)%(5) (0.85)% (1.53)% (1.50)% (1.77)%
Portfolio
Turnover Rate 77% 52% 89% 70% 72% 35%
Net Assets, End
of Period
(in thousands) $5,975 $6,626 $9,032 $9,839 $10,128 $7,978
(1) April 1, 2006 through October 31, 2006. The fund's fiscal year end was
changed from March 31 to October 31, resulting in a seven-month annual
reporting period. For the years before October 31, 2006, the fund's fiscal
year end was March 31.
(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) Effective April 1, 2006, the distributor voluntarily waived a portion of
its distribution and service fees.
(5) Annualized.
(6) The investment advisor voluntarily agreed to waive fees and absorb certain
operating expenses.
See Notes to Financial Statements.
- ------
34
Mid Cap Growth
C Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $13.68 $14.78
-------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.17) (0.10)
Net Realized and Unrealized Gain (Loss) 3.56 (1.00)
-------- --------
Total From Investment Operations 3.39 (1.10)
-------- --------
Distributions
From Net Realized Gains (0.76) --
-------- --------
Net Asset Value, End of Period $16.31 $13.68
======== ========
TOTAL RETURN(3) 25.90% (7.44)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 2.05% 2.05%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.19)% (1.19)%(4)
Portfolio Turnover Rate 77% 52%
Net Assets, End of Period (in thousands) $170 $100
(1) April 3, 2006 (commencement of sale) through October 31, 2006.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, 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.
- ------
35
Mid Cap Growth
R Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $13.72 $14.78
-------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.10) (0.06)
Net Realized and Unrealized Gain (Loss) 3.58 (1.00)
-------- --------
Total From Investment Operations 3.48 (1.06)
-------- --------
Distributions
From Net Realized Gains (0.76) --
-------- --------
Net Asset Value, End of Period $16.44 $13.72
======== ========
TOTAL RETURN(3) 26.51% (7.17)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.55% 1.55%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.69)% (0.69)%(4)
Portfolio Turnover Rate 77% 52%
Net Assets, End of Period (in thousands) $112 $23
(1) April 3, 2006 (commencement of sale) through October 31, 2006.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
36
Small Cap Growth
Investor Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $16.03 $16.86
-------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.11) (0.06)
Net Realized and Unrealized Gain (Loss) 3.29 (0.77)
-------- --------
Total From Investment Operations 3.18 (0.83)
-------- --------
Distributions
From Net Realized Gains (0.95) --
-------- --------
Net Asset Value, End of Period $18.26 $16.03
======== ========
TOTAL RETURN(3) 20.93% (4.92)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.30% 1.30%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.66)% (0.80)%(4)
Portfolio Turnover Rate 119% 42%
Net Assets, End of Period (in thousands) $1,007 $587
(1) April 3, 2006 (commencement of sale) through October 31, 2006.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
37
Small Cap Growth
Institutional Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $16.05 $16.86
-------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.08) (0.05)
Net Realized and Unrealized Gain (Loss) 3.31 (0.76)
-------- --------
Total From Investment Operations 3.23 (0.81)
-------- --------
Distributions
From Net Realized Gains (0.95) --
-------- --------
Net Asset Value, End of Period $18.33 $16.05
======== ========
TOTAL RETURN(3) 21.16% (4.80)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.10% 1.10%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.46)% (0.60)%(4)
Portfolio Turnover Rate 119% 42%
Net Assets, End of Period (in thousands) $8,230 $1,166
(1) April 3, 2006 (commencement of sale) through October 31, 2006.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
38
Small Cap Growth
A Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1) 2006 2005 2004 2003
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $16.02 $17.02 $15.27 $14.38 $10.11 $13.38
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) (0.12) (0.08) (0.14) (0.15) (0.15) (0.12)
Net Realized
and
Unrealized
Gain (Loss) 3.28 (0.92) 3.53 1.75 4.42 (3.15)
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 3.16 (1.00) 3.39 1.60 4.27 (3.27)
-------- -------- -------- -------- -------- --------
Distributions
From Net
Realized
Gains (0.95) -- (1.64) (0.71) -- --
-------- -------- -------- -------- -------- --------
Net Asset
Value,
End of Period $18.23 $16.02 $17.02 $15.27 $14.38 $10.11
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 20.75% (5.88)% 23.08% 10.99% 42.24% (24.44)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.40%(4) 1.40%(4)(5) 1.40%(6) 1.40%(6) 1.40%(6) 1.40%(6)
Ratio of
Operating
Expenses to
Average Net
Assets
(Before Expense
Waiver) 1.55% 1.55%(5) 1.86% 2.03% 2.21% 2.29%
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets (0.76)%(4) (0.90)%(4)(5) (0.82)%(6) (1.05)%(6) (1.16)%(6) (1.10)%(6)
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets
(Before Expense
Waiver) (0.91)% (1.05)%(5) (1.28)% (1.68)% (1.97)% (1.99)%
Portfolio
Turnover Rate 119% 42% 81% 86% 98% 49%
Net Assets, End
of Period
(in thousands) $30,483 $41,798 $55,085 $33,791 $23,914 $14,623
(1) April 1, 2006 through October 31, 2006. The fund's fiscal year end was
changed from March 31 to October 31, resulting in a seven-month annual
reporting period. For the years before October 31, 2006, the fund's fiscal
year end was March 31.
(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) Effective April 1, 2006, the distributor voluntarily waived a portion of
its distribution and service fees.
(5) Annualized.
(6) The investment advisor voluntarily agreed to waive fees and absorb certain
operating expenses.
See Notes to Financial Statements.
- ------
39
Small Cap Growth
B Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1) 2006 2005 2004 2003
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $15.32 $16.34 $14.81 $14.06 $9.95 $13.25
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) (0.22) (0.14) (0.24) (0.24) (0.23) (0.19)
Net Realized
and
Unrealized
Gain (Loss) 3.13 (0.88) 3.41 1.70 4.34 (3.11)
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 2.91 (1.02) 3.17 1.46 4.11 (3.30)
-------- -------- -------- -------- -------- --------
Distributions
From Net
Realized
Gains (0.95) -- (1.64) (0.71) -- --
-------- -------- -------- -------- -------- --------
Net Asset
Value,
End of Period $17.28 $15.32 $16.34 $14.81 $14.06 $9.95
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 20.02% (6.24)% 22.29% 10.23% 41.31% (24.91)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 2.05%(4) 2.05%(4)(5) 2.05%(6) 2.05%(6) 2.05%(6) 2.05%(6)
Ratio of
Operating
Expenses to
Average Net
Assets
(Before Expense
Waiver) 2.30% 2.30%(5) 2.51% 2.68% 2.86% 2.94%
Ratio of Net
Investment
Income (Loss)
to
Average Net
Assets (1.41)%(4) (1.55)%(4)(5) (1.48)%(6) (1.70)%(6) (1.81)%(6) (1.74)%(6)
Ratio of Net
Investment
Income (Loss)
to
Average Net
Assets
(Before Expense
Waiver) (1.66)% (1.80)%(5) (1.94)% (2.33)% (2.62)% (2.63)%
Portfolio
Turnover Rate 119% 42% 81% 86% 98% 49%
Net Assets, End
of Period
(in thousands) $6,233 $6,884 $8,284 $6,986 $6,066 $3,674
(1) April 1, 2006 through October 31, 2006. The fund's fiscal year end was
changed from March 31 to October 31, resulting in a seven-month annual
reporting period. For the years before October 31, 2006, the fund's fiscal
year end was March 31.
(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) Effective April 1, 2006, the distributor voluntarily waived a portion of
its distribution and service fees.
(5) Annualized.
(6) The investment advisor voluntarily agreed to waive fees and absorb certain
operating expenses.
See Notes to Financial Statements.
- ------
40
Small Cap Growth
C Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $15.94 $16.86
-------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.27) (0.16)
Net Realized and Unrealized Gain (Loss) 3.25 (0.76)
-------- --------
Total From Investment Operations 2.98 (0.92)
-------- --------
Distributions
From Net Realized Gains (0.95) --
-------- --------
Net Asset Value, End of Period $17.97 $15.94
======== ========
TOTAL RETURN(3) 19.67% (5.46)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 2.30% 2.30%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.66)% (1.80)%(4)
Portfolio Turnover Rate 119% 42%
Net Assets, End of Period (in thousands) $170 $118
(1) April 3, 2006 (commencement of sale) through October 31, 2006.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, 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.
- ------
41
Small Cap Growth
R Class
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
2007 2006(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $15.98 $16.86
-------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) (0.19) (0.12)
Net Realized and Unrealized Gain (Loss) 3.28 (0.76)
-------- --------
Total From Investment Operations 3.09 (0.88)
-------- --------
Distributions
From Net Realized Gains (0.95) --
-------- --------
Net Asset Value, End of Period $18.12 $15.98
======== ========
TOTAL RETURN(3) 20.34% (5.22)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.80% 1.80%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.16)% (1.30)%(4)
Portfolio Turnover Rate 119% 42%
Net Assets, End of Period (in thousands) $42 $24
(1) April 3, 2006 (commencement of sale) through October 31, 2006.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
42
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 American Century-Mason Street Mid
Cap Growth Fund and American Century-Mason Street Small Cap Growth Fund (the
"Funds"), two of the mutual funds comprising American Century Mutual Funds,
Inc., as of October 31, 2007, and the related statements of operations for the
year then ended, the statements of changes in net assets for the year then
ended and the seven month period ended October 31, 2006, and the financial
highlights for the periods presented (except as noted below). 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. The financial
statements and financial highlights for each of the periods ended March 31,
2006 and prior were audited by other auditors whose report, dated May 1, 2006,
expressed an unqualified opinion on those financial statements and financial
highlights.
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. The Funds are not required to have, nor were we engaged to
perform, an audit of their internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities owned as of
October 31, 2007, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing
procedures. 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 each
of the respective Funds as of October 31, 2007, the results of their
operations for the year then ended, the changes in their net assets for the
year then ended and the seven month period ended October 31, 2006, and the
financial highlights for the periods presented (except as noted above in
reference to the report of other auditors), in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 12, 2007
- ------
43
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007, to vote on the
following proposal. The proposal received the required number of votes of the
American Century Mutual Funds, Inc. and was adopted. A summary of voting
results is listed below the proposal.
PROPOSAL:
To elect nine Directors to the Board of Directors of American Century Mutual
Funds, Inc. (the proposal was voted on by all shareholders of funds issued by
American Century Mutual Funds, Inc.).
James E. Stowers, Jr. For: 15,577,264,186
Withhold: 426,100,888
Abstain: 0
Broker Non-Vote: 0
Jonathan S. Thomas For: 15,599,601,708
Withhold: 403,763,366
Abstain: 0
Broker Non-Vote: 0
Thomas A. Brown For: 15,605,490,524
Withhold: 397,874,550
Abstain: 0
Broker Non-Vote: 0
Andrea C. Hall For: 15,604,361,764
Withhold: 399,003,310
Abstain: 0
Broker Non-Vote: 0
James A. Olson For: 15,597,252,094
Withhold: 406,112,980
Abstain: 0
Broker Non-Vote: 0
Donald H. Pratt For: 15,588,035,002
Withhold: 415,330,072
Abstain: 0
Broker Non-Vote: 0
Gale E. Sayers For: 15,602,023,622
Withhold: 401,341,452
Abstain: 0
Broker Non-Vote: 0
M. Jeannine Strandjord For: 15,588,213,409
Withhold: 415,151,665
Abstain: 0
Broker Non-Vote: 0
Timothy S. Webster For: 15,609,206,162
Withhold: 394,158,912
Abstain: 0
Broker Non-Vote: 0
- ------
44
MANAGEMENT
The individuals listed below serve as directors or officers of the funds. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue
of their engagement as directors and/or officers of, or ownership interest in,
American Century Companies, Inc. (ACC) or its wholly owned, direct or
indirect, subsidiaries, including the funds' investment advisor, American
Century Investment Management, Inc. (ACIM); the funds' principal underwriter,
American Century Investment Services, Inc. (ACIS); and the funds' transfer
agent, American Century Services, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers
of, and have no financial interest in, ACC or any of its wholly owned, direct
or indirect, subsidiaries, including ACIM, ACIS, and ACS. The directors serve
in this capacity for seven registered investment companies in the American
Century family of funds.
All persons named as officers of the funds also serve in similar capacities
for the other 14 investment companies in the American Century family of funds
advised by ACIM or American Century Global Investment Management, Inc.
(ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated
for his or her service as an officer of the funds. The listed officers are
interested persons of the funds and are appointed or re-appointed on an annual
basis.
INTERESTED DIRECTORS
JAMES E. STOWERS, JR., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUNDS: Director (since 1958) and Vice Chairman (since
2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Co-Chairman, Director
and Controlling Shareholder, ACC; Co-Vice Chairman, ACC (January 2005 to
February 2007); Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUNDS: Director (since 2007) and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM,
ACGIM, ACIS and other ACC subsidiaries; Managing Director, Morgan Stanley
(March 2000 to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 105
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- ------
45
INDEPENDENT DIRECTORS
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUNDS: Director (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Member, Associated
Investments, LLC (real estate investment company); Managing Member, Brown
Cascade Properties, LLC (real estate investment company); Retired, Area Vice
President, Applied Industrial Technologies
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director (since 1997)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Advisor to the
President, Midwest Research Institute
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUNDS: Director (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member, Plaza Belmont LLC; Chief
Financial Officer, Plaza Belmont LLC (September 1999 to September 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, Saia, Inc. and Entertainment
Properties Trust
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUNDS: Director (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman and Chief Executive
Officer, Western Investments, Inc.; Retired Chairman of the Board, Butler
Manufacturing Company
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUNDS: Director (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive
Officer and Founder, Sayers40, Inc., a technology products and services
provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director (since 1994)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, Sprint Corporation
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST Systems, Inc.; Director,
Euronet Worldwide, Inc.; Director, Charming Shoppes, Inc.
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUNDS: Director (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Managing Director, TDB
Acquisition Group LLC (September 2006 to present); President and Chief
Executive Officer, American Italian Pasta Company (2001 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
- ------
46
OFFICERS
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUNDS: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice
President, ACS
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUNDS: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to
present); Vice President, ACC (November 2005 to present); General Counsel, ACC
(March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUNDS: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February
2000 to present) and Controller, various American Century funds (1997 to
September 2006)
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUNDS: Tax Officer (since 1998)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
The SAI has additional information about the funds' directors and is available
without charge, upon request, by calling 1-800-345-2021.
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47
APPROVAL OF MANAGEMENT AGREEMENTS
Mid Cap Growth and Small Cap Growth
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning American Century-Mason Street Mid Cap
Growth and American Century-Mason Street Small Cap Growth (the "funds") and
the services provided to the funds under the management agreements. The
information considered and the discussions held at the meetings included, but
were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the funds under the management
agreements;
* reports on the advisor's activities relating to the wide range of programs
and services the advisor provides to the funds and its shareholders on a
routine and non-routine basis;
* data comparing the cost of owning the funds to the cost of owning similar
funds;
* data comparing the funds' performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the funds to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the funds' board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreements, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
- ------
48
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreements under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreements, the advisor is responsible for providing or arranging for all
services necessary for the operation of the funds. The board noted that under
the management agreements, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the funds' portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an
ongoing basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the funds in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
- ------
49
At each quarterly meeting the Directors review investment performance
information for the funds, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the
funds. The Directors also review detailed performance information during the
15(c) Process comparing the funds' performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. American Century-Mason Street Mid Cap Growth's performance fell
below the median for both the one- and three-year periods during part of the
past year. American Century-Mason Street Small Cap Growth's performance was
below the median of its peer group for the one-year period, and above the
median for the three-year period. The board discussed the funds' performance
with the advisor and was satisfied with the efforts being undertaken by the
advisor.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various
services to the funds, its profitability in managing the funds, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreements, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the funds specifically, the expenses incurred by the advisor
in providing various functions to the funds, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing
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50
economies of scale through its competitive fee structure, fee breakpoints as
the funds increase in size, and through reinvestment in its business to
provide shareholders additional content and services.
COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the funds, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
funds' independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the funds and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the funds' unified fee to the total
expense ratio of other funds in the funds' peer group. The unified fee charged
to shareholders of the funds was below the median of the total expense ratios
of their peer groups.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the funds. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the funds. The
Directors analyzed this information and concluded that the fees charged and
services provided to the funds were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the funds. They concluded that the advisor's primary
business is managing mutual funds and it generally does not use the fund or
shareholder information to generate profits in other lines of business, and
therefore does not derive any significant collateral benefits from them. The
Directors noted that the advisor receives proprietary research from
broker-dealers that execute fund portfolio transactions and concluded that
this research is likely to benefit fund shareholders. The Directors also
determined that the advisor is able to provide investment management services
to certain clients other than the funds, at least in part, due to its existing
infrastructure built to serve the fund complex. The Directors concluded,
however, that the assets of those other clients are not material to the
analysis and, in any event, are included with the assets of the funds to
determine breakpoints in the funds' fee schedule, provided they are managed
using the same investment team and strategy.
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51
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor concluded that the
investment management agreement between the fund and the advisor is fair and
reasonable in light of the services provided and should be renewed.
As a part of the 15(c) Process, the board of directors also unanimously
approved the renewal of the investment subadvisory agreement by which Mason
Street Advisors LLC (the "subadvisor") is engaged to manage the investments of
the funds. In approving the subadvisory agreement, the board considered all
material factors including the nature, extent, and quality of investment
management services provided by the subadvisor to the funds under the
agreement. As a part of this review the board evaluated the subadvisor's
investment performance and capabilities, as well as its compliance policies,
procedures, and regulatory experience. The Directors noted that the management
fees paid to the subadvisor under the subadvisory agreement were subject to
arm's length negotiation between the advisor and the subadvisor and are paid
by the advisor out of its unified fee.
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52
SHARE CLASS INFORMATION
Six classes of shares are authorized for sale by the funds: Investor Class,
Institutional Class, A Class, B Class, C Class and R Class. The total expense
ratio of Institutional Class shares is lower than that of Investor Class
shares. The total expense ratios of A Class, B Class, C Class 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; and/or 2) through
certain financial intermediaries (such as banks, broker-dealers, insurance
companies and investment advisors), which may require payment of a transaction
fee to the financial intermediary. The funds' prospectuses contain additional
information regarding eligibility for Investor Class shares.
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 unified
management fee of Institutional Class shares is 0.20% less than the unified
management fee of Investor Class shares.
A CLASS shares are sold primarily through employer-sponsored retirement plans
and 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. The unified management fee for A Class shares is
the same as for Investor Class shares. A Class shares also are subject to a
0.25% annual Rule 12b-1 distribution and service fee.
B CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as 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% after the sixth year. There is no CDSC on shares acquired
through reinvestment of dividends or capital gains. The unified management fee
for B Class shares is the same as for Investor Class shares. B Class shares
also are subject to a 1.00% annual Rule 12b-1 distribution and service 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
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 CDSC of 1.00%. There is no CDSC on shares acquired through
reinvestment of dividends or capital gains. The unified management fee for C
Class shares is the same as for Investor Class shares. C Class shares also are
subject to a Rule 12b-1 distribution and service fee of 1.00%.
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53
R CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as investment advisors, banks, broker-dealers,
and insurance companies. The unified management fee for R Class shares is the
same as for Investor Class shares. R Class shares are subject to a 0.50%
annual Rule 12b-1 distribution and service fee.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
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54
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 advisor,
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 advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-345-2021. It is also available
on American Century's website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The 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
website at sec.gov, and may be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330. The funds also make
their complete schedule of portfolio holdings for the most recent quarter of
their fiscal year available on their website at americancentury.com and, upon
request, by calling 1-800-345-2021.
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55
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® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
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 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 MIDCAP® VALUE 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 lower price-to-book
ratios and lower forecasted growth values.
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.
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56
The S&P MIDCAP 400 INDEX, a capitalization-weighted index consisting of 400
domestic stocks, measures the performance of the mid-size company segment of
the U.S. market.
The S&P SMALLCAP 600 INDEX, a capitalization-weighted index consisting of 600
domestic stocks, measures the small company segment of the U.S. market.
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57
NOTES
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58
NOTES
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59
NOTES
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60
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
1-800-345-2021 or 816-531-5575
INVESTORS USING ADVISORS:
1-800-378-9878
BUSINESS, NOT-FOR-PROFIT,
EMPLOYER-SPONSORED RETIREMENT PLANS:
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL PROFESSIONALS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0712
SH-ANN-57613N
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 12 (a)(1) to American Century Asset Allocation
Portfolios, Inc.'s Annual Certified Shareholder Report on Form N-CSR,
File No. 811-21591, on September 29, 2005, 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) Donald H. Pratt, Thomas A. Brown, Timothy S. Webster and Gale E.
Sayers 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 2006: $270,281
FY 2007: $315,101
(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 2006: $0
FY 2007: $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 2006: $0
FY 2007: $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 2006: $33,106
FY 2007: $ 4,491
These services included review of federal and state income tax forms
and federal excise tax forms during the fiscal year 2006. These
services included review of federal and state income tax forms during
the fiscal year 2007.
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 2006: $0
FY 2007: $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 2006: $0
FY 2007: $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 2006: $0
FY 2007: $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 2006: $207,647
FY 2007: $152,811
(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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the reporting period, there were no material changes to the procedures by
which shareholders may recommend nominees to the registrant's board.
ITEM 11. CONTROLS AND PROCEDURES.
(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 12. 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 12(a)(1) to American Century Asset Allocation
Portfolios, Inc.'s Certified Shareholder Report on Form N-CSR, File
No. 811-21591, on September 29, 2005.
(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/ Jonathan S. Thomas
------------------------------------
Name: Jonathan S. Thomas
Title: President
Date: December 26, 2007
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/ Jonathan S. Thomas
-------------------------------------
Name: Jonathan S. Thomas
Title: President
(principal executive officer)
Date: December 26, 2007
By: /s/ Robert J. Leach
-------------------------------------
Name: Robert J. Leach
Title: Vice President, Treasurer, and
Chief Financial Officer
(principal financial officer)
Date: December 26, 2007